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Monthly Archives for May 2009

“Speaker”, “Duffer” or “Dull” fly?

It is a long narrow track down to my idea of paradise on the banks of The Test, one of England’s, and the world’s, great chalk streams for trout fishing.  During late May and early June the mayfly start hatching, and the trout have a feeding frenzy known as Duffers Fortnight, when, it is said,  anyone can catch a fish.  But not me; I read the newspapers, and like all of us, was horrified by the abuse of the MPs expenses’ system.

The systematic approach taken by many MPs to maximise their income brought my thoughts round to the problems of investors in Active Equity Companies – companies which have raised funds from investors.  Passive Equity Companies (around 99% of companies formed) are very different as they are controlled by one or two shareholders and, providing the tax man is happy,  the company is run for the benefit of the owners and the other stakeholders.

When business angels and venture capitalists invest, the directors must run the company for the benefit of outside shareholders/stakeholders and that is where the problems start.  The entrepreneurs work all hours and deserve to be rewarded like our hard working MPs.  But what is a fair amount?  What is fair to one is not fair to others as we have seen with the wide range of expenses’ claims by MPs.  From the view point of an investor, would we want to back an entrepreneur who claimed for everything?  Definitely not.  But would we wish to back a “Dull” entrepreneur who did not realise that the mayfly were hatching and it was time to feed?  Definitely not.  How many opportunities would they have also missed?
Over the years there have been horror stories as investors have found that the responsible entrepreneur had changed after the investment and buys Porches, luxury offices and fish tanks!  Wise investors spend time getting to know the entrepreneurs, agreeing a budget and producing a mountain of paper setting out the ground rules.  One of the investors will usually be appointed as an “Investor Director” to attend board meetings, to monitor the company and to add the benefit of the experience of the investors; sometimes even counter-signing cheques.

MPs should adopt good business practice and submit a budget each year, agree their main and second houses, and then submit claims against the budget.  But investment is about capital growth.  Some MPs have have used their allowances to make capital profits on their property portfolios.  Should those who have paid the bills share the gain?  Investors are looking for capital gains, so more agreements are needed to set out the ground rules on how the equity will be shared in the future, with further rounds and options schemes.  Emotions can run high!

It is a very difficult and complex area as investment is not always easy to raise and new investors can demand terms which destroy the value created by the entrepreneurs and the early investors.  More agreements are required to set out the ground rules but none can cover all eventualities.  Which business plan resource should be used?  Like politics, business is all about people, and that is what makes it addictive; not all CEOs will depart with a 33second speech.

“Speaker”, “Duffer” or a “Dull” fly – which will catch the big fish when the mayfly frenzy is over?  There are many stories to tell by the trout stream!

Written on 27 May 2009 by Philip under Uncategorized with 1 Comment

The Men who decide if firms survive

Ben Marlow wrote an article in The Sunday Times published on 19 April 2009 on Derek Sach at RBS, Graham Rusling at Barclays and Duncan Parkes at Lloyds Bank, the three people charged with looking after their banks sick companies.

Derek Sach remembers the two very contrasting executives who ran companies in trouble; one traded his Rolls-Royce for a Cortina and the other insisting on his perks.  You can guess which person impressed the bankers.  But I wonder if one owned the business and the other was a hired hand.

Tough times require tough measures and let us hope that the Cambridge Cluster keeps it’s spending under control and a careful eye on their business plan resource.

Written on 22 May 2009 by Philip under Uncategorized with No Comments

Hoberman and Birch join forces to fund start-ups

Around 19 April, Hoberman and Birch announced the founding of European Founders Capital, initially a £20million fund to increase the availability of early-stage funding in Europe.

Not a great name as Google lists a number of european founders funds.

Birch is an amazing entrepreneur and Hoberman a great front person but will they find it easy to judge entrepreneurs coming their way?  VCs are a special breed and not always the best of entrepreneurs.. Not many people can make the transition between VC and entrepreneur and vice-versa.

In my small way, I have lost count of the number of “entrepreneurs” who want to start a business but simply do not want to make the sacrifices nor do they have the skills.

It will be interesting to see if these two excellent entrepreneurs can crossover to the other side and invest.  The bigger shortage is not of funds but of entrepreneurs of the ability of these two.  Pity that Michael Birch has moved to Silicon Valley and let us hope that he moves to Cambridge soon!  We need him!  Can we promise him a Birch College?

Written on 20 May 2009 by Philip under Uncategorized with 2 Comments

Let them eat crisps!

When Ken Chrispin married the daughter of Colin Brook, founder of crisp manufacturers Seabrook’s – the ones with the red, white and blue oval on their bags – he changed his name to Brook-Chrispin.  He kept well away from the crisp business as he did not always see eye to eye with the founder, not always the easiest of people, and developed property.  I remember a friend of mine being taken out by his Father-in-law and being told that the family business he had married into was not his and to get on with his own career and let the family build or destroy their company.

The father-in-law looked ran the business in a benevolent way and provided jobs for friends and family.  When he died, Seabrook’s had lost it’s way and KB-C was brought in to “advise”.  To keep it in the family, he persuaded the shareholders (presumably family and friends) to sell it to him rather than the “circling venture capitalists.  The Bentley Speed lets everyone know how astute he was to buy the business and introduce new management.  “In six months, Barry (Higgins, operations manager) has got us up from 12,000 boxes a day to 20,000,without investment”.

