Category Archives: Finding finance

How to write a business plan – the structure of the plan

Last week I looked at the preparation needed to write your business plan, now we are laying out the structure of the plan.

Not all of the following will be needed for every plan and you must decide what to include based on the use that the business plan will be put to. For instance Business Angels will want to see a section on the Management Team, however if the plan is only for you to run the company you could easily leave that section out.

Main sections of a Business Plan:

1. 0 Executive Summary

Normally 2 to 3 pages that clearly states what your business does and summarises the main elements of the plan. If you are looking for investment, the Executive Summary is the first information that Business Angels or banks will want to see. They need to quickly understand your business and its attractiveness before they will ask see the main plan.

Although it comes first in the structure, you will write it last. You can’t summarise what you haven’t yet written.

In the Executive Summary you should state what your companies Objectives or Goals are and even your business’s Mission. Mission Statements are not just the remit of large corporations; they also give direction to fast growing businesses.

Remember the above Exec Summary is done last. First you layout the main Business Plan sections as below.

2.0 Company Summary

Describe where your business is located, is it a start-up or how long it has existed, what services or products does it supply, and to what group of people.

Include in this section who owns the company and the history of the company.

3.0 Products / Services

This is the section most people find the easiest. Everyone enjoys talking about their own products. However apart from describing your products & services do include these essentials:

- What makes your offering different and more attractive than the competition

- Where do you source your raw materials, or service providers from

- How you distribute your product/service What about after sales support

- What about after sales support

4.0 Market Analysis Summary

You will already have some knowledge of your market, but now quantify it. Do some book/web research and get real numbers and statistics. Being able to refer back t0 the sources of your information is vital when talking to Investors, it gives credibility.

Even if not looking for investment, you must base your plan on actual information, not a personal/general impression that may in reality be far from accurate.

Do your own market research, ask people who you believe to be your target customers for information and if they would buy your product. Don’t just ask friends and family.

4.1 Market Segmentation

A key part of your marketing is to sub-divide your potential customers into groups that have some similarity. You haven’t got the resources or funds to market to everyone, so create target groups and you will then be able to decide how best to reach them.

4.2 Target Market Segment Strategy

Look at how understanding the different needs and attitudes of your target demographics may be translated into a strategy.

By having segmented your market, the messages that you give to each of these groups can be very different and delivered in a way that attracts that group of people.

You may also decide to make differing versions of your offering for different segments of your market.

4.3 Industry Analysis

Describe the industry in general and it’s size. Specifically talk about the competition in the industry and how you compare. Describe buying patterns; are sales seasonal for instance, do they depend on other factors, how long is the decision process to buy.

Is there price sensitivity, or is quality and service the most important?

5.0 Strategy and Implementation

5.1 SWOT Analysis

Strength – Weakness – Opportunities – Threats analysis. You may not want to actually include this here. It may be better in a appendix, or kept separate simply as part of the background to understanding your business.

5.2 Competitive Edge

These sections are about implementation, so think about how you will put in place strategies and activity to take advantage of the differences that your products/services have.

5.3 Marketing Strategy

Specify your strategy for reaching your target market and the main actions needed to carry out these strategies. You should include PR, Direct Marketing, advertising, sales calls, customer referrals, special deals/promotions, endorsements, partnerships, sponsorships etc.

Think about your resources, can you afford to advertise a bit, do you have someone who could make sales calls, try getting free PR if possible

You have a great product/service, but no one will buy it unless they know about it. See our resource on making a Marketing Plan and then include the main elements in this business plan.

5.4 Sales Strategy

Will you sell on-line, have your own sales force, franchise or not, will you have distributors, a store, a warehouse? A restaurant, bar or cafe needs premises to sell from. Where and what location, how about “foot-fall” for high street premises.

Will you sell in bulk, or minimum orders, discounts, pricing and loss-leaders, all the nitty-gritty of how sales will be made has to be thought out.

5.4.1 Sales Forecast

The finance section of most business plans includes 3 years of forecast. The first year by month and the next 2 years as separate yearly totals. Some industries may have longer forecast needs, but not normally.

People find this section hard to do, but you have to give it your best estimate. Note down the assumptions that you made in coming to that estimate, so you can justify it. When operating you can compare actuals to forecast and look back and see if any assumptions needs changing.

Sometimes you can get an idea of your likely sales by looking at your competitors, or competing products & services.

