Category Archives: Finding finance

Conference for businesses looking for investment

Mark Prisk There seems to be no end of potential experts telling entrepreneurs the best way of getting their business funded and I guess it’s difficult at times to judge just what the optimum route for investment may be.

That’s why I was pleased to see a funding conference where there is a solid grouping of expert speakers and even a closing speech by the minister for Business and Enterprise, Mark Prisk (yes that’s Mark on the left).

It’s on at my favourite place, the British Library Conference Centre next Wednesday (9th March).

I’m hoping to go along, so will report back on how it turned out next week.

How much does it cost to find an Investor?

Cost of finding investment The first question is should it cost anything? After all it is the Investors who have money, so why should they charge in order to pitch to them?

Well, actually almost all Investors don’t charge a penny for entrepreneurs to present an investment case to them.

Investors are not looking to make money from people presenting their opportunities; they want to make money from partaking in the business itself.

You may well ask in that case, where do the costs come in?

In theory, if you could identify and contact yourself prospective Investors, there would be no costs (other than legal or due-diligence fees by your own solicitor/accountant).

But not everyone knows such a person, so what if you don’t have access to an Investor? Whilst venture capital companies and funds can easily be found, they generally don’t invest in smaller businesses, or normal start-ups (exceptionally high-tech or bio-tech businesses occasionally get funded that way).

The normal young business has to rely on private individuals – Business Angels, for investment and these people do not want to appear in a public directory or people would be camping on their doorstep to talk to them, never mind the security issues.

They tend to work through intermediaries, who will protect their privacy and supply them with interesting potential investments. This is where the costs come in. The intermediaries will charge for the work of connecting people with opportunities to people who want to make an investment.

Who pays these charges? Surely the best placed person to pay them is the investor, not the entrepreneur. Whilst there are some Investors who are willing to pay for opportunities to be presented to them, most are not. They after all have the pick of plenty of investments, they don’t need to pay. Whereas the entrepreneur is competing against all the other places that an investor could place his funds, it comes back to supply and demand.

Right, so the person looking for the funds pays for an intermediary to help him find an Investor, how does that payment work?

There are 3 ways in which such intermediaries, sometimes called business angel networks, get paid. Firstly there is almost always an upfront fee, with no guarantee that you will definitely get an investment. This initial fee helps to pay for the preliminary work done and gives an indication that the person looking for funding has thought it out and is serious in what they are doing.

Why no guarantee? Just think of the range of proposals that will be coming through, some will be very good, but others will not be so good. Also, it depends on investors liking the business’s management and many other factors not controllable by the intermediary – it is not possible to guarantee that every proposal will get funded.

The amount of this upfront fee will vary a great deal. Some will charge many thousands; one of the most well known ones has an average upfront fee of around £5k. For that they will ring round their list of Investors and see if anyone is interested.

Where the interaction is by allowing entrepreneurs to come along to a “speed pitching” event the upfront fee is £800 (plus another £400 for every additional pitching event).

Depending on the company, you may get additional help in refining your proposal or pitch included in that fee.

So not cheap so far – but there’s more…

The second way they charge is to levy a “success fee” on top of the initial payment. This is around 4 – 5 % of any money raised. Many entrepreneurs might say they don’t mind paying a success fee, but don’t like the idea of an upfront fee, but generally that’s not going to happen, partly for the reasons mentioned above and partly because everyone would try for funding if it cost nothing initially. There would be a lot of low quality proposals and the intermediaries wouldn’t be able to handle the quantity for the price.

If that wasn’t enough, the third hit comes when some intermediaries also want 1 – 2% of the final company in shares. You can see that it can all add up to a daunting amount.

That is why when I set up Company Partners I looked for a more efficient (hence lower cost) way to connect those with opportunities and those looking for interesting investments.

After trying different models we arrived at the concept of a member’s site where a small monthly membership fee of about £30 was used and the site’s database was programmed to do most of the work, making it very efficient. I also did away with every other charge.

Now that’s good news not just for the entrepreneur, but also for the Investor, because when a young business pays thousands to be connected to that Investor, it doesn’t just come from the personal account of the person running the young company. It comes right out of the business that the Investor is putting his money into. In fact most of the intermediaries tell the fund seekers to add on top of the funds required, the fee that they will charge.

Learning from great Entrepreneurs

Questions for Business Angels

Last night I attended the keynote event of Global Entrepreneurship Week (GEW), yes it’s this week, how could you miss it? Sitting in a packed conference centre of the British Library, I looked around at the alert eager faces of budding Entrepreneurs and thought this has to be the future for Britain.

