Tag Archives: start-up

How much does it cost to find an Investor?

Cost of finding investmentThe 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.

 

Entrepreneur Quotes – Just do it!

Entrepreneur - Just do it!I was putting together a business plan workshop for some MBA students the other day and looked for a couple of quotes to illustrate points. There are, as you can imagine, quotes for everything, sometimes contradictory.

There is one area though that no one disagrees with and it happens to be a pet issue with me. That of “just do it”. When I talk to potential entrepreneurs, far too many are waiting for “the right time” or someone to do it for them. Honestly, you just need to take a deep breath and then get on with it.

Anyway here are some thoughts from quite successful people – but less thinking, more doing…

“Talk to your customers – provide what they want, not what you want”
Jacqueline Gold – Anne Summers

“Make sure your business goals are measurable – if it’s measurable it’s manageable”
Steve Mills – MRI Network

“Be detailed, be persistent”
Sahar Hashemi – Coffee Republic

“Don’t be afraid of failure, we worry about that too much”
Tim Smit – Eden Project

“The important thing is not being afraid to take a chance. Remember, the greatest failure is to not try” Debbie Fields – Mrs. Fields Cookies

“If you think about things too long and too hard you won’t do them”
Simon Woodruffe – Yo! Sushi

“Never leave that to tomorrow that you can do today”
Benjamin Franklin

“The critical ingredient is getting off your butt and doing something”
Nolan Bushnell – Atari

“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do”
Mark Twain

“Your time is limited, so don’t waste it living someone else’s life”
Steve Jobs – Apple

“Whatever you are going to do, if you don’t enjoy it, don’t do it”
Philip Green – Arcadia

“Choose a job that you like and you’ll never have to work a day in your life”
Confucius

 

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.

 

Getting sales – the single biggest issue for a small business – Part 1

Waiting for sales

Hands up those who have more sales than they can handle? It does happen, but for most small businesses it is a constant battle to get customers.

You’ve got a good product or service; in fact you are probably very proud of the quality and cost effectiveness of your offering. But sales don’t seem to be coming in very fast. I hear this time and time again.

Occasionally when I look at what the business is selling, there are problems with the product, or poor customer service that over time results in less recommendations and repeat business. But most often it’s because no one knows about the company, or they are just being out sold by the competition.

So then I ask “let’s look at your sales & marketing plan”. There is usually either a silence, or protestations that the owner hasn’t the time to do such a thing. In fact most small businesses don’t have a plan, but instead place an occasional ad and go to the odd exhibition when they think of it.

Yet it needn’t take long to think through what you are going to do during the year to get better known and to achieve more sales.

A short session brainstorming ideas with colleagues / partners can quickly put the bones of a plan together.

Ideally it would initially address your basic identity (brand), what you want to be known for and what is unique about you (called the USP – unique selling proposition in the theory books). You may instinctively know that, but try putting it on paper and think it through.

Then, how are customers going to know about you? PR (public relations) isn’t just for the big boys, but it can be expensive. A typical minimum retainer for a PR firm to get you some visibility is around £1k a month and can be much more.

You have to choose wisely also, making sure that the PR company understands your market. I’ve generally been disappointed when I’ve seen the quality of PR that had done for companies.

As an alternative you can do your own free PR. It can be time consuming and that is a reason for using a carefully selected agency, but if you can’t afford an agency, don’t ignore PR, you can get some publicity very cheaply yourself. For our Company Partners members we’ve got a good resource describing how to do so “How to get free PR”

So what else should you be doing to get sales? I’ll look at that in Part 2.

Oh yes, my bit of sales…. Would a hands-on workshop, plus free business plan software and marketing tips help? Have a look at our next business plan workshop.

 

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.

 

Little known advantages of owning a business.

Small business tax refliefYesterday’s budget reminded me that there are still considerable tax benefits to owning your own business, beyond the normal personal tax choices of taking salary, or dividends.

The Chancellor has for a start not only continued with the Entrepreneur Relief Rate of 10% but expanded it up to a value of £5M. Now many entrepreneurs busy beavering away on growing their business, may not even know about this advantage. But if your hard work and persistence results in a successful business, you may want to sell it, or even just retire from it at some point.

When you do sell it, instead of paying the current Capital Gains Tax rate, you can just pay 10%. That’s a fantastic benefit and most people are not aware of it. There are of course certain requirements you must meet, such as at least owning 5% of voting shares in the company for longer than a year, so check with your accountant.

Interestingly it also includes selling just a share of the business, business property (not letting properties though) and your own property that may have been used for a business, so lots for an accountant to have fun with.

There’s more… how about not paying any Inheritance Tax (IHT) on a major asset left to your children, partner or beneficiary of your will? That is exactly the case with a business. If you leave your business to someone when you die (sorry to be morbid, but it’s important), the beneficiaries pay no tax on it.

Given you’ve worked hard to build the business up, it’s comforting to know that if the worst happens, your family or dependants could inherit that business without giving the taxman part of it. Not the case with most other assets.

There’s just a couple more reasons for being an entrepreneur and for a change hard work does get it’s rewards.

 

Should government have a focus on growing new businesses?

Can government help start businesses?During the latest recession as skilled or senior professional people suffered redundancy, many decided to start their own businesses. Some escapees from the crash of the City actually became Investors into young businesses.