6.0 Management Summary

If the plan is only for internal use, you will not need a full biography of the management team of the business, which you will certainly need for Investment purposes. Even if it is a one person start-up, you will need to say something about your background that makes Investors believe that you are capable of being successful with their funds.

There’s no need for a full CV in this section, just a summary, picking out relevant details.

In this section also you can say how the personnel levels will grow over time and what skills or positions will be expanded.

7.0 Financial Plan

As mentioned with the sales forecast, the financials are normally the first year by month and then the next 2 years as a yearly total.

If you have the sales forecast ready, all you need then as preparation are the costs of the business. Typically these are split between fixed costs and variable costs. The putting together of the financial side of the business can be done on a spreadsheet for small businesses but larger concerns will need to use an accountant to translate the forecast and costs into full financials that include a balance sheet, cash flow and Profit & Loss accounts.

Alternatively, there is software around that will guide you through putting all the sections of a plan together and also produce the full financial section. Try this business plan software, we’ve looked at many and this turned out best in our review.

Finance sections to include:

- Important Assumptions

- Break-even Analysis

- Projected Cash Flow

- Sales Forecast

- Projected Profit and Loss

- Projected Balance Sheet

It’s important not to get stuck in any one section of the plan. Do your best and move on, keep momentum going. If possible bounce ideas around with your team, a business partner, or a friend. If you need a Business Partner, Mentor or Investment don’t forget to join Company Partners.

How to write a business plan – getting started

Firstly do you need a business plan? Many small businesses have never had a formal business plan.

Think of your corner store, or the self-employed tradesman that came to fix your heating, they almost certainly don’t have a written business plan. But then again they probably aren’t thinking of growing very much either.

If you do want to ensure that your business will thrive, or you want a bank loan, or investment, then you’ve got to get a business plan written out.

Why? Well it’s not until you have to think clearly enough about your business that you can succinctly write down its aims and how you are going to achieve them that you can put the actions in place to ensure it will be a success.

Usually there are two basic reasons for writing a plan; you want a plan to enable you to run your business, or to show a source of funding the information about your business that they will insist upon before putting any money into the company.

The look of the plan and what is included in it will vary on the use that you put it to. If it is mainly just for you and your staff to run the business, you’ll not need all the background and management bios that you’ll need for an Investor.

How long will it take to write a business plan? That depends on whether you have all the information to hand and how diligent you are at working on it. We’re not all gifted writers, but it doesn’t have to be a work of art, it’s more important that it covers the essentials, has a good flow and if looking for funds, NO typos. If spelling isn’t your thing, get it checked. There’s nothing more off-putting to a potential Investor than a sloppy document. Generally writing a plan can take from a few weeks to a few months.

There’s a logical process to writing a plan but when working through it if you get stuck at one point, do your best and move on. You can always come back to it later and it’s more important to keep enthusiasm and momentum going.

So now looking at the first steps. There is a bit of pre-writing planning and thinking to be done. Sit back from what you are doing and think what your personal goals are. Do you want to create a business that will provide you with a steady income, or are you pushing to become a multinational corporation? Are you readying your business for being sold, or have an invention that you want to be successful?

Then decide the businesses goals that will support you accomplishing your personal objectives. You can start to think about what your businesses aims and ambitions are – often called “The Mission Statement”.

Considering your businesses goals, what strategies can you think of that will help you to achieve them. For instance if one of your goals is to start-up a new business that will rapidly grow to be country wide, you’ll need strategies around product or service development, marketing and publicity and how you will price and differentiate yourself compared to competitors.

Jot all of these thoughts down in a simple bullet point or note form, for reference later when you come to actually write the business plan. It sounds obvious, but keep them organised under your own headings so you can easily find these moments of inspiration again.

You have roughly laid out your goals and strategies, that’s good, now what specifically will you need to do to make these strategies work? You don’t at this stage need a comprehensive list of actions and so you shouldn’t feel daunted by the effort of having to decide everything now.

But start noting down the things you’ll need to do to make each of your strategies work. Think also what resources you’ll need to make these work, for example; staff, funds or special expertise?

The final part of this pre-plan stage is to begin to get a feel for what other information you are likely to need to hand when writing the plan. If the business plan is for investment purposes you’ll need the history of the company, or for a start-up the background to why it is being started. Get staff or management bios ready if appropriate.