Tom Bewick, the CEO of Enterprise UK, who have organised GEW put the feeling into words “Make a job, don’t take a job”. This also fits nicely with the Government’s need to increase private sector employment to compensate for the coming job losses in the public sector.

Called “Question time for Entrepreneurs”, it followed the traditional format of a panel of eminent and famous figures asked questions by an audience hanging on their words of wisdom.

On the panel was Deborah Meaden, (Dragon’s Den), Cath Kidston (Cath Kidston Ltd), Brent Hoberman (Last Minute.com & Mydeco), Tom Bewick (Enterprise UK) and chaired by Adam Shaw (BBC’s Working Lunch).

As always, well organised by the British Library’s Business & IP Centre. However I left feeling a bit frustrated that the questions and responses were really just skipping round the edge of what most entrepreneurs wanted to hear about.

Most questions seemed to centre on the way that entrepreneurship could be fostered and at times the answers became a fraction obvious. “Should we encourage youngsters into being entrepreneurs?” Yes was the reply. “Are entrepreneurs born or can they be made?” Deborah Meaden thought they had to be born with the right characteristics. But Cath Kidston believed they could develop the skills.

Interesting intellectual issues, but I felt an opportunity was missed to have the practical questions answered by this famous group that would be on most entrepreneurs minds.

“How can I find funding?” “How do I get visibility for my fledgling company with little money for marketing or PR?” “What should I do to find customers?” These were barely covered.

So what nuggets did I pick out of the event?

Everyone agreed that government should assist companies to provide apprenticeships, or internships, which would give youngsters a kick-start in business life. At the moment it is left to individual companies and the quality and even whether the young person gets paid varies a great deal.

The best time to start a business is always right now. Do your research and business plan, but don’t wait forever.

Get the summary of your business plan succinct and hit the key points quickly. What is your business concept, what differentiates you, why will you make it work, how much do you need and what will you spend it on? The revenue and profit of the business and what does an Investor get out of it?

Deborah Meaden gets 200 plans a month (or was it a week) and now has to employ an assistant to sift through them. The Exec Summary is all important; unless that is right the rest of the plan never gets read. No fancy tricks, just a solid, thought out summary that ticks the boxes quickly.

Check the interests of who you are sending it to, not all Investors are interested in every market sector. Find out their background, Investors more often put their money into concepts they understand and are comfortable with.

If a plan is turned down, by a bank or an Investor, ask why. Learn from that. Also ask if they know of anyone else to approach.

Get a partner. This is one of the reasons I set up Company Partners, to help people find a business partner, so I was gratified that this came out. Even the famous entrepreneurs that we all know had partners. It may be that one took the lime-light, but the other was there with complementary skills, to bounce ideas off. It’s lonely by yourself.

Get good people around you. Choosing your first employees is difficult, but always get the best you can.

Contracts for partners and employees are needed, but it is much more about the relationship. That must be right.

Cath Kidston started her business part-time, while working to pay the bills and thought that was acceptable. But Deborah Meaden said: “As an Investor I want to see that the entrepreneur is fully committed” and wouldn’t invest unless the entrepreneur was working full-time on the project.

Finally, all felt that the most important characteristic of an entrepreneur was ambition and that you need to have a passion for what you did. I agree, you can teach many things, but you can’t put a fire in the belly unless it’s already there.

Where have the business incubators gone?

Business Incubator

At one time business incubators seemed to be mentioned in the business section of every newspaper. Now they have a much lower profile and you might be forgiven for wondering what had became of them.

Since they tend to be focused on high growth, technology or knowledge-based industries, it’s not surprising that during the hay day of the Internet and emerging biotech industries, business incubators had a greater visibility – but they are still out there.

Now I’m a great fan of these centres. In one place you not only get subsidised rent for very well outfitted office space, but also access to real expertise and advice.

Naturally you have to check out just what you are getting. Some, I have to say, are better than others, but the best will provide outstanding support that will increase your chances of rapidly growing and making a success of your new venture.

So how do you know which is the best one and importantly which one is best for you?

First, consider where your business is to be based. Most business incubators (some are called Innovation Centres) have a regional focus. Then look for one that may specialise in your industry, they are more likely to be of specific help when looking for suitable experts or contacts.

