Category Archives: Starting a business

Case study – finding a business partner

Case study Funding Secure

 

With Peer-2-Peer lending growing in popularity, Norman Akram realised that there was an opportunity for a company whose business model protects lenders against bad debt (most Peer-2-Peer loans are unsecured).

A well tried model already existed in the form of pawnbroking and Norman set about developing a website platform for lenders and borrowers to interact with one another, allowing loans to be secured by suitably valued goods.

Although Norman had the concept, he required partners with complimentary skills such as finance, management and marketing.

Having tried other places he turned to Company Partners and joined as a member to look for either a business partner or an Investor for his start-up.

That’s where Richard Luxmore came in. Richard had joined Company Partners as an Investor and had a background in accountancy and management, but was looking for a new and interesting challenge.

After finding each other on the site, they progressed through emails and then Norman and Richard agreed to meet up and look at how they could work together.

How did that meeting go? Well the proof is in the launch now of one of the most innovative and fast growing businesses I’ve seen for awhile; Fundingsecure.com .

There are some lessons to be had from this success.

  • Do your research upfront. Norman had already gathered accurate statistics and information on competition and the market. When he met Richard, he could present the facts, not just a hopeful idea.
  • Have a vision of what you want to create. Then when inevitably you have to be flexible in altering aspects of the business you can refer back to that vision to ensure you make the right changes.
  • Start with a partnership heads of agreement or get something down in writing of how you will work with your business partner, but be prepared to be flexible in changing it as you discover what works.
  • Build a team of good people around you, be flexible (that word again) with your infrastructure in order to maximise each person’s contribution and to accommodate those good people.
  • Don’t have high fixed costs, such as premises or cars and do as much as you can yourself. Preparing some external work like web site design before the programmers start and preparing legal documents that the lawyers could then review all help precious start-up funds go further.
  • For those thinking of a web based business, be aware that offshore web development may seem cheaper, but in a start-up you need to be able to sit down and talk with your developers, Fundingsecure changed from an offshore developer to a local one to ensure communications worked.

If you want to find a business partner like Norman and Richard, have a look at what Company Partners does for its members.

 

Why ideas don’t get investment.

Investment for a good idea

“I’ve got a great idea; it will make millions, guaranteed. I haven’t got the time myself to pursue it, so I’m looking for someone to take it on. Maybe I could licence the idea, or sell it. I don’t actually want much, I just want to see it made.

“No, I haven’t got round to doing a business plan, not sure where to start on that anyway, I’m more of an ideas person and of course I am a bit careful about telling anyone about it in case they steal the idea.”

 

Sound familiar to Investors? Any entrepreneur thinking “what’s wrong with wanting to sell an idea?”

Let me give 5 reasons why ideas don’t get investment:

  1. Good ideas are 10 a penny. Everyone you meet in the street or bar, has a good idea.
  2. By themselves ideas have no value. They are not rare, they are very common.
  3. They gain value as you do work proving that an idea will practically and commercially succeed.
  4. You should be able to contribute more to a venture than just the idea, your expertise, skills, background, experience and effort will give an Investor more confidence that the concept will work.
  5. Ideas by themselves are high risk, the highest of risk in fact. Investors have plenty of choice where they can invest their money; they don’t need to take that high risk.

Right, so you’ve got a fantastic idea for a new product or service, it will take some investment to turn the idea into a business, what do you do?

  • Even with no funds you can do market research. Don’t ask your family or friends, talk to real potential customers, think through your target market (see How to market smarter ), construct a marketing plan. This all shows an Investor that the concept is likely to be viable.
  • Do work to move your idea forward. Build a prototype product or start a basic service, to prove the idea works in reality.
  • Get some sales. Even if just a few, or obtain some advance orders, or letters of intent to buy. This more than anything is the big difference between securing funding or not. Not every good idea is a commercial good idea. Showing that customers will hand over their hard earned cash moves the idea from fantasy into an investable business.