Gather your facts about the market and your competition. Make a note of where you get any market facts so that you can reference this in the plan. Think through carefully who your target market is, you will want to include a section on how you split up your market into sub-sections (called market segmentation).

Now with most of your goals, strategies and facts to hand you are ready to begin work on writing your business plan.

Next week… The business plan structure

Start or grow your business now – what’s holding you back?

Start and grow your business in 2013

It’s a New Year and the entrepreneurial juices are flowing. It’s time to start the business that you’ve been talking about for years. What’s stopping you?

Or maybe you’ve already got a business but it’s not growing as fast as you had thought, what has to happen to make this year the year it doubles its revenue?

I’ve talked to thousands of prospective entrepreneurs and small businesses over the years and surprisingly it’s not always lack of funding that is the biggest hurdle. It’s fear of the unknown.

Whether you are dreaming of starting a business or hoping that this year your business is going to somehow take off, it is much more comfortable to continue dreaming than to do something about it. The dream is warm and cosy; we can lie in bed and feel comforted that our lives can change for the better at any time. But if we take action, what if it doesn’t work out? There’s no longer a dream just trouble.

When I started Company Partners, one of the key drivers was to allow people to find a business partner with complementary skills and a like-mind. Having a partner will motivate and encourage anyone starting a new business. It’s quite daunting by yourself.

For existing businesses, sometimes it’s not a new (expensive) employee that you need but someone else with ideas and energy that could join as a risk (and reward) taking partner to grow the business.

Yes having the funds to start or grow a business is also important and that’s why we have such a strong Investor community on Company Partners, but the first thing is to stop dreaming and do it.

There are things you can do to get the ball rolling. Write down your ideas for a business, or the way that you would like to grow, think what you need to do in order to make this happen. Dare I say, join Company Partners and search for a business partner, or Investor.

The key is to get started. Don’t wait, have drive, energy builds on energy.

Business Angel or Venture Capital – which to use

Just back from giving a business plan workshop to a group of MBA students, many of whom were keen to start their own business. So naturally the subject of how to fund a business came up.

One of the areas that regularly seems to cause confusion with the students is the difference between Private Equity, Business Angels and Venture Capital.

At first glance they may all look the same. But there are differences and which you use varies with situation.

Firstly let’s clear up the term Private Equity. Although it’s a generic name for having a company owned by a person or group of people where the shares are not in the public domain (ie not on the stock market). Private Equity in investment terms tends to mean those large investment companies that buy up the majority of shares in a significant sized established business.

Most entrepreneurs will be more interested in Business Angels and Venture Capital companies where they both invest in younger businesses and don’t generally take the majority of shares.

The main difference between these is that Venture Capital firms are investing money gathered from other people who have bought into a Venture Capital fund. Whereas Business Angels are investing their own money.

This is an important difference because it means that Venture Capital firms have to invest in less risky opportunities. Hardly ever do they invest in start-ups, preferring to be involved after the business has proved itself and is ready for high growth. To cover their overheads these also tend to be larger opportunities.

Since Business Angel investors are using their own money, they will be prepared to take slightly more risk, start-ups and early stage companies are more suited to these individual investors. Occasionally in order to share risk or to be involved in larger deals Business Angels will form a consortium, generally headed by a lead investor.

Business Angel Investor’s names and contacts are not in a “yellow pages” of investors, otherwise they would have people camping on their doorsteps, never mind the security issues, they tend to use intermediaries to act as gatekeepers and screens.

Some of these intermediaries are expensive to use, which is why Company Partners set itself up as a “members site”. For a small monthly membership you have access to a full database of Business Angels.

SEIS Seed Enterprise Investment Scheme

As promised the chancellor has confirmed in his March budget documents that there will be a Seed Enterprise Investment Scheme (SEIS) starting from 6th April 2012, although it didn’t get a mention in his actual speech.

Just to clarify for anyone confused by the similarity of SEIS with an existing scheme, there is already an Enterprise Investment Scheme (EIS) which targets larger businesses rather than start-ups.

This big brother to the SEIS also received good news in the budget, with the qualifying size of a company moving from a maximum gross asset size of £7 million with 50 employees, to £15 million with 250 employees. This means later stage investment prospects will now qualify for EIS (see EIS for more information).

