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22 Feb

Most entrepreneurs with a business idea, business plan and need for funding may not have gone through the process of acquiring angel funding before. When looking for angel funding it will certainly boost your confidence if you are already familiar with the process, the next steps and how to prepare before meeting with an investor.

Although, where can I find angel investors may be your first questions, it may be more important to first be prepared to meet with an investor even before engaging yourself in the process of finding angel investors.

The process will normally go something like this:

Once a business angel has expressed an interest, officially confirm that the angel can provide the financing.
• Even though you may not have agreed final investment terms, you do not want to waste your time with someone who has insufficient funds.
• If you are still going to need additional financing, you will need to start arranging it immediately.
Negotiate key issues and, what if, scenarios.

Give the angel a copy of your business plan as a basis for discussing key points such as:
• The investment — how much the business angel invests, the form of the investment, and what the angel gets for the investment.
• Withdrawing money — what dividends, fees and salaries will be paid to each of you.
Under what circumstances can these be changed?.
• Responsibilities — who makes what decisions and who will be responsible for each area of the business.
How will individual performance be monitored and what will be done if performance is not satisfactory?
• Growth — what your main objectives are and how you will achieve the next stage of growth.
What will happen if the business needs more capital?
• Exit — how and when the business angel will be able to realise the investment. Who will the angel be allowed to sell shares to?

Provide the business angel with any information required.
The business angel will want to check financial and legal details, and confirm other points about your business and the market.
• Your accountant will be able to help prepare any financial information you need (eg annual accounts).
• For larger investments, the business angel may use professional advisers to investigate your business.

Negotiate any legalities the business angel is concerned about. The business angel may ask you to provide:
• Warranties confirming that information you have provided is true.
If the business later fails and it can be proved that you gave misleading information, the investor will usually have the right to claim compensation from whoever provided the warranty (typically you).
• Indemnities, where you agree to accept liability in certain circumstances.
For example, if the company is sued in relation to contracts which have already been completed.
If asked for either of these, get advice from your solicitor.

Agree the final investment terms.
• Your accountant and solicitor will be able to advise you on what form the investment should take and help you negotiate investment terms.
• It may be possible to structure the investment to make it more tax efficient for the investor.
Make sure everything is in writing, including all the key issues.
The larger the investment, the more complicated and time consuming the investment process is likely to be. For larger investments you may want to use specialist advisers who are experienced with this kind of deal.

24 Apr

Over the years, I’ve used the phrase “resilience, determination, genius and commitment – to describe qualities needed to succeed as an entrepreneur. Although many well-known modern day entrepreneurs such as Richard Branson and our own Mark Shuttleworth has to a large extent not only done plenty to promote entrepreneurship but also to a large extent perhaps glorified it as a profession.

But entrepreneurship cannot be mistaken for a easy way out, get rich quick profession as it very seldom is. Any successful entrepreneur will tell you that it takes extreme commitment, passion, determination and often a bit of luck to get to the top.

 Every day we deal with business plans that fail and those who succeed. What’s the difference? In the long run you have to say resilience plays a large role.

 Resilience comes from believing in your idea working long days in the trenches and knowing more about that trench than anyone else. It’s the 10,000 hours principle that Malcolm Gladwell highlighted in his book Outliers – that to become an expert in anything you need to have spent at least 10,000 hours doing it. You may not always be the most talented guy on the block or be naturally gifted but commitment, hard work and resilience will get you there if you do the little things right. If you do your market research, invest in R&D, hire the right team treat your clients with respect and review and adjust on the regular basis.

 The value of sweat and toil is not a revelation, but some new studies have unveiled the neuroscience of resilience and its role in achieving goals. These psychologists have measured resilience and compared its role in success compared with intelligence and innate talent. Guess what? Resilience plays a huge role. “Nobody is talented enough to not have to work hard, and that’s what resilience allows you to do”, say the psychologists who led the study. I know this first hand.