 

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

Business Plan StructureLast 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

How to write a Business PlanFirstly 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

Want to get into business? We look at the options

Business choicesIf you’ve got past the headline then you obviously have a hankering to be your own boss. The arguments for going into business are well rehearsed – you can make your own decisions, choose who you work with, enjoy the fruits of your success and so on – but, arguably, the paths into entrepreneurialism are less well documented.

Mention entrepreneurship and many people will think of starting their own enterprise and base their decision on whether to become an entrepreneur on the merits and risks associated with starting your own business.

But there are, of course, two other ways into business: buying an established business and buying a franchise. Each option has pros and cons and will suit different attributes, skills and circumstances.

To get you thinking about which option is right for you, here’s a rough outline of the three choices, their attractions and drawbacks, potential rewards and risks. There’s also a suggestion of the type of people they might suit – though by no means do we want to be prescriptive about this.

Starting a business

Starting a business from scratch is far from easy, but affords the entrepreneur the freedom to generate a business idea and build it as he or she sees fit. It’s tough in the first couple of years, where the owner acquires and fits out premises, fulfils any regulatory requirements, begins to build a team and starts marketing the new brand to its market.

Advantages

  • Creative: generate the business idea yourself, develop the products and services and your marketing strategy
  • Freedom of choice: choose your premises and location, your own team and build the business as you see fit
  • Satisfying: any success is truly your success

Drawbacks

  • Risk of failure – especially compared to buying a business or franchise
  • Formative period is often stressful and time-consuming, as you establish a foothold in the market with few staff, few customers and little brand-name recognition.
  • Expect to work long hours in the first 1-2 years
  • Difficult to raise finance, especially in competitive markets or for novel ideas, particularly in current climate

Suits

An “ideas person” will enjoy generating new ideas that gain an edge in existing markets or break the mould and forge a new niche. You could argue that starting a business suits people who can afford to fail – the childless, or those wealthy or young enough to move on and try something else if it doesn’t work out.

Buying a business

Businesses are sold for a variety of reasons, including retirement, illness, a desire to change sectors, a perception that the value has peaked. Although the business buyer is skipping the challenging start-up phase, the business buying process itself can be difficult, and must be conducted with care. Failure to research the market and conduct proper due diligence can result in paying over the odds or buying the wrong business.

Advantages

  • Providing you choose wisely, you could be profitable with a strong market presence from the moment you take over
  • Arguably also less demanding than starting a business for the same reason
  • Possibly easier to raise finance; banks keener to lend to businesses with track record of profitability as opposed to an idea that only exists in a business plan

Drawbacks

  • Can be expensive buying ready made profitability or floundering business requiring further investment
  • Buying process can be protracted and deals can collapse at last minute
  • Change of ownership poses problems – staff alienation from new regime, customers deserting you because they liked previous owner, can be difficult to steer business in fresh direction

Suits

If you’re cash-rich the dearth of credit means there are plenty of bargains on the market. If you’re excited by the challenge of turning round a failing business, and like to be in full control but don’t fancy a stressful start-up period – perhaps you’ve been there, done that – then buying an established business will suit you.

Buying a franchise

Buying a franchise is a more formulaic route into business ownership, where you follow tried-and-tested systems and the risk of failure is generally low. In return for an initial franchise fee, and often ongoing monthly management fees or percentage of your revenue/profit, you operate under the name of an established brand, selling its goods or services, with support and training from the franchisor.

Advantages

  • Providing you buy into a successful brand – McDonald’s or WSI being prime examples – the risk of failure is negligible, and failure at the application stage at least entails no financial loss.
  • Following a proven formula, it’s arguably less challenging than the alternatives
  • Also buying brand recognition and training and support – meaning you’re in business for yourself, but not by yourself

Drawbacks

  • Following a rigid formula you rarely have leeway to tinker with product, prices, decor or any other aspect of the business
  • Generally pay monthly management fee or proportion of revenue/profits to franchisor
  • Must pass rigorous application process, particularly for the biggest, most successful brands like Subway

Suits

Someone who wants to be their own boss but doesn’t mind following a rigid formula, and who wishes to keep risk to a minimum. With a number of home-based, part-time franchise opportunities available for a modest investment, franchises are also popular with parents of young children.