Judge how they respond to you when you make contact and then meet up with them and see whether you could work together. How open are the support staff and how accessible is the industry expertise?

When we recently did a survey of business incubators and innovation centres, most were very helpful, but some ignored us completely and one was actually very arrogant. I know which I’d rather work with!

So is a business incubator for everyone? Well, no probably not. If you are opening a restaurant, a shop, or a courier company for instance, then they probably are not suitable. If however you have a knowledge based, high-tech, or creative industries business then they are ideal.

If you’d like to read more about business incubators and innovation centres, or are interested in finding one, have a look at the survey that we recently completed. There is a list of incubators there and we are adding to it all the time – Business Incubator & Innovation Centre review and listing.

Business Plans – Top 10 most common mistakes

Business Plan Mistakes

As you can imagine, I see a lot of business plans and so does any Investor. While many are good, most are very poor indeed.

Here’s my top ten of most common mistakes:

Typos and spellings – it sounds small, but it is a killer. Now days there is just no excuse. My own spelling is atrocious, but I use a spell checker all the time. Use a spell checker, proof-read your work, or get a friend to proof-read it. Sloppiness in producing the plan will indicate sloppiness in your business.
Poor structure – again no excuse. There are templates and examples around, we ourselves run business plan workshops and there’s software that will structure it for you.
Executive Summary – people get confused as to what that is. It’s simply a short, punchy, straight-to-the-point summary of all else in the plan. About 2 pages, that is interesting enough and factual enough to almost stand-alone. After reading it, you should want to reach for the phone to contact the author, or at least feel you want to read more in the main plan. Although at the front, it’s the last section to be done.
No contact details on the cover page. Someone reading the plan shouldn’t have to hunt through it for contact details – put them clearly on the cover.
Over hyped – expressions such as “fantastic”, “unique”, “incredible” are meaningless and overhyping your product or service shows naivety. This is closely coupled to the next point…
Lack of evidence – if you state a market figure, or statistic, try and show where it came from. It gains credibility. Do real market research; don’t just ask friends and family (they don’t count).
No effort made to sell the product/service – the proof of the concept comes when you get sales. There are many, many, good ideas around, but not all of them are commercial. Will customers actually give you their cash for your product? Get out there and make some sales, show it will be bought.
Not using Appendix’s – cluttering up the plan with pages of market statistics is not conducive to having it read. No one will struggle through a badly organised plan, just mention the facts and refer to the full information in the relevant appendix.
No detail to the sales and marketing plan – it’s as though you think that the product/service will sell itself – it won’t. This is often the worse part of the plans we see.
Unbelievable and incomplete financials – We’ve all seen the “hockey-stick” projections, where in the first year the revenues are minimal, but then by golly they shoot up at an incredible rate. Having unrealistic numbers, or incomplete numbers, or contradicting numbers are all plan killers.

You will spend a lot of time writing a plan, whether it is an operational plan to grow your business, or perhaps to get funding, you may as well produce a good professional plan.

There is software that will help with this – see our review of business plan help, or come to our business plan workshop (my bit of marketing!) But why reinvent the wheel, if your business is important spend the few pounds and save time by doing it right first time.

A checklist for Business Angels

business_angel Business Angels are often thought to be tough and worldly-wise and it’s true that they are people who have made a success of their business life, but even a Business Angel needs to remember to use their head rather than just their heart when making investment choices.

There are a number of new business angel investors entering the market, because of falling interest rates and limited opportunities for investing elsewhere, so it’s worth repeating a few essential guidelines for sound business investment:

Invest in areas that you understand and have experience of, your knowledge & contacts will be worth more to the business and you will understand the risks better
Be interested in the business area, get enjoyment from the activity, you’ll then be happy to put the time and effort into the business
Do due-diligence
- check that the people you are talking to are who they say they are
- credit checks are easy now days to obtain
- check thoroughly yourself the financials of the business, or use an accountant
- examine all claims (market size, patents, etc) to ensure they are correct
Choose entrepreneurs who are realistic, know their market/business well and with who you feel you can have an open working relationship
Do your own investigation of the market potential, look at competitors
Weigh up how much time you will have to spend in the business – does it fit your time available?
It can take longer for a business to be a success (average 6 years) than to fail (less than 3 years), so plan accordingly
Make sure that your overall aims for the business and use of the investment are in sync with the entrepreneur
Agree the respective roles and responsibilities of yourself and the entrepreneur (would you be a working Director, or non-Exec) – agree who would do what.

