Archive for the ‘Investor Relations’ Category

Minority Investment Sense

Tuesday, October 2nd, 2018

Smart Search

If you are a F1 or NASCAR motor racing team forced into a line-up change, by a key team member wanting “out”, your logical thought process is find, pick and win with an ideal replacement. It is not how much the replacement might pay us for the role unless you are so poorly funded that you have surrendered power and control over your team’s future (witness the “also rans” on the F1 grid).

The same logic applies when a seller seeks to realise a minority investment in a private company investment. Yet a great many advisors and investors, particularly with highly ambiguous and moderate growth businesses, insist on a flawed logic, secure a symbolic price before entering meaningful discussions with the key constituents. Perhaps that polishes their “ego” but it is rarely meaningful or immediately useful to the seller (quick and impressive exit).

In the absence of peer-level trusting partner, you are looking at pseudo sale success. 

Actual “Skin In The Game”

Friday, July 27th, 2018

Having “skin in the game” as most people understand it, the amount of personal money at risk, is one of the biggest myths in private company investing. If you are willing to be intellectually honest, it is about the symmetry of risk and reward amongst the key constituents and the personal consequences for each individual after they are done with the investment. Specifically, putting your “neck on the line”, is the sum of four elements: “financial” (impact on personal/professional lifestyle choices), “intellectual” (trust in your intellect and talent), “social” (impact on family, friends, communities and so forth) and “cultural” (impact on the beliefs that inform your attitudes and behaviour). Work that out and you can really see what the actual alignment is, not what people say it is.

© James Berkeley 2018. All Rights Reserved.

The Relationship Drifter

Monday, June 11th, 2018

One of the more insidious traits of the investment advisory world, particularly common with early-stage businesses and funds seeking to raise capital while claiming poverty, is what I term the “relationship drifter”.  Individuals, who show up and get “hot and heavy” seeking your help (often for free) in the form of advice and introductions to high potential investors. Yet as soon as you cease to be of further value, they drift out of your life without a trace of their existence or thanks. There is zero commitment or respect. They feast on a burgeoning pool of naive or well-intentioned people (often amiable characters) doing them a “favour” that is never returned.

© James Berkeley 2018. All Rights Reserved.

Ideal Investor

Wednesday, May 16th, 2018

If you want to broaden your “reach”, access a large pool of your ideal investors fast, and start turning first conversations into serious interest, how about YOU start by clearly defining your “ideal investor” traits? I am fed up with clients constantly asking me without first doing their own critical thinking.  Yours might reasonably include a strong personal or emotional connection to us, has a need or one that could be easily created for our proposed investment, can make a decision fast, has the means and authority to invest now and so forth.  Let’s hear it first.

© James Berkeley 2018. All Rights Reserved.

 

Reckless Entrepreneurs

Wednesday, May 16th, 2018

Just because we can ski most slopes, doesn’t make us an “automatic” to successfully navigate a steep, icy couloir. We find help, take advice, practice, get feedback and make adjustments to our technique. Why do so many early-stage entrepreneurs, who have had some success raising money from mostly family and friends, forsake that adult learning sequence, and demand their advisers immediately “show them the way” to new investors? I’ll tell you, it is where their confidence has turned into blind arrogance.

© James Berkeley 2018. All Rights Reserved.

3 Deadly Sins First-Time Venture Capital Fund Managers Rarely Avoid

Wednesday, April 18th, 2018

Why do so many first-time venture capital fund managers, who have been a success in their past, cease to act like a success when raising their first fund? Undoubtedly, the fundraising journey is long, on average somewhere between 15 to 24 months for funds under $150 million from firing the gun until the final close. Nowhere is that harder for General Partners, who are new to the investment game and of limited interest to institutional money. Over the past 10 months, I have had first-hand experiences with 6 fund managers in US and Europe and talked to a multitude of placement agents, who have shared their experiences from over 120 such fundraises. Three deadly sins:

  1. General Partners underestimate the three pools of personal capital (cash, credit and investment) that they need to successfully arrive at their desired destination and thrive. They over invest in non-essentials (expensive office space, hiring employees), at the outset, and under invest in external expertise (fundraising, skills development) when they most need it, typically, in the tough grind that follows some immediate success  securing a cornerstone investor.
  2. General Partners underestimate the importance of maintaining a high level of self-worth. They allow a “poverty mindset” to quickly become their default position. They jump on the first offer of committed capital driven by a fear of failure, they beg for favours (introductions, expertise) on terms they’d never accept and they fail to act like a peer in front of investors (constantly “pitching” rather than investing appropriate time building a peer-level trusting relationship).
  3. General Partners underestimate the return on their time invested in accomplishing various activities along the “journey”. They spend excessive amounts of time “fine-tuning” their methodology at the expense of articulating the results and value the potential limited partner walks away with. They allow their intellectual curiosity and ego, to lead them into targeting investors, who are highly unlikely to commit, in their desired timeframe. Why? They consciously ignore who they are today (an ambitious first-time manager with an investment thesis yet to be proven, and zero successful exits) and they are overly pre-occupied with who they imagine themselves to be in future for ego reasons (the next Fred Wilson, Bill Gurley, Josh Kopelman).