The basic information that I covered on my last blog on the SEIS remains unchanged, so I won’t go over that again. Suffice to say it is worth ensuring that your new business qualifies (not all industries do – eg. Property development and financial services) and publicise to potential Investors that they can get tax relief by investing in your business.

Clearly for Investors it’s a no-brainer that you should utilise this new scheme for your investments.

So how do you make use of it?

Luckily those nice people at HMRC have put together a fairly comprehensive web-page that explains the SEIS and how to apply for it. See http://www.hmrc.gov.uk/seedeis/index.htm

They are careful to say that although the scheme starts on the 6th April, until the budget gets Royal Assent (around July) it isn’t set in stone, but it’s unlikely to alter in my view.

The HMRC web-pages have a section on how to get advance assurance that your business and the shares that you are going to issue to an Investor will qualify. It can be useful to do this in making your opportunity attractive.

SEIS Start-up Investment

Business Investment SEIS (Seed Enterprise Investment Scheme) is a new government incentive to help UK start-ups and young companies.

It starts in just a few weeks on April 6th, so now is a good time to start building this into your funding plan for your start-up. Or if you are an Investor, have a look to see if this will be applicable to the businesses into which you are investing.

There has been a similar incentive around for some time now (see EIS) but the SEIS is specifically targeting new companies.

The details will come out in the Chancellors budget speech next week (21st March), but these are the basic points:

The business must be new, or 2 years old or less, with fewer than 25 employees. It must have less than £200,000 of gross assets and not quoted on a stock market.
Directors or executives cannot use the scheme to invest in their own companies.
You can raise up to £150,000 of funding through the SEIS, but mustn’t have already raised any money under EIS or venture capital trust (VCT) schemes. This is in total not per year.

An Investor can have up to 30% of a share in the business under this scheme. The SEIS makes it attractive for an Investor to fund a start-up because of the number of tax reliefs that they would receive:

Investors can claim back income-tax of 50% of the amount invested.
An Investor can have a ‘capital gains tax holiday’. Capital gains tax (CGT) can be avoided on any asset sold during the financial year 2012-2013 as long as they reinvest the proceeds in a SEIS eligible start-up in the same year.
The combined effect of the CGT holiday and the income tax break gives relief of up to 78% in the first year.

There is as you can imagine, a number of detail points that would need to be investigated but this should whet your appetite. It’s well worth while finding out more about the scheme either to make your new business attractive, or to maximise your investment returns.

After the chancellor has given final details next week, I’ll do a summary here and point you towards the required forms that the revenue will need to be completed.

Government Support for Small Business

Small Business support Am I the only one that is getting confused by the increasing number of initiatives that the government is rolling out to encourage entrepreneurship? Or frustrated because they don’t actually seem to make a difference?

We had Business Link, then we didn’t, except it still exists as a “business advice and guidance service portal”.

The Small Firms Loan Guarantee scheme (SFLG) has been around for decades and continues to help companies that need a bank loan. Or it would if the banks fulfilled their part of the deal by releasing the funds.

To encourage them to do so the government set up Project Merlin last year whereby the banks agreed to lend £76B specifically to small firms. However it has been a failure and banks are still holding on to their money. Now Merlin looks like being dumped along with any credibility that the banks could have gained by making good on their promises.

For some time now we’ve had the Enterprise Investment Scheme (EIS) to encourage Investors, by giving them various tax breaks if they help to fund growing businesses.

In addition last year the Chancellor announced the Seed Enterprise Investment Scheme (SEIS) due to come into effect on the 6^th April 2012. This is aimed at small start-ups and gives a 50% tax relief to Investors. I’ll do a write up of that shortly, but it looks promising in motivating Investors.

Enterprise Zones were introduced to mixed response and the jury is out on their long-term effectiveness.

The Government has pushed StartupBritain which they call “a national campaign by entrepreneurs for entrepreneurs, harnessing the expertise and passion of Britain’s leading businesspeople to celebrate, inspire and accelerate enterprise in the UK”. Fine words – but never-the-less just words.

Talking about fine words, recently the latest campaign is “There’s a business in you”, which provides inspiring stories and highlights support available. However most of the highlighted support simply takes you to the Business Link website.

Then there’s talk about cutting Red Tape. There is a “Red Tape Challenge”, where members of the public can suggest red tape to be cut and a “1 in, 1 out” idea that says if a department wants to bring in a piece of legislation, they must first remove one. Latest government news is that there have been 19 in and 33 out, saving small businesses £3.2 B a year. What shall we spend it on?

