Making Your Own Luck

Gary Player once remarked "It's funny, the more I practise, the luckier I get". So should a failed entrepreneur be given a second chance? The argument goes that you learn valuable learn valuable lessons from failure, so you should be more likely to succeed second time around. But others argue that experience gained from one failed business is unlikely to apply to a second, due to the unpredictability of chance. "You can't learn to win the lottery" No, but if you are lucky you can influence the amount you win (my tip, don't select the numbers 1,2,3,4,5,6 as 10,000 others have then!).

Getting into a position to profit from being a little bit lucky is probably was differentiates successful entrepreneurs, but no one is lucky all of the time. So whether you eventually profit from a bit of good business fortune is very much down to the experience of the management team. All you can do is deal yourself a good hand, but whether you win a particular pot or hole a specific putt is partially down to fate. Embracing this risk is what equity investing is all about. So if anyone says they have only been associated with success they have either are a one-trick pony or very, very lucky! In business, lessons are best learned from those who have been mainly successful...

Nothing Ventured...

Deirdre Bounds gave a passionate talk at the Venturefest Yorkshire 2008 dinner. As a former stand up comic I expected a few more laughs, but she mainly focused on her journey from 'bedsit to boardroom'.

What was her take home message? Well mainly that if you have got an idea just do it, even if no one around you gets it: if you believe in yourself you can succeed in realising your vision. This was rather at odds with Ajaz Ahmed's talk earlier in the day where he was lamblasting government support agencies for backing 'lame duck' ideas that were destined to fail and that people shouldn't be given 'false hope' that they can become 'supermodels'

I must admit to being more with Deirdre on this one. Sure, we need to screen out the ideas and people that are just plain daft and applaud the ones that are sure fire winners (because they, like Deirdre, will fly without any outside help or an outside investor getting a slice of the action). But in the beauty contest that is innovation and enterprise, the winners and losers will sort themselves out in the marketplace (think dancefloor, not stage). Out there it's execution and the audience vote that counts: the wisdom of crowds, not the opinion of experts. In my experience, most good ideas start off looking pretty ugly or just plain daft to conventional eyes. As Deirdre says 'We need to encourage weird'.

Something for Nothing...

Surely the best deal is the one that generates the greatest return on investment. But those apparently in the know keep telling me Proof-of-Concept funds can't make money. But aren't business angels tying to make money and they are managing their own mini -POC fund. If you can make money on a small scale why, I ask, doesn't this scale up?

If you watch Dragon's Den they are always looking for the largest percentage of equity they can get. But 100% of nothing is still nothing, so you could say that it doesn’t matter whether you get 20% or 40% (this has been the argument of a few VCs who seem to cut much more generous offers than the dragons do) given most will fail.

Surely the point is that for the 1 in 10 early stage deals that really do fly, what percentage you have of that one is very much the differentiator when you come to analysing the overall portfolio returns. Is the problem then that larger funds just aren't prepared to get down and dirty with regards to valuations whereas individual business angels are very much focused on getting more for less? The fact that an early stage business will often get the cheapest money it's going to get i.e. grant funding followed immediately by the most expensive in terms of equity investment does little to help the situation!

Web 2.0 Startup - Plain Sailing

I attended the North West Startups event organised by Manoj Ranaweera in sunny Manchester - OK it was raining. Four interesting speakers. Stuart Scott-Goldstone talked about the legal aspects of a venture capital investment - necessary detail. Doug Stellmann of YFM Group gave some candid thoughts on investment from a VC perspective emphasising the importance of a stong management team that can react to change, admiting that very few investments follow closely to their business plan however perfectly crafted. The ability to sail through the trials and tribulations of a startup differentiates the winers from the losers. Paul Barraclough of Tecmentor talk on a subject close to my heart - crossing the chasm from early adopters to the mainstream and that very few companies find this plain sailing which reemphasised the need for agile management. Finally, Pam Holland ex-TeleCity reflected on her experience of staffing up a fast growth technology business - nice problem to have, but they didn't seem to have cracked the basic challenge of how to make more money the more you do. Spending money is a lot easier than making it!

On the Web 2.0 front (which was the main interest of entrepreneurs there) the prevailing view from the VCs was any application that you can code up in 3 months could be easily replicated in Bangalore or China, so from a professional investor perspective they would be unlikely to back it given so little barrier to entry. So think about creating something with a little more substance or have paying users before approaching a VC!

Selling Equity: The First Resort

Selling equity in your business is hard, expensive and like oil, it's not a renewable resource. If you have any other easier or cheap alternative source of financing your business you should take it, but equally if you don't, do you really want to miss out on realising your dreams by preciously holding on to it - which is what far too many people do.

In business, a smaller slice of a bigger pie is invariably bigger than 100% of nothing. But therein lies the rub: An equity investor is looking to invest in a business that is scalable i.e. it can grow beyond being a 'lifestyle' business. So if you are serious about changing the world, gaining an equity investment should be your first and highest priority, as this is your only realistic means taking your business to the next level.

Our experience is that you can't be too prepared and our investment readiness process is invaluable in putting the foundations in place on which you can confidently pitch for the investment you need. How much is usually the next question. The reality is you need to find a balance between seeking too little and too much. This is where a business plan with realistic cash flow projections comes in. You need to have enough equity funding to meet you maximum cash requirement to get your product or service to market. Once you start selling something and you (just) need working capital, your funding options are cheaper & more varied: Factoring, overdraft, loans, etc.

New Year Predictions

OK here goes:

Connect Yorkshire helps even more companies get investment ready and pitch for investment through its flagship investment forums, investment challenges and business plan competitions.

The rest of the Northern Way embrace the Connect model and it is rolled out in the North East and North West.

An online community of best practise, participation and support develops that brings together entrepreneurs with the resources to they need to help them succeed that extends beyond our traditional geographic boundary and the Web 2.0 community.

Yorkshire Forward announces a region-wide investment fund as a follow on for Partnership Investment Finance and the South Yorkshire Investment Fund that incorporates a much needed seedcorn element.

Component-based, service-oriented applications finally take centre stage with Web Mashups and loosely-coupled applications 'Web 2.0' increasingly replacing the monoliths of the past.

Connect launches its 'Springboard' initiative to help early stage propositions get their business plans into shape.

I finally access and use a Web site in a meaningful way through my mobile phone.

One can but dream...Happy New Year!