It would be interesting to hear the views of the family members who sold out.  I wonder if they feel so happy and whether family gatherings are a little “crispy”?  It certainly is a different slant for the business plan resource.  But will Seabrook’s stay as a Passive Equity Company and will some of the new management be keen to share in the capital value they are helping to create?  How will KB-C handle passing the ownership to the next generation?  Is it harder to hand down a vibrant, valuable business and walk into retirement?

The moral must be to start an Active Equity Company, sell or float, and spend, spend, spend and not leave it to the third generation to return the family to clogs!

Hat tip:  Enterprising Britain FT 6 May 2009 Crisp judgement builds a brand

Written on 18 May 2009 by Philip under Uncategorized with No Comments

Entrepreneur Jnr

Luke Johnson writes a column in the FT called The Entrepreneur and this week writes about the children of successful entrepreneurs.  I guess it is the same being the child of a successful person pop-star, politician, thespian or entrepreneur.  I remember reading a book about Benchmark Capital and one of the founders saying that he used to hate rich kids at school and university and now he had produced his own.  It is difficult to know what to do and you do not get a second chance.

However in the article published on 6 May 2009, Johnson write “I know of two entrepreneurs who feel that they were swindled out of their birthright by cowardly relatives and slippery lawyers, who sold the family firm”.  But are you an entrepreneur because you are the son or daughter of an entrepreneur?  I doubt it.  Entrepreneurs start and build companies.  I guess a better name would be to be Entrepreneur Jnr!  There is no provision for Entrepreneur Jnr in Active Equity Companies as there is seldom a dominant family shareholding and the company is floated or sold early in it’s life.  It would be good to include Entrepreneur Jnr in a business plan resource.

Written on 14 May 2009 by Philip under Uncategorized with No Comments

Putting entrepreneurs first in connecting universities

Back on Twitter and replacing Yomper with my name and following friends, as well as stephenfry, scobleizer, fredwilson and NESTA.  The latter tweeted about it’s latest paper, Connected Universities, and the launch event.  The videos of the launch event are great quality (not Flip?) but are not on YouTube, very slow to load, no controls and there is no embedded URL; also no place for comments so no participation for those not at the launch event.

On the 30th anniversary of the first day in office of Margaret Thatcher, it grates to read a report on clusters that promotes a centralist theme and in which the words “equity” and “entrepreneur`” are hardly mentioned.  We read that the key to the success of making money from universities’ knowledge is better central control.  The early success of the Cambridge Cluster is dismissed as “serendipitious”.  Does the same apply to Silicon Valley?  But then successful entrepreneurs are always classified as “lucky”!

I wonder which body of people has contributed more to university funds in recent years in Cambridge – entrepreneurs such as Gates, Hauser, Edwards, Janeway, Judge, Sainsbury, Taylor and many more, or the transfer office, Cambridge Enterprise.  How many of the entrepreneurs would be stamped with the derogatory term, “sneak-outs”?

The one appearance of the word equity in the report appears on page 16 on the notes on Light Blue Equity; “As a spin-out the university (Cambridge) holds a small equity stake”.  Why small? Why no mention of the “small” equity stake by NESTA?  In the video, Herman Hauser lists the number of outstanding research institutes of companies which failed to turn ideas into products and have now been closed.  Xerox Palo Alto and Bell Laboratories are two well known examples.

Herman Hauser (interesting that he is now very involved in stem cells businesses) states that Amadeus Capital follow the 1,000 companies which are VC funded in the UK of which 750 are not profitable and need to raise further funds every one or two years.  These companies are Active Equity Companies (AEC) requiring new equity funds each year and make them very different from the mass of companies which are Passive Equity Companies(PEC) where growth is constrained by such classic terms as sales, margins and cash flow.  They have been extensively studied.

I think that recent research puts the Entrepreneur if not at the centre of the growth of clusters at least a key part of the process.

However if entrepreneurs are “lucky” how do transfer offices deal with these temperamental but crucial beings?  Which business plan resource should they use?  Use the Y Combinator model?  Should transfer offices have a separate section encouraging entrepreneurs in their cluster on the basis that the university, with or without an equity stake, can be confident that entrepreneurs are like elephants, and will never forget the help received in the early days, and will become generous donors in the future. We should promote the active, Connecting Universities, providing crucial services to entrepreneurs.  When the universities lose the plot and become the story clusters will wither.

One last point: in the video on the discussion the Vice-Chancellor of Bristol University states that he runs a business in the West Country with a turnover of some £400million.  But does he run a business?  In one of the videos Michael Kitson, Senior Lecturer, Judge Business School, a co-author of the report states that universities are fundamentally very different from companies for a number or reasons such as they cannot be relocated.  I always worry when people emphasise the good things about business (such as higher pay) but do not recognise the downside of being in business.  Some of the skills learnt by business can be useful in running a university or hospital (people are a common thread) but it is very important to separate their functions and cultures.

30 years has been a long time and the world has changed with privatisation winning the day in much of the world – long may it be at the heart of knowledge based clusters with “call me lucky” entrepreneurs blazing the trails of new industries.  And good luck to any who try to hold them back!

PS: The CEN on 5 May 2009 announces the appointment of three new senior members of staff to Cambridge Enterprise, turnover of £10million, more than 450 active agreements, 1,100 individual patents and with more than 120 new inventions reviewed each year.

Written on 04 May 2009 by Philip under Uncategorized with 1 Comment