How about making tax simpler and easier to understand I hear you say. Well there’s a government office called “The office for Tax Simplification”. Yes there really is, let’s hope they are successful.

So is it all spin and gimmicks as some business experts have commented, or a well co-ordinated and ambitious campaign to release the entrepreneurial spirit in us all and make Britain great again?

How to get Investors

Business Angel and Investors “How do I get an Investor?” is the question I most get asked by entrepreneurs. Finding an Investor is often a hard and very time-consuming part of growing a business, but thousands of companies manage to do it every year.

Here are my top tips:

Make sure you really need an Investor. On the plus side they will bring contacts, experience and funding that can help your business grow larger, quicker. It may even be the only way in which you can start, or grow your company. However you will have to relinquish some control, give a share of the business in exchange for the finance and have the Investors watching how you spend their money. You must be willing to do that in exchange for the resources.
Prepare your business case. You have to show what your business is about and why the investor should give you their money and time. The business case for investment comes from your plans for the business. Hence business plans are a key part of being prepared. People tend to associate such with lengthy, formal documents. It needn’t be so. It can be quite succinct and practical.

I’ve written a more detailed description on how to write business plans for Business Angels that you may want to look at.

I often get entrepreneurs ring me and say they simply need to be given the chance to talk to an Investor and they will convince him. They don’t feel a business plan does them justice and they haven’t got time to write one anyway. That may be, but an Investor can’t talk to everyone and they have to filter who they do talk to based on some information – that’s why you must have written data to first show them, normally an executive summary of a business plan.
Find investors to approach. There are several ways to do this and you should try all that you can afford and have the time to do. You have to do everything you can and leave no stone unturned.

a. Friends & family. Start-ups often begin by getting help this way and it can be the quickest, but you have to feel comfortable that you are risking their money. The amount is normally fairly small, so usually only suitable for getting a business going.

b. Existing contacts. Beyond immediate friends & family there will perhaps be people you can approach with a business proposal. Your old boss, ex-colleagues who have made good and contacts who may know of potential investors. Spread your net wide.

c. Business Angels. Not to be confused with Venture Capital (see below), these are individuals who are investing their own money in promising opportunities. They generally will only invest in areas that they know about, so as to be able to judge risk and add value.

You may know one, or have a contact who knows one. However, since there isn’t a yellow pages of business angels (they would be constantly pestered, never-mind security), the best place to find them is through a Business Angel Network.

d. Business Angel Networks. You can find many on-line, simply search for “find a business angel” on Google. Be aware that all will charge a fee upfront, with no guarantee of success. You may not like paying upfront and rather only pay if they find an investor, but that is how all the industry works.

To a certain extent it is fair enough, since they have no control on how good you or your opportunity may be, all they can do is make introductions. Nevertheless, some do charge large amounts, from several hundred to several thousands.

The difference being that those that are charging a few hundred use an on-line data base where you enter your proposal and those charging thousands will instead take your proposal and ring round their investors to see if anyone is interested, you pay for it being more hands-on.

If that wasn’t enough, most also charge a “success” fee of 4% to 5 % and some even like to negotiate a small percentage of the final company for themselves as well.

A bit of a plug here for Company Partners – we operate as a member’s site, a bit like a normal “dating site” for entrepreneurs and Investors. We’re certainly the most cost effective and only charge a monthly membership starting at £29.95, with no other fees. See how Company Partners works.

e. Venture Capital. This is provided by a venture capital company who is investing other people’s money. They therefore have to be more careful and are more risk adverse. Seldom investing less than £1m, in established or proven businesses. Management buy-outs, buy-ins and fast growing companies already returning a profit are suitable.