Clearly there are many more issues that a Business Angel would want to cover before making the investment, including negotiating around equity/debt, agreed exit strategy and sorting out partnership / legal documentation, but by doing the basics right you’ll be in a better position to judge a sound and workable investment.

Can EIS make your business more attractive to Investors?

Should you use the Enterprise Investment Scheme (EIS)? The EIS (Enterprise Investment Scheme) was set up to encourage Investors, by giving them various tax breaks if they help to fund growing businesses.

The business must be set up as a limited company and the shares not listed on the stock market, which means a lot of small companies could use this to attract Investors, but I wonder how many are?

If your eyes glaze over at the mention of CGT Deferral Relief… and calling this a “scheme” doesn’t help, visions of unfathomable, complicated rules pop to mind… you may think that it is like most government business support, just too much trouble to be bothered with.

I recently went through the process of looking at EIS for Company Partners (a couple of potential Investors were keen to use it) and actually it’s not that hard.

You have to firstly make sure that your type of company qualifies, it must be small (

The company has to have been in existence for at least 4 months, but the business doesn’t need to be trading, since the investment could be used for example to start the company up (must start within 2 years).

Each Investor under this scheme can only have up to 30% of the company and the shares that are sold must be ordinary shares (no special rights). The investment goes to the company (by raising some new shares), rather than for instance to the business owner, by him selling his shares.

In return for investing into the company, apart from of course getting a part of the business, the Investor will get 20% of the investment back as tax relief and if the shares increase in value, there is no Capital Gains Tax.

Not bad eh? But there’s more… If the opportunity doesn’t work out, the Investor can claim any amount that they lose on the shares against their own tax.

It is all run by the SCEC (Small Companies Enterprise Centre) on behalf of the Inland Revenue and there is a nice service that they provide, where you can fill in a form to get them to look at your company and the shares you would issue to say whether you qualify. It’s called the advance assurance scheme. This assurance from the SCEC is useful for companies to show to potential investors.

If you want to do this, you should probably have your accountant delve into it for you, since there are always going to be some complications, but find out all you can yourself first.
Here are some links to find out more:
Company Partners (EIS)
Inland Revenue (EIS)

It seems a useful tool to encourage Investors towards your business, so I wonder why more companies don’t do so?

Oh yes, how did we get on? Well it took about 5 weeks for the SCEC to come back after we filled in our form and we did qualify.

7 Tips for Inventors.

Inventions I originally put a similar article to this in our resources section, but we continue to get questions about what to do if you have invented a new product, so I’ve also put these 7 tips here in the blog to reach a wider audience.

1. Work out whether it is an “invention” or a more of a “good idea”.

The difference is that with a new invention, you can patent it (legally own it and no one else can make it). Whereas a good idea for a product or service may not be patentable, but you believe that you can be first into a market and so don’t want others to latch on to that idea.

The Patent Office does a patent search service that will help you decide if you have a case for raising a paten, they do charge for this however. Company Partners has fact sheets on patents, trademarks and copyright in the Company Partners resources pages, have a look down the resource list to find them.

2. Be careful when you tell anyone about it.

Often inventors are concerned that people may steal their idea. However if it is an invention that may be patentable, if you tell people about it first, not only may they steal the idea, but more importantly from a legal stand point…. you no longer own the idea! This is because it is now in the “public domain”. It can no longer be patented.

What can you do? Before you tell anyone, have them sign a NDA (Non Disclosure Agreement). This is a simple agreement that protects your idea or invention. Here is an example agreement. If it is likely to be a novel and patentable invention don’t tell anyone at all without an NDA. If it is more of a good idea but not patentable, you will have to decide if you want a NDA signed in every case. Some people will happily sign, others won’t.

3. Companies that help you put your idea or invention into production.

If you type “invention” into Google you will get several pages of companies all offering you help. Why? What do they get out of it? Well mostly they will want to sell you their services. It may not be obvious from reading their literature at first, but it starts with you submitting your idea. Then they will suggest that they can give you an assessment of that idea/invention – for a price. Normally a few hundred pounds. This is their bread & butter money.

They may then commit to do more (like find a buyer to license the invention from you) in exchange for a share of the royalties, but with an expenses fee attached. Or they may say that after their evaluation there are things that you can do to improve the chances of it being marketable, or of finding an investor to provide funds. This second stage normally costs a few thousand pounds.