 Personality traits, as I’ve mentioned with salespeople, can play a much larger role in personal achievement than mere intelligence alone. In fact, people who are told their whole life how smart they are may well be at a disadvantage. Better to praise your kids for working hard than being smart.

 Why do some people suffer real hardships and not falter? What exactly is that quality of resilience that carries people through life? In this article from the Harvard Business Review, Diane Coutu asks these questions and concludes that the answers apply to organizations as well as individuals.

 Coutu agrees with those who argue that resilience can be learned. So-called "resilience trainers" are in demand because, as one of them observes, "More than education, more than training, a person's resilience will determine who succeeds and who fails. That's true in the cancer ward, it's true in the Olympics, and it's true in the boardroom."

 After researching many theories, Coutu concludes that resilient individuals share three unique traits:

 • a resolute acceptance of reality;

• a sense that life is meaningful;

• an exceptional ability to improvise.

 The author argues that these traits exist in resilient organizations as well.

 For an entrepreneur, the first key to building resilience is asking, "Do I truly understand-and accept-the reality of my situation? Does my business?" entrepreneurs should resist the tendency to slip into denial as a coping mechanism. Facing the truth head on can be a matter of survival.

 As an entrepreneur you need to

1. face internal and external challenges and opportunities without sugarcoating them-and create strategies for dealing with or exploiting them;

2. utilize the meaning-making power of communicating and developing mission, vision, values as well as short-term goals with staff;

3. encourage the innovation and creativity of staff while creating an orderly process for dealing with normal operations.

 Starting and running a business will not be easy, I can guarantee you that. It will be tough, it will take plenty of energy, late nights, blood sweat and tears. But it will be fun, rewarding and I can promise you that once you have started you won’t want to do anything else.

24 Apr

What do investors look for in companies they invest in? This is a common question being asked by entrepreneurs I speak to, and as always the answer is not as straight forward as they would like. Entrepreneurs are keen to ensure that they include the right information and focus in their business plan. That the focus of the business plan is what the investor will be looking for. In order for us to understand this the results below comes in very handy indeed. Most commonly investors will look for viability, positive marketing research results and market with strong potential. But this of course may not always be the case and it will vary from one investor to the next.

In a recent survey amongst some of the countries most active investors the survey results were not to surprising. What was interesting and perhaps not what many entrepreneurs were expecting the the importance of the entrepreneur or team itself. Its really brings us back to the old adage that people invest in people and even in the modern day, investors still prefer to invest in the people behind the business.

From the survey results it was clear that Superior Management, A Large Market, and Unique Products Create Value for most investors. The results where as follows:

  • Quality of management: 4.5
  • Size of the market: 3.8
  • Product qualities:(uniqueness, brand strength, patent protection) 3.7
  • Rate of market growth: 3.5
  • Competition: 3.5
  • Barriers to entry: 3.4
  • Stage of development of the company: 3.2
  • Industry the company is in: 3.0

Quality of management was emphasized by the VCs to the extent that 7 out of 10 gave it a rating of "5", and nearly 9 out of 10 gave it at a 4 or 5. There were a few mavericks among those surveyed, however: 7% gave management quality an importance rating of only 1 or 2.

No other factor came close in importance. The next most important, size of the market, was given a rating of 5 by only 30% of the respondents, followed by product qualities, which received a 5 from about one out of four respondents.

Note that all of the factors received an average score of 3 or higher. All of these factors were viewed as significant, and entrepreneurs should take care to clearly articulate each of them to investors.

From a business planning perspective this clarifies where the emphasis needs to be if you are aiming the business plan at an investor. These requirements may well be very different for banks, considering the modern day reliance on automated processes by many banks to make business finance decisions for them.

For entrepreneur this will in a sense be good news as we are after all, if anything, people orientated, but it tells us that we also need to ensure the research is done, the product / service quality needs to be solid, market information needs to be considered, competitors can not be underestimated and the people we have in the business must be of the highest caliber possible.

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