Occasionally, high-tech and bio-tech start-up businesses with exceptional potential, that have IP and already gained traction may get funding.
Approaching Investors. First find out all you can about them, what businesses they have invested in before and the industry sectors they are interested in. In Company Partners for instance the Investors will have indicated the sectors that they want to invest in. Approaching investors with a proposal for a market sector that is not of interest will waste everyone’s time.
First contact with the Investor. At the initial stage you are just trying to gain attention and qualifying that the potential investor and your opportunity are well matched. The information you send can be as simple as a brief statement of the market area, general background and some numbers. Ask if you can send an Exec Summary, or business plan with more detail.
If interest is shown, provide the Exec Summary or plan, ensuring that it is written well and looks professional. Do not at any stage over-hype – it turns investors off. If they like what they see, you will be invited to a meeting. It may be informal one-on-one, or a more structured presentation. Some good deals have been done without a stand-up presentation, just by sitting round a table and explaining the plan.
How to present to Investors. If you are asked to do a presentation find out as much as possible about your audience. Who will be there, their backgrounds, how long have you got, what they are expecting to see.
See how to present to Investors.
The deal. There is no simple formula since every situation and business is different. However it generally starts with the valuation of the business. We’ve all seen Dragon’s Den where the presenter is asking for £100k for 10% of a start-up business. This values it at £1m and the company hasn’t started trading yet. Be realistic and if possible show that you have already achieved some sales. It reduces the risk for the investor and justifies a better price. This paper does show some ways to value your business.
The contract. Get this drawn up by a solicitor used to dealing with business angels, ask me if not sure, I know a few. It will need to include the types of shares that you and your investors own, what happens to them if further investment is made (called dilution), what happens if you or the investor wants out and much more.
Persistence. When Innocent drinks were looking for an investor for their fledgling smoothie business they had approached dozens of business angels, with a very well constructed business plan to no avail. They’d contacted everyone they could think of and got nowhere. But they persevered and finally found that one person who liked what they were saying and committed to back them. Try everything – be persistent.

To grow a business employ a “great one”.

Whenever I hear advice from successful entrepreneurs the most consistent mantra is “always hire the best people you can afford”.

But how good is “the best”, how do you measure that? Also, if you are in a young company, with very limited resources, how much can you really afford?

Let’s step back for a moment though and examine that advice. Is it really the most important thing that a growing business should do? What about offices, buying equipment and developing the product or service, then there’s marketing, the best product is going nowhere unless people know that it exists.

The answer may be that if you have good people aboard, they will help you get the operating essentials cheaper, faster, and of better quality. When you look at product design the difference between good and average has even more staggering claims.

Mark Zuckerberg, of Facebook, suggests that some programmers and programming teams are 100 times more productive than their more typically talented peers.

This isn’t because they can programme 100 times the number of lines of code, but because they write smarter code. These truly great programmers grasp what is needed quickly and transform that into efficient, supportable, clever instructions that enhance the original concept.

What does this mean for the non IT side of businesses? Well the theory is still valid, if the multiplication factor may be less. Consider the likely results of an inspirational, highly respected and well networked senior figure in any sector of business, such as marketing, PR, raising finance, compared to an industrious but junior practitioner.

Can you measure the impact of the great person against the average worker? The difference may be that you get funding, or not. That you become well known, or not. What is the measure and worth of these?

I think we can all accept that the great person is going to do more for your company than an average worker, the question is what do you give up to be able to afford them?

Do you take out loans, sell your house or divert funds from infrastructure to hire a great employee?

It’s a balancing act, between all the calls upon your limited cash. The advice that successful entrepreneurs have given implies that you do all you can to get these few great people.

If the immensely talented ones can ramp up your business fast, then you can start to readjust the balance so that other areas have cash made available.

It is natural though to hope that even by using a less expensive resource you will still manage to make the break through. The lessons from very successful businesses however seem to speak against that.

Insights to the Angel Investor world

London-funding-conference I went along to The London Funding Conference at the British Library last night and was again impressed by the Library’s ability to host these events.

In football terms the conference had scored a couple own goals, with over-long sponsor’s talks during the first half, but came storming back to win with truly excellent insights into the minds of Investors during the second half.

Michael Blakey (Angel Investor with Avonmore Developments) and Luke Johnson (Chairman of Risk Capital Partners plus much more) gave very open accounts of the state of the investment market and the key tick boxes for an entrepreneur to gain funding.

Let me give you a flavour of the main points that were covered. I’ve noted them in bullet form so as to get as much information down as possible, I’m sure you’ll forgive my poor prose on this occasion.

