Grombles

I've written several times about how risky angel investing in start-ups and early stage businesses can be. Having personally invested in about 20 such businesses over the past 10 years, I have probably had to write off at least half of them within the first couple of years - but that doesn't mean they have disappeared completely. Just that my shares are no longer worth anything. That annoys me not just because they cost me money, but because the assets I helped to create may now be earning money for someone else. It may even be illegal and I am letting them get away with it. Let me explain. When you buy shares in a company, depending on the class of shares you buy, you are probably entitled to a share of the profits it makes when the board issues what's known as a dividend. Otherwise the profit is retained in the business to be reinvested in growth. In due course, someone may offer to buy your shares for more money than you originally paid. So there are basically two ways o...

I have been investing in start-up companies (businesses with little or no trading history) for around 20 years. Unfortunately, despite knowing a great deal about starting and selling businesses, at least half of the ones I pick eventually fail and lose me all the money I invested in them... although some of it might be recoverable as tax relief. So over the years, I've come to realise that the odds are heavily stacked against me backing a winner - typically defined as a sale of my shares, known as an exit , within 10 years, paying me at least 10 times the money I invested. To get the same result from guaranteed compound interest over 10 years, you would have to be paid a rate of about 25% - so get it right, and it's a big prize. I've managed it a couple of times, so overall have recovered most of what I've lost on the many companies who died, but it's a very high risk game. So why do so many angel investments in particular die, and why is it so hard for us to spot t...

I recently gave a presentation using my personal career journey to illustrate how the acquisition of experience over time enabled me to become increasingly useful to a broadening variety of businesses:- Education to Employment to Entrepreneur to Mentor to Angel to Non Executive Director There is plenty of overlap between each of these chapters. I have, and continue to form my own companies, invest in lots more, and mentor even more. So it's not a simple consecutive flow. However, what it does represent is an accumulation of sufficient experience and confidence to progress through each stage before exploring the next. There's no way, for example, that I could have been a successful entrepreneur without having first gained experience by working for someone else. Equally I didn't have the breadth of experience of other people's companies to feel confident about investing in them without first getting to know many of them through mentoring. Per...

Business is risky. It has to be so we aren't overwhelmed with an infinite number of businesses all demanding their right to flourish. It's pure Darwinian capitalism. Only the fittest survive, so businesses that don't attract enough revenue or capital to pay their costs, will fold. Cease trading and liquidate what's left. The founders, shareholders, directors, staff, suppliers, creditors and customers need to take a deep breath and move on. Easy to say, enormously hard to do. When you've poured you life, soul and probably your house, marriage and family's future into something, deciding when it's time to call it a day is massively difficult. Usually there are still reasons to be hopeful. An order about to drop; New product around the corner; New strategy to test; New advertising in the pipeline; New management; Competitors failing. Endless reasons to be optimistic, except one. You're running out of money and the risk of the business failing is increas...

We're all familiar with Dragons Den, the popular TV series where all manner of weird and wonderful ideas are pitched to a panel of wealthy self-made business men and women in the hope of attracting investment. Well Dragons are not mythical beasts who only exist on TV for our entertainment. All over the UK there are clubs of relatively wealthy people known as angels, not dragons, where businesses pitch their ideas in much the same way as you see on TV (usually 5 or 10 minute Powerpoint presentations). The better ones attract angels to invest typically £10,000 to £20,000 each, or occasionally more, in exchange for shares in their companies. It's fun, and it's vital for the economy. It's also immensely satisfying for those of us who were fortunate enough in our day to have had help to build our own wealth, to assist younger men and women to do the same - hopefully. I'm a member of an angel group called The Surrey 100 Club. It operates under the auspices of Surrey Uni...