The final thought: You might be a great investor but first, can you actually create and build a successful business (skills, behaviours, expertise)? I am not talking about a division of a large VC firm, a global bank, a management consulting firm or something you did on the side in university. I am talking about a boutique asset management business.  That is the first question your highest potential limited partners are trying to convince themselves about.

© James Berkeley 2018. All Rights Reserved.

Seed-Stage Investing: Time, Not Money

Monday, April 16th, 2018

If we don’t value our time, why should others? I have spent a good chunk of the past 3 years, inundated by entrepreneurs largely seeking help accessing global pools of predominantly private capital, at the seed stage. A timely blogpost yesterday by the insightful venture capitalist Fred Wilson reaffirmed a point that I have been reminding hundreds of individuals – “what is the return on your time invested, not your money”?

Here is what I see:

  • The Poverty Entrepreneur“: A majority of individuals, who have been a success in their “past” but they don’t act like a success today (forever claiming poverty, reluctant to hire external expertise on equitable terms, seeking endless “free” favours without regard to others’ time). Often relics of large management consultants or banking.
  • “The Abundant Entrepreneur”: the rare, hidden gem, more often than not a seasoned entrepreneur, who is respectful of others’ time, willing to pay equitably for high quality advice and has a high level of self-worth.
  • The Acquiescent Board Chair“: the well-known business person, who dabbles in young businesses either for affiliation needs with other impressive figures or the rare chance of a jackpot outcome. Very much a discretionary investment of their time, they are prone to ask apologetically for extended favours (contingent fee basis) from advisers, knowing in all probability it is a low return on everyone’s time invested but we are all in the “hope factory” together.
  • “The Scrambling Adviser”: A cohort of financial and corporate advisors (often solo and boutiques), who this IS their prime source of wealth. They are invariably failing to balance time invested, a sustainable business and a career successfully.  Few survive for long without exploring alternatives.
  • “The Luxury Adviser”: A cohort of financial and corporate advisors, whose principle source of wealth (founding business, a banking career etc.) affords them the luxury of dabbling as advisors and investors in the seed area without regard to the actual return on their time invested.
  • “The Blunt Investor”: A cohort of professional investors, whose prime source of wealth arises from seed stage investing, time is precious and they are wont to give very blunt responses to requests for their time or flatly ignore them.
  • The Luxury Investor“: A cohort of angel and high net worth individuals, whose prior success affords them the luxury of significant discretionary time. Driven by their intellectual curiosity and wealth (time and resources), they are more relaxed about time given to seed investments (an interesting alternative to “pro bono” advice and charitable giving).
  • The Tax Investor“: A cohort of angel and high net worth individuals, whose tax structuring particularly in the UK attracts them to seed investing. They are cogniscent of time in so much as it enables them to understand the net financial consequences of seed investments.

You undoubtedly recognise some of these individuals if you have got this far, perhaps yourself. I am not here to tell you what you should do but I am here to urge you to apply critical thinking, and to ask, “is this a great way to surrender my scarce time, not just my money?”

© James Berkeley 2018. All Rights Reserved.

 

Snow Joke

Monday, February 5th, 2018

Climbing out of a snow drift back onto a piste for a first-time skier is hard if you have never done it before, “raising money” from investors is equally hard for a first-time entrepreneur or private equity manager if you have never done it before. I have helped tens of people with both challenges. Yet I run into smart people weekly, who have been a success in the past but refuse to act today like a success when it comes to investing in their own development.

The common factors for success are do you possess the requisite combination of skills, behaviours and expertise to accomplish your goal (climbing a mountain or raising a fund)? If not, can you find someone, who has successfully accomplished what you are seeking to do, and possesses the skills and volition in the real world to help translate and transfer their success to you (qualified expert)? If you can, hire them. If you cannot or even refuse, you are seeing the problem. The pathway is either excessively risky or ambiguous for even experienced individuals or your own behaviour is contributing to your difficulties. Which is it?

© James Berkeley 2018. All Rights Reserved.

Capital Reality

Friday, December 15th, 2017

I just finished reading a quite brilliant book, Lifestorming by Alan Weiss and Marshall Goldsmith. Marshall reminds the reader of one of his most powerful learning points from arguably one of the smartest minds over the past century, American businessman, Peter Drucker. I smiled when I reflected upon how frequently I am asked to correct this behaviour in my own work, particularly amongst entrepreneurs and private equity investors building businesses.

An excessive amount of time is wasted

  • Trying to prove how right we are (brilliant idea, investment decision-taking) and how good we are (vanity) with ourselves and our key constituents when the real objective should be to maximise the positive difference we are able to make in the life we choose to lead, and the world we live in.
  • Trying to control events or issues where we have ceded or have zero power over the outcome.

