Archive for the ‘Investor Relations’ Category

Entrepreneur Blindspots

Sunday, October 28th, 2018

Who get’s my time and interest? Two exploratory conversations with contrasting entrepreneurs with high-growth businesses this week. 

Entrepreneur A: “Let me show you my powerpoint presentation.” Five minutes later in response to what are you seeking to accomplish and where might I be immediately helpful, “I am just looking for money, I don’t need anything else.”

Entrepreneur B: “Let me tell you where I am at with my business, where I’d ideally like to be in future and what I am needing to change including raising new money.” After ten minutes of discourse and accepted vulnerability, “I’d be interested in your advice for me.”

As investors we want confident, not humble entrepreneurs. We want entrepreneurs with high levels of self-worth and a willingness to be vulnerable. To voluntarily admit weakness and display smart judgement.

We don’t want defensive entrepreneurs or those, who seek to excessively control our view into their business. Entrepreneurs don’t have to be transparent, translucent will do fine. When your use of powerful language, social skills, and intellect is obscured from us, little wonder investors move on.  

Here is my observation: have you adapted your behaviour to the life you now lead (entrepreneur), or insist on behaving as you learned to do in a former life as a former Citi banker, BCG consultant or CEO of a global company? 85% of the first-time entrepreneurs I meet persist in behaving as they have in their prior life with one obvious exception. Money. They happily claim poverty “I am not in the position I was….” at the mere mention of paying for advice. When the reality is they remain in the top 2% of the nation’s wealthiest people.  It is simply not credible. 

Assessing M&A Advice

Monday, October 22nd, 2018

How would you know your Corporate Finance Adviser is making progress or success with selling your business or raising money if you have no metrics in place? The answer of course is you won’t, it is all conjecture (cobbling together loose assumptions of interest) until you pass the winning post. Here is the counter-intuitive point, the onus is on the entrepreneur or founder to agree them BEFORE approving the Adviser’s proposal or making the initial payment.

What should they contain? Let’s keep it simple, focus on hard evidence and observed behaviour. Here is a quick primer. 

  1. Attracting buyers or capital sources. Are our target lists increasingly stocked with “ideal buyers or capital partners” or a largely undifferentiated group of candidates? That assumes you have first developed a clear and specific picture of what ideal looks like, sounds like, and acts like (traits). Are we definitively providing valuable insights, ideas, and information to them in a timely manner? Are we highly organised such that our week is increasingly filled with in-person meetings with our ideal buyers and capital partners in various environments? (one-to-one, networking events, public speaking, hosted events)   
  2. Converting interest to firm commitment. Targets must become bidders or investors bringing firm offers. Are you increasingly seeing responses that validate the tremendous return on investment, the pragmatic value you are offering, and a peer-level trusting relationship, resulting in agreements to present a proposal? Is there demonstrable momentum in the quality and quantity of those proposals leading to firm offers, in a timely manner? 
  3. Firm commitments to an agreed preferred option.  Are you able to preserve the critical and highly important points (valuation, mix and timing of proceeds, future roles etc)  while compromising on moderate or low important issues with your buyer or capital partner? Are you able to resolve conflicts over outcomes or alternatives quickly and with minimal impact on your relationships? Do your advisers have preventative and contingent actions in place for an agreed offer (failure to raise financing in a timely manner, backup plan if deal collapses at a late stage and so on)?
  4. Implementation of the deal. Are your adviser’s meeting or exceeding your expectations with clear metrics for the strategic fit, ease of implementation, benefits and cost impact on your business? Are they meeting or exceeding your personal priorities (financial, non-financial, peace of mind, time use and so on)?  
  5. Growth. During the engagement are your adviser’s creating new value for you in return for additional remuneration? For example, this might be new businesses opportunities outside of the immediate deal, where you are selling and exiting your business entirely, repeat opportunities for fresh investment at the next stage of the firm’s growth or referrals to people of mutual interest (private bankers, investors, entrepreneurs, social or philanthropic connections). 

Focus your assessment on these five areas and the ease with which you progress. Keep it simple. 

With any initiative and adviser, where is your “process” today?  

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.