Putting some of your hard-earned savings into start-up and early stage businesses is one of the riskiest investments you can make - other than backing a horse perhaps. Although at least with a horse you'll quickly know whether it was a good idea or not, and the horse won't keep pestering you for more money if it loses (unless you own it of course). So why become a business angel (or Dragon as the TV chaps like to be known)? Why do I love doing it despite the high risks? The short answer is because:- It's fascinating and you might help to change the world (quite apart from possibly scooping the jackpot).  When we're in the twilight of our career or perhaps we've retired, some of us don't want to just stop working or feeling we're still useful. Whilst I love relaxing or playing golf in the sun, I don't envy the legion of prune-skinned Algarve émigrés. Through angel investing alone, I'm closely involved with VR, sports management, telecom surveil...

I've been a business angel for a number of years. An angel is someone who invests in young companies (usually), even pre-start-up (occasionally), in exchange for shares in that business (typically), in the hope they'll one day be worth more than we paid for them (rarely). It's a very risky game, so why do I do it? I'm an entrepreneur myself. Salaried life frustrated my need to challenge myself. I was easily bored by process and reporting. In short, I became unemployable. I grew up in a house full of my father's wacky inventions (holographic fires, carburetor balancers, jet nozzles, squirrel-proof bird feeders etc), all of which lost him the money he'd made consulting for other people's companies on boring things like process and reporting. Dad's creativity missed one vital component that successful entrepreneurs discover. It's not about what you want to sell, it's about what people want to buy. I too learned this the hard way. Fortunately I p...

"A country for the many not the few". The slogan for Labour in the recent 'snap-election' which our cretinous Tory government of Brexit dreamers expected would strengthen their mandate. Even I predicted a hung parliament as the obvious outcome of May's pathetic attempt to 'exploit' in-fighting within Labour ranks (I won on PaddyPower at ridiculous odds of  7:2... but more about gambling and winning later). She forgot that she was elected by Remainers. My problem with Labour's slogan is the implication that the 'few' are bad for the UK and that the 'many' are in some way being unfairly treated by them. Pol Pot had the same idea in Cambodia. That worked out well. Lenin too. In more recent times Hugo Chavez's social spending and high taxation totally destroyed Venezuela. Once a shining example of prosperity in South America, now a horrifically failed state. His Robin Hood politics shattered a successful country. But his popularity wa...

Out means out. Or words to that effect. Since the referendum in 2016, investment into the UK has stalled. We need to restore confidence in the UK fast before it continues to head elsewhere. But if we're no longer the 'gateway to the EU', who are we? How can we restore confidence in a divided nation where every expert and foreign leader (excluding Putin and Trump who want to see Europe and the UK weaker), has predicted the UK will be worse off on its own. The pound has already weakened dramatically (from $2 to $1.28 at the turn of the decade) making our exports more attractive - which is good - but we are already finding it harder to borrow money on world markets - which is not. The things we import are also more expensive. That's good because it makes home produced alternatives better value, but bad because many of those home produced items contain imported parts - so those British goods will start to cost more. And a lot of people's jobs are based on selling and...

Of course all entrepreneurs want to make lots of money. Who doesn't? But the difference between entrepreneurs who do make money and those who don't, is that successful ones don't focus on making money. They focus on building their businesses. And that relies on having an attitude of pouring any money their businesses do make, back into them, rather than rubbing their hands and taking it out as soon as they can. True entrepreneurs are gamblers and thrifty by nature. Given the choice of a holiday of a lifetime versus the chance to create a great business, they'll always choose the business - and take it for granted that if the business does eventually make surplus money, they can have that holiday - although entrepreneurs can become so hooked, holidays become a guilty wrench away from the businesses they need to protect. I didn't have a single days holiday, or off sick, for 10 years after I started my first business. I probably could have afforded it (in fact my wif...

How do you value a start-up business, especially when it's seeking investment? Well-established companies can be valued in a number of ways, but traditionally you would multiply their latest reported annual earnings (sometimes called EBITDA or PBT) by a multiple known as a PE (Price/Earnings) Ratio. Google's is currently 32 and General Motors is 13. The multiple might be large if the company is in a growth sector like technology, or if the company has a solid history of growth that buyers of their stock believe will continue. The multiple might also reflect the size of the company which is an indicator of stability and probability for steady profit, and therefore dividends (something you should never expect from a start-up). There may also be speculation that the company might be an attractive acquisition, which might temporarily push the PE ratio higher until the rumour is either dismissed or proved. On the other hand, if a company has a history of falling profits, then its mu...