With the huge cuts to public spending now being implemented there will undoubtedly not only be direct job losses, but with contracts being cancelled and bought-in consultancy slashed, there will be massive collateral damage to the private sector as well.

This could be an opportunity to help some of the affected become self-sufficient and start their own businesses. Where else will they find a new job with the mayhem that is about to hit the jobs market?

There will be a wonderful pool of talented yet frustrated ex-employees that will be keen to make a new life of self-employment rather than face the despair of applying fruitlessly for a dwindling supply of suitable jobs. Surely now is the perfect time to help them achieve this.

However, the announced cuts already talk about reducing the regional development funds and I can’t see any attention being given to helping start-ups or growing businesses.

I think the new government is missing a huge trick here. This is the perfect opportunity to provide a focus on young businesses. Producing a programme that encourages entrepreneurs to grow their own companies and in turn delivering growth to the UK.

 

7 Tips for Inventors.

InventionsI 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.

 

What’s the right age to start a business?

What is the right age for starting a business?In the past the stereotypical entrepreneur was always seen as young and if you look at Bill Gates and Richard Branson they started their empires when just out of their teens.

However latest findings in the States have shown that the fastest growing age group for people starting a new business are the 50 – 65 year olds. Presumably because of a forced move from corporate life, or even disenchantment with continually working for someone else.

But is there actually a best age to become an entrepreneur? Do the young have more energy and creativity? Certainly they aren’t held back by thinking that things “can’t be done”. Or are the accumulated wisdom, knowledge and connections of older people more valuable assets for starting a business?

There is also the question of opportunity. When in your twenties, you are more likely to not have a family and mortgage to support and so can take a chance with a new venture, likewise when much older you may have paid the mortgage off and the family is independent.

So perhaps you have got to start your business either in your early years, or give up the idea until you are much older, with the middle years being ones of hard graft as a “wage slave”.

Let me give the findings of the Company Partners statistician and my own personal views.

Looking at the age range of entrepreneurs on the Company Partners site, we have members starting at just 15 and going up to a grand 86 years of life. The average age however is 38. This closely matches a figure from the States that gives 39 as an average age for start-ups. The age distribution of Company Partners members is fairly even, with a slight skew towards the lower end.

We have to bear in mind that not all Company Partners members are just starting a business; many already have an established company and are looking to grow it faster. But these figures give a good feel for the entrepreneurial age range.

To my mind this vindicates the thought that now days there is no one age that you have to be in order to start a business. It may though be easier to start certain types of businesses at different ages. If you are designing and selling apps for iPhones, you’re likely to be younger than if you are setting up a consultancy. That is simply a question of personal interest and using the skills & experience that you have.

Be tenacious in making your business idea work – but not blinkered

A good business idea?During our last Business Plan Workshop we had an interesting question asked  – “when should someone accept that their idea for a business will not work?”

Normally I am adamant that you need persistence and belief in yourself, never give up your dream. But this made me stop and think.

Certainly in the past I’ve had entrepreneurs contact me to describe a business idea that I can see is never going to work and sadly they may have spent years of their time and thousands of pounds in developing it.

More importantly than my opinion, when I quiz them on the evidence to indicate there is a need and if anyone would actually pay for the product or service, the information is non-existent or poor at best.

By evidence I really mean market research and that’s not just asking your friends if they think it’s a good idea. Rather the idea must be one that will form the basis of a business, that will satisfy a real need and that the public will give you their hard earned cash for it.

Actually the market research doesn’t have to be rocket science, but it must be reality. There are a lot of papers already written on most market areas that can start you off (the British Library’s Business Centre is a good source).

There are always competitors, or alternatives to your idea that you can check out. You can talk to prospective buyers, either consumer or trade and don’t ask general questions leading them to say that it’s a nice idea, ask for advance orders – pin them down. Then you’ll see the reality.

Once you are up and running, the question becomes “how long should you give it, to show that it will work?”

Again my instinct is to not give up too easily. If the market demand seems to be there, but you have to overcome difficulties, that’s normal and the great entrepreneurs have all had to overcome initial hurdles. But if it’s not taking off, stop and think whether it’s anything that can be fixed, or a fundamental flaw.

Michael Birch, who sold his social web site Bebo for $850M a couple years ago had tried lots of different ideas. Some worked, but weren’t scalable. Some worked but weren’t able to make a profit. Others may have been a good idea but there were basic flaws. Such as the address book updater (I think there are still some of these around).  He found that unless everyone on the contact list updated their address books, the user would simply stop using it. Of course not everyone did update, so it never took off.

Each time he learnt from the experience and moved on. How long did he give each one? Probably only a few months, but the Internet can give very quick feedback. For a traditional business it can take longer, however you should have set realistic goals that allow for the market you are in and be checking against them. If you’re not meeting them, what’s the reason?

You may find it is obstacles that can be overcome, or it might be that there is a basic issue with the business concept that no amount of tenacity could fix. Being tenacious and determined needs to be applied to the overall goal of being a success, not just one venture.

Knowing when to take the learning and move on, without giving up at the first sign of trouble is a difficult one. But I think it can be seen as the difference between operational problems and concept failure. If the homework is done first many of the concept issues should have already been spotted.