This article was contributed by BusinessesForSale.com, the directory of business opportunities from Dynamis, the online media group also behind FranchiseSales.com and PropertySales.com

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

Start and grow your business

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.

 

Do Non-Executive Directors get paid?

Non Executive DirectorNon Executive Directors (NEDs) are a valuable asset to any growing company, but although they may be very experienced in their market area, for some it’s the first time that they have acted as a Non Executive Director of a business.

The business also may be new to taking on an NED, so between them there is a lot of uncertainty of how the time and efforts of a Non Exec should be rewarded.

In Company Partners we’ve put a resource page on Non Executive Directors that may be helpful. www.companypartners.com/content/resource/Non-execs

In that we give an example of a real business (approx £1M T/O), which gave a 1 or 2 percent share of the business to each of two non-execs (the full-time directors/founders owned the rest), based on this they paid the non-execs a share dividend equating to about £400 a month. This paid for the non-execs time and ensured they had a keen interest in the company.

For complete start-ups however, who may not even be paying the founders a wage, it can be difficult to get a Non Executive Director on-board, since there is no revenue yet to reimburse the NED for their time and expenses.

This is where the young company has to make what they are doing interesting and show that there will be rapid growth, after which the Non-Exec would be able to be compensated. In the mean-time a small percentage of shares could be made available.

It is best to first have a trial run of a couple months with each other to ensure a good fit. Also phase any share holding in over a period of time, making sure that the shares are recoverable should the NED leave. There are specialists who can help with drawing up share investing agreements.

For the Non-Exec, working with a young company can be a fantastic experience, seeing it grow and feeling that you have helped to create something of real value. Being flexible in how you are rewarded will enable the growing company to afford your time.

But to answer the original question, do Non Executive Directors get paid, yes mostly they do, how you arrange that can be agreed between you.

 

How to find more customers – the top 5

How to find customers1. Get free PR

If there was an unlimited amount of money to spend, advertising would be easy, but normally there isn’t. So what can you do? Well this is where free PR comes in. PR is of course short for Public Relations and was the remit of large corporations, but has now become a valuable tool for gaining public recognition of your business and products as well as building your image.

In many ways it’s the best form of advertising, because it doesn’t use sales techniques that customers are suspicious of, instead it promotes a positive message about your business that can develop customer loyalty and encourage new customers to find out more about your services or products.

You can hire a PR company to do all this for you, but that’s not cheap, so why not do it yourself. The media have to fill their papers and their broadcasts with content every day. The key is to make it interesting and have a human interest angle, not just the history of your company or latest product.

For our full members we have a comprehensive write-up on getting free PR (btw if you are a full member you also get access to business partners, mentors and business angels investors) – How to get free PR

2. Make marketing work

Marketing is the overall term for PR, advertising, branding, pricing and identifying the products that your customers want. It therefore looks at the big picture. Each business should have a marketing plan, which pulls all this together and makes sure that you have not missed an important step that will grow your business.

The main key though in making marketing work is to segment your market into bite size pieces. That way you can get your messages tailored exactly right for your potential customer. I wrote a blog on that which may help – How to market smarter

If you’re thinking of writing a marketing plan for your business, you may be interested in a deal we put together with Palo Alto to get a free copy of Marketing Plan Pro software with each copy of Business Plan Pro bought from them, you can see more here – Sales and marketing plan

3. Using a web site to generate new business

Nearly every business has a web site nowadays and if you haven’t you really must get one, it isn’t expensive and I can’t think of any business that can do without it. The first thing will be finding a domain name that meets your business needs.