So you can see that you have to be careful who you go with and indeed if you should go with such a company. There is a lot you can do for yourself without paying thousands of pounds. Many Mentors and Investors in Company Partners will contribute their expertise and knowledge in exchange for equity without you paying anything at all. Also try the British Library’s IP & Business Centre, they provide a wealth of information and help, almost all is free.

4. You have a great idea now you want someone to fund it.

Okay you have a great idea. Do you believe that it’s so good that you’ll remortgage your house and spend all your savings (which is what James Dyson did)? Or maybe you need some additional funds beyond that which you have access to?

This is where Angel Investors can help. These are private individuals that are looking for interesting opportunities to invest into. However Business Angels and private investors have seen it all before, most of them will expect you to also contribute some of the finances and put yourself on the line for it to succeed, or they also will not invest.

5. Implementation is king (ideas are 10 a penny).

Well some ideas are better than others of course. But everyone has some good idea for a new product or service inside them. It’s those people that get out there and make it happen that are different. 99% of great ideas never get further than a chat down the pub, or wishful thinking.

Then when you do start to make it happen, how well you implement the idea makes the difference to success or failure – not just the idea itself. If you are not best at marketing, sales or even detail planning, look for a business partner.

6. Be realistic.

It may be a great idea, but will people part with their hard earned cash and buy it? Sometimes they are great ideas, but ones that no one would actually pay money for. Be especially wary of “gadget” type inventions. Check that people really would buy them. These sound great, but often too few would be sold to make your fortune.

Do some market research; check whether other similar products or services are selling well. Put together a questionnaire, or a prototype and ask members of the public if they would spend money to buy it (friends and family don’t count). What is the addressable market for this? If it is sold, will it be at a profit (add up all expenditure and costs, including salaries and selling/distribution costs)?

7. Persevere and put in the energy.

If you’ve been realistic and after considering everything, you still want to get this invention or good idea into the market, you have to be persistent. We’ve all heard of the great businesses that were originally turned down by funders.

I listened to Tim Waterstone once describe how he was turned down for a loan to start the book chain by various banks. He persevered, mortgaged himself to the hilt and found an investor. When he was successful and eventually sold for millions to HMV, he sent the banks that turned him down a newspaper cutting of the sale.

He was however a driven and energetic man who didn’t believe in just dreaming. Not all of us are the same, but you do need determination and it helps to have a business partner or mentor. They can give you motivation and together you can bounce ideas around.

Think in business terms and understand that no one is going to give away their time or money unless you can prove the concept is a winner. That will require upfront effort and investment from yourself. But you can’t just dream – you have to make it happen.

How long does it take to find a Business Angel?

Time to find a Business Angel? Angel Investors are not listed in the Yellow Pages and finding one can be a time consuming and expensive business, especially if using some of the pricey business angel intermediaries that are out there.

Actually the topic of where to find investors for a business opportunity deserves more attention and I’ll cover that in a later posting. You won’t see this covered in any of the other Business Angel networks blogs since they don’t invite comparisons, but Company Partners is probably the most cost effective and we aim to be open.

But back to timing. You’ve got a great opportunity, written your business plan and are just starting to look for an investor. How long do you think finding one will take? A couple weeks? A couple months?

The shortest time that I’ve seen that one of our members take was 2 days. The longest time 18 months. That’s in finding an Investor that was new to them (not family or friends).

There are so many variables at play; market area, quality of opportunity, how determined you are in searching, etc., that giving an average time can be misleading. However it is safe to say that it can take months rather than weeks and involve a lot of your own time.

There is a random variable also, Business Angels have a pattern of behaviour that means at any one time not all are available. They tend to dip in and out of the market, because once they have identified a couple possible opportunities they are out of action while investigating them. Coming back into the market if those opportunities hadn’t panned out, or just for more investment.

Finding an investor is though only one of the time elements, since you will also want to take some time to get to know each other and do due-diligence. The advantage of a Business Angel over for instance venture capital, is that they will make quick decisions, but both you and the Business Angel should do all you can to ensure that you will work well together before proceeding.

Finally there will be legal and accounting work to be completed in terms of possible partnership agreements (I suggest you do write down the roles and expectations you have of each other), share allocation and sorting out when funds may be input into the company.

As you can see this is not an overnight activity. Think of it in terms of buying or selling a house, the searching and surveyor (due-diligence) work necessary, together with the contracts, probably means they take a similar time and just like finding a Business Angel will be affected by the market and quality of what is being offered.

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