The private equity or venture investor doesn’t have to invest. The entrepreneur doesn’t have to accept the investment. When they do accept majority investment, the entrepreneur ceases to have the ultimate decision-making power. Don’t whine or somehow think you retain superpowers, you really don’t, concentrate on making a positive difference within those constraints. If you don’t like the constraints, let it go and move on. The same applies to capricious General Partners feeling that the private equity model is underappreciated in the wider world or when power has shifted from their investee businesses to their customers or competitors.

A case in point, yesterday’s headline sale to Disney of large chunks of the Murdoch empire, is just that recognition that the Murdochs cease to have the power to positively impact their family’s and their assets’ future within the constraints laid down (market competition). Letting go is a common sense response, nothing more.

© James Berkeley 2017. All Rights Reserved.

It Is Really Not About You

Friday, November 10th, 2017

 

Why do so many seasoned, and less seasoned entrepreneurs seeking to attract new investment shoot themselves in the foot? They are rarely short of industry knowledge but they are woefully lacking the process skills and critical thinking to attract serious investors. Acquiring investment is about investors. An investor validating their own judgement, no one else’s.

Yet all I here at the outset, is how great the entrepreneur’s business skills and judgement are, wrapped up in their business model and growth plans.

When I push back and ask, “what” (strategy) have/are you doing to help your ideal investor validate their own skills and judgement after they are done with your investment? I am invariably met by a blank stare. That is compounded by my supplemental question, “how” (tactics) have/are you planning to help your ideal investor validate their own skills and judgement when they are done with your investment?

In the absence of a strategy and tactics for creating powerful, sustainable and profitable partnerships with  investors, an entrepreneur’s mission will never be met and manifest. Here is three powerful lessons from my most successful clients:

  1. Raising, deploying and realising capital is a “process”, not a small number of events. It has a “before” (trust, relationship building, conceptual agreement culminating in agreed terms), “during” (effective implementation, impressive value creation, robust risk mitigation) and “after” (planned disengagement, rapid realisation of committed capital plus impressive gains, efficient remittance of resources). Or to put it crudely, cash and resources “in”, cash and resources “out” / time period.
  2. Timing has a “hierarchy of priorities”. (1) the investor’s financial, intellectual, social and cultural needs (most only think about the first need and rarely consider how those are changing in the lifetime of the investment), (2) the availability of an appropriate exit to ensure the investor’s objectives are met and (3) the  future of the business.
  3. They think and act like a successful investor. An investor thinks with logic but acts on emotion, although in some cases the latter might be as heard to discern as Robert Shaw’s face in that infamous card game on the smoke-filled train carriage to Chicago, in my personal favourite, The Sting.

Uncovering The Investor’s Logic and Emotional Reasoning

  1. The reward logic behind the deal. How might it meet or exceed the investor’s need for capital preservation and capital gain, the return on the investor’s intellectual time invested, the social impact met and the cultural benefits accrued (for example, greater affinity with like-minded investors)?
  2. The risk logic behind the deal. What is the seriousness and probability of foreseen and unforeseen obstacles with the deal preventing the investor meeting or exceeding their desired outcomes? Then, what preventative and contingent actions can realistically be applied to arrive at the deal’s “ultimate net risk”?
  3. The sum of the above is the investor’s “great deal” logically. We are not finished yet!
  4. The emotional rewards behind the deal. How might the emotional imperatives of the investor (“reward”) be transformed (repute, peer recognition, trusting relationship with the General Partners and co-investors, promotion prospects, larger bonus and share of carried interest, ego, greater responsibilities, career development, future capital made available, new fund created, more impressive future dealflow presented and so on)?
  5. The emotional risks behind the deal. What is the seriousness and probability of foreseen and unforeseen obstacles with the deal preventing the investor meeting or exceeding those desired outcomes? Then, what preventative and contingent actions can realistically be applied to arrive at the deal’s “ultimate net risk”?
  6. The sum of the above is the investor’s “great deal” emotionally. That is what they are going to make their final decision based on. Are you investing sufficient time and energy in the right area? Are you thinking it through smartly? My guess is most entrepreneurs are spending 90% of their time on the logical reasoning and perhaps 10% on the emotional reasoning when it probably needs to be inverse. Why would you do that?

The smart readers will quickly grasp that a PowerPoint deck or teaser is largely worthless at addressing the latter. You need absolute credibility. You need to take time to build a peer-level trusting relationship. You need to ask powerful questions in a way that the investor is willing to reveal his or her priorities. The shorter the question, the more the investor will reveal. It crystallises it for them. “What are your hopes? Why? What are you fearful of? How did you get to your position?” Frame the question, listen and follow up in a smart way. You cannot coerce or motivate them.

Your job, as an entrepreneur, is to aggregate and connect the dots for the investor. To convert, the credibility and seductive rapport into committed capital with the use of powerful language and a compelling interface for the  investor.

After reading this you may very well panic and spot a yawning gap in your skills and techniques. That is OK, find an entrepreneur, who has done what you successfully seek to do and who can translate and transfer it to you.

A word of warning, a great many advisers don’t qualify, nor do a great many entrepreneurs, who are inept at the translation and transference. Hire qualified advice sparingly.

© James Berkeley 2017. All Rights Reserved.