After around four decades of trying to work out what does and doesn't contribute to business success, these days I spend much of my time mentoring others to help them discover the same thing (fortunately I can afford to do this because I did eventually manage to work out some of the answers). Over the years I have come to realise that successful business founders share a number of characteristics which seem to be lacking from those who try, but fail. Perhaps serially. So here are some observations: Who is the business being created for? I am often confronted by excited wide-eyed people clutching business plans that tell you about the fortunes they are going to make, but which lack the single most important factor any business requires, and which is answered by the question - Who wants it to succeed most - the founders or their customers? If it's the former, then the business is being created for the wrong reasons. Businesses that provide what customers need and really wan...

In the summer of 1986, I met a guy in a pub. At the time I was between jobs having left mainstream marketing at BMW and trying to make a go of Marketing 4 Motorsport (most of my start-up businesses subsequently contained a numeral... 2nd Byte, 10ACT, Calls2Account, R9 etc). The bloke I met, Tom, was a freelance systems engineer (a sort of software expert) who had formed a company called Tome Associates Ltd with another systems expert, Carl Mattocks (now living in New Jersey). Together with an academic duo - Alina Vickery and her husband Professor Brian Vickery, from the University of London, who were much published in the field of Information Science... or librarianship - they formed a company called Tome Associates. The Vickerys had developed some pioneering software with a small team of computer experts at UCL that used an expert system to formulate and then modify boolean search strategies (sets of words combined with AND, OR and NOT that you could use to search textual databases) f...

It keeps rearing its head. Tax the rich! Make them pay their 'fair share'. It's the rich that got us into this mess. And all those other 'make them pay' soundbites designed to grab votes from our ever more squeezed population. The net effect is that wealthy people are pouring money into the Conservative party to help them fight off the scary wealth taxing parties. But all wealthy people aren't the same. What's important is not what they have, but what they spend their money on. And what the UK badly needs is for the people who know how to create jobs and wealth, to do more of it. I've written previously about why mansion or wealth taxes are both impractical and counter-productive in terms of helping the economy to recover. They are also unlikely to reap vast rewards for the treasury, but popular soundbites put left-wing parties into power. It's not about whether it actually makes money for the country, it's about whether it's popular and s...

My title sounds wrong, doesn't it? Journalists and economists - you know the types: instant experts on everything, but where the priority is not to inform, but to be considered smart - are telling us "What Britain needs is for the banks to free up credit to help more people start businesses". Politicians are telling us the same. "Let's lend or even give loads of money to get the economy jump-started." "The more money you make available, the more jobs you'll create" is Labour's mantra. In my opinion that's the opposite of what actually works for most start-ups. I understand that some businesses simply can't get going without a modest amount of funds, and a tiny few can't get going without an awful lot of funds (tricky to get a nuclear power station cranked up in the garage). But my advice is to starve start-ups for as long as possible. In fact if they can't get going and survive on virtually nothing, then you're simply ...

Politicians would universally fail as businessmen. They'd be more worried that I haven't included business women in my opening sentence than worry about what business means. Politicians' customers are their electorate. What they sell is popularity. Their currency is votes and their mission is to promise Nirvana within a world of mirrors. What they can't do is build and sustain a growing economy (a business) because they are measured on short-term deliverables by people who all want as much as they can get, for the least personal cost and risk, but who nonetheless believe they have a right to wealth and welfare. Promise the people 'change and prosperity' (assuming your hairstyle is appealing), and you'll get into power - until you inevitably fail to deliver it and then the next bloke has a go. That is why successful businesses aren't democracies and turkeys don't vote for Christmas - although if they realised their species' survival depended on i...