Posts Tagged ‘advisers’

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.

 

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.

 

The InsurTech Deficit

Tuesday, October 3rd, 2017

Who has done anywhere in the world what you would ideally like to accomplish? Who can help you translate that knowledge into wise decision-making consistent with your own strategic direction and goals? Who can help you acquire the skills, behaviours and expertise to institutionalise that learning?

We have reached a point in certain areas of tech, not least insurtech, where the numbers of entrepreneurs and advisers entering the arena weekly are greater than the number of entrepreneurs and businesses globally progressing from Seed stage to Series C stage. This week in Las Vegas and London, predictably, there will be thousands of promises made. The reality is that there are very few qualified advisers or investors. Certainly those that pass the above “litmus test”. Be careful, very careful.

© James Berkeley 2017. All Rights Reserved.

Compelling Investors

Thursday, December 15th, 2016

“Please feel free to share investment opportunities in the future….” or “This isn’t right for us at this stage we have a prefer businesses with positive EBITDA” The problem with so many investors is there is no “siren call” to them. Their language is weak, their feedback is meaningless, and there is visibly close to zero commitment to a future relationship with the introduction source. In return, there is no compulsion to make you THEIR priority. To put you at the top of their call list. To keep you uppermost in their thoughts. To reciprocate, in a meaningful manner.

If the game is about identifying, attracting, evaluating, and applying impressive levels of knowledge to high-quality investment opportunities and making wise decisions consistent with an investor’s strategic goals, there is a need to constantly nurture referral sources. You don’t achieve that with bland throwaway sentences or anaemic feedback. You do that best by providing something of value to the introducer quickly (ideas, insights, other investor names, a promotional opportunity and so forth). Of course, that assumes your real intention is to have an ongoing relationship and not banish the referral source to Siberia.

© James Berkeley. 2016 All Rights Reserved.

Losing The Potential Investor

Monday, November 7th, 2016

do-not-enter-traffic-control-sign-in-san-francisco-picjumbo-com

 

Why do so many executives and entrepreneurs lose control of discussions with potential investors at an early stage in the capital raising process? Most don’t have a route map. A set of small steps that starts from the first approach direct or by their adviser and takes them through and beyond committed capital into the value creation phase. Since they have no way of knowing where they are, they don’t know when they are lost.

Here is three common mistakes, and quick ways to avoid the landmines:

  1. A Failure to Identify the “Economic Investor”. Definition: The individual within the investment firm with the ability to approve the investment, the ability to sign off on the terms sheet, whose fund  will support the investment into your business, who will be held accountable for success or failure and so forth. In large firms, private offices and funds, of course, there may well be multiple “economic investors”. Obstacle: Too much time is spent with non-investors or worse, you are caste as a peer of the junior folks, never welcome in the inner sanctum. Next Step: It is your job and that of your adviser BEFORE you enter the conversation ideally to know, who the economic investors are specifically and to work out the ideal conditions (warm referral) in which they will respond favourably to your request to meet. Thereafter, the goal is to build a comfort level and sufficient trust that an informal or informal relationship can ensue.
  2. Hiccup or Fatal Diversions. Having broken the ice with the “economic investor” in a first call or meeting, he or she asks that you meet with some of his junior analysts to qualify the investment opportunity, as he is currently “travelling / busy this week / unable to respond quickly” (code: you are not my priority). You have two options: say, “No, quite frankly, we are both first, making a strategic decision on whether to invest in a potential relationship, unless I am wrong we don’t need others to decide that for us. If not now, when can we meet or talk next?” or “Yes, we will happily agree to talk to them but we must have a definitive time and date for us to speak again. Specifically, to compare notes on what we hear and more importantly, to agree the nature and direction of our relationship.” The mistake many entrepreneurs make is once they meet the junior folks with a propensity to please them, they start engaging in a more detailed conversation (sharing follow-up information with them, agreeing to their next steps). They are now a “plaything” of the junior people, which is great for them but potentially deadly for you. The economic investor watching from the sidelines is quite happy to allow this to happen because it is one less priority for them, creates distance (another layer of protection) and the unpleasantness of rejecting your proposal. You have now descended from the executive floor to the second floor, not only had a conversation when the elevator doors open, you are now following them through the corridors on the second floor, at their speed and direction, getting further away from the executive’s office. I find that entrepreneurs of an amiable disposition or those that somehow feel fortunate to be in the building are most susceptible. There is also a cadre of restless entrepreneurs, who won’t take heed of their adviser’s warnings. Bye bye!
  3. Talking About Valuation Before Defining The Investor’s Objectives – I see this so often it is almost laughable. Unlike a game of monopoly or snakes and ladders, this isn’t bad luck, this is self-inflicted pain. You know the question is coming your way, you either choose to neatly sidestep it, by re-framing the conversation in the investor’s self-interest or you allow yourself to tread on it at your peril. Think about this way. How many times does the investor respond, “Wow, you are massively undervaluing your business” or “That is an eminently sensible valuation”? Perhaps, 1 in a 100. I’d say, 30% respond “that’s way too rich for us” (immediate termination), 40% respond “we are struggling with those kind of valuations”  (highly probable termination) and the final 29% “tell me where did you get that valuation from” (needs a lot of convincing). You are left constantly defending rather than explaining your approach to making your investors money. If it comes up early on, you are wise to say, “it would be unfair to throw a valuation at you without first explaining how we intend to accomplish your objectives and secondly,  determining whether a relationship is in both of our best interests. If you are willing to listen, we’ll happily address it at the appropriate moment.” (Note, if they won’t listen, they almost certainly see you as a commodity. Do you need that kind of investor relationship?).

© James Berkeley 2016. All Rights Reserved.