Ideally the domain name would contain the key words that people will search to find your product or service, such as “bestsheds” or “berkshireaccountants”. It doesn’t have to be your company name.

Using your company name is also okay and allows you to keep your products and services unrestricted by the web site name, but the site will be harder to find on search engines for your products, so you will need to do more work on its visibility. If someone already knows your business name it will come up, but you want to be found by people who don’t know you and are searching for what you can provide.

There are plenty of very inexpensive web site packages around. Choose one that allows you to easily make changes to it, because the worst thing is seeing a site that hasn’t been updated for 2 years. Have several new items, testimonials or articles that show that it is up-to-date.

If possible get a local web designer to produce the site, again not too expensive an option. Pick one whose work is attractive to you. He can help you optimise it so it can be found on search engines like Google.

Don’t get sucked in though by all those emails from companies wanting to provide SEO (search engine optimisation). If you can afford it pick a well trusted digital marketing business, but it won’t be cheap. You can do it yourself, have a look at Perfecting a business web site .

4. Don’t use a free email address

Using gmail, hotmail or any of the free email addresses looks amateur if you are running a business. It’s okay for private use, but when you are trying to show that your business is worth buying from or investing in, then it looks shoddy.

If you already have a domain name, adding email on to it is cheap. If you haven’t a domain name for your business, get one. Then use that for email.

Put your name, contact details and a sentence saying what your business does at the bottom of your mails (as a “signature”).

5. Communicate and Network

If you have a website, offer a free incentive (such as a downloadable useful information sheet) and keep in touch with those people (make sure they have ticked a box to allow you to keep in touch).

Regularly contact existing and old customers, with special deals or just helpful information. It’s easier & cheaper than finding brand new customers.

Not everyone is comfortable with the concept of networking. It’s been over used as a term, but has been around for hundreds of years. It needn’t be hard or daunting. Just as computers talk to one another over a network and spread messages, so can us humans. The idea is that your message will pass from one person to another. A network should be more than just a list of people you talk to. It should work for you.

Thought of that way, find rememberable messages and sound-bites that you can give people you meet about your business that may cause them to mention it to someone else. On Company Partners for instance, I talk about it being like a “dating site”.

Depending on your industry and market, there will be opportunities to pass these messages on to either customers themselves, or to people who meet and influence your customers. There are thousands of organised events, choose one that best fits your market and give it a go.

Networking can also find you partners to collaborate with and ideas to try.

The old adage of invent a better mousetrap and the world will beat a path to your door, doesn’t work any more. You’ve got to tell the world about your mousetrap and show them how to get to your door.

 

Can Olympics inspire new start-ups?

Business revolutionI was lucky enough to go to the dress rehearsal of the Olympic Games opening ceremony and was hugely impressed by the hard work, energy and enthusiasm of the volunteer dancers and actors.

When the full version of the opening ceremony was shown on Friday the overall story became clearer. Much of the ceremony was celebrating the industry and innovation that Britain has displayed over the years. From the Industrial Revolution to Tim Berners-Lee and the world-wide web.

I was left wondering how many of the passionate volunteers and cheering audience would take up the mantle of our industrious and inventive predecessors?

There is no lack of enthusiasm for the use of social networking and technology, but the effort of developing the tools that make it work and starting the businesses that employ workers to drive the economy seems restricted to a few small pockets of activity.

There must be a way of capturing the vigour that was displayed on Friday night. It showed that if someone is enthused then they will put their soul into making what they are doing a success. Danny Boyle and the Olympics provided that inspiration, what can we do to inspire a generation to create products, services and businesses that generates wealth and full employment once again?

To a certain extent, youth is jaded by business, the banks and ever revealing scandals of top director’s greed. Yet there are thousands of small, well run and ethical companies out there, giving their founders a satisfying and decent living.

We need more publicity on these owner run businesses and the fulfilling life that can be had, than the continued bleak exposure of banks and big business wrongs.

 

Business Angel or Venture Capital – which to use

Venture Capital or Business AngelJust 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.