Michael Blakey:

Sees 1000 plans a year and 100 go straight into the bin because the sender has not checked his investment criteria (size of deal and preferred stage/industry).
Because VCs are investing other people’s money they have a rigid procedure, Angel Investors are more flexible. Not interested in just “ideas” need to show some revenue.
Sees 350 presentations a year and 50% of them don’t explain what the problem is that they are solving and how they will do in the first 10 minutes. Do so immediately you start.
Lead investors are important. Find one first, they can help you find others. The lead investor can act as a conduit to the others, so not all your time is taken up communicating.
Valuation is the deal breaker 75% of the time. Investors never believe the sales forecasts, cash-flow forecasts are more believable and more controllable. If the valuation is not what you want, work out what would increase it, ie. a CEO joining with an established reputation, or more revenue coming in.
Have a due-diligence pack (IP/Business Plan/Accounts/Professional Contacts/Team CVs etc) ready, it impresses investors.
No surprises. Reveal all issues upfront, it won’t put investors off as much as you think, they’ve seen these before, but if you don’t and they find out it will break the trust and the deal.
Work out what your funding model is likely to be. How much you need now and how much in perhaps 18 months. Not less than 18 months or all your time is spent fund raising and not running the business.
No life-style businesses, no high salaries.
Get your exit strategy. It can drive decisions. As an Investor he wants to know you have thought it through, not just the cliché of an IPO or trade sale.
Michael will not invest if more than 10% goes out in fees. In particular legal fees don’t need to be so high, there are standard documents, the lead Investor can normally help because they’ve done it all before.
Pet hate: don’t use the word “conservative”. Investors don’t believe your sales figures anyway, but do want to see you talking as though you have ambition.

Luke Johnson:

Angel Investors will expect to see subsequent rounds. Plan for them.
Investors back teams. Prefer duos or triumvirates. (btw that’s why we started Company Partners, in order to bring partners together to form a business team).
They look for high margins, in the business.
IP (Intellectual Property) is key. You must preferably own your own IP, not using someone else’s.
Understand your market thoroughly (Michael also said this). Be a market expert when presenting to investors, don’t be caught out.
Don’t get worried about valuation. The down side is only that you may give more equity away than you might, if it goes wrong you have actually lost nothing (the investor has lost his money), but if it goes well you have made a lot.

Luke had some tips for Investors also.

Only invest in what you understand.
Focus on the team and the competition.
Add value.
Expect to get references; don’t accept what is said at face value.
Expect failures. 40% may fail completely, 40% may tick along and 10% do very well.
Look for obsessives.
Form a partnership, not “them and us”.
Have patience, poor businesses fail quicker than successful ones become a success (up to 10 years).
Enjoy. You are investing not just for the money, enjoy the business.

The Investment Market

The debt to equity proportions in funding a business have changed. Previously it might have been 25% equity, the rest debt. Now despite what banks are saying, there is less debt available. The proportion of equity is more like 50% to 100% now in many cases.
Floatation is difficult so private equity is increasingly used.
Do all you can to get longer terms from suppliers and quicker cash from customers to make up for less debt available to fund working capital.

Luke revealed some truths about Private Equity.

Private Equity and Venture Capital are not the same. The Private Equity industry is 50 times the size of VC and covers a broader spectrum of industries, VC tends to concentrate on high-tech or bio.
The BVCA (British Venture Capital Assoc) is more Private Equity than VC, but calls itself VC for perception benefits.
Private Equity firms don’t take over operating control of a company, although they do have people on the board.
Private Equity firms sometimes get more from their fees than from the increase in capital valuation of a business.
In 2005 – 2008 half of all Private Equity ever invested was invested then, when money was over abundant and some poor investments may have been made. There is a time-bomb of failures waiting.
Private Equity investment is not easy; it’s hard to find good opportunities.

Why now is a great time to start a business

There is much gloom, but technology is making it easier than ever to start a business. With the Internet you can experiment, try a business on-line and if it doesn’t work, learn from it and try another.
Corporate life is increasingly unappealing. There is no longer any job security and if you are taking a risk of being employed you might as well do that for yourself and start your own business. The personal control and enjoyment is much better.
The world needs entrepreneurs and governments are encouraging people to take this up.
Virtual companies are more common and nearly everything can be outsourced.

Finally

Need to move out of your comfort zone sometimes, remember the worst that you can lose is your equity, but the best is unlimited. Never however give “personal guarantees”, keep the risk to the company.

There we have it, these senior Angel Investors don’t have to come and give advice to groups such as they did last night, but do so out of a real passion for creating businesses. We need more successful entrepreneurs to do so as we continue to develop an entrepreneurial culture.

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