Tag Archives for entrepreneur

Let the good times roll again! Convertible debt for angels

Fred WilsonImage via Wikipedia

Fred Wilson write a great blog and not much needs to be added to it except that he is one person who got in early and will make a ton of money out of spotting the social network space.  Amazing to have the simple vision to use the tools and then be able to relate to entrepreneurs.  All so simple but he does hide away..  Ooops no he does not as one of his companies, Zemanta, has just popped his photo up!

In his post on convertible debt for angels in the first round, he puts the other case that he prefers agreeing a price and investing.  But he understates the great increase in value he brings to the new company when he says “I can negotiate a fair price with an entrepreneur in five minutes and have done that for a seed/angel round many times.”  We can all agree a price but most entrepreneurs do not bite off our hands!

Fred Wilson operates in a very different environment than Cambridge Enterprise, the arm of the University of Cambridge which “exists to help University of Cambridge inventors, innovators and entrepreneurs make their ideas and concepts more commercially successful for the benefit of society, UK economy, the inventors and the University“.   Their recent News and Events Bulletin states that “Sixteen Cambridge Enterprise portfolio companies are included in Business Weekly’s “Killer 50” list of the most disruptive technology companies in the East of England”.  Amazing companies that will change our lives in the years to come.

But in the mission statement of Cambridge Enterprise there is no mention of angel investors.  Are angels the best investors to start disruptive technology companies?  Do they have deep enough pockets?

Perhaps angels in Cambridge need to entice the entrepreneurs in Cambridge to follow the path of Fred Wilson as demonstrated so well by Rahul Vohra and Rapportive.  A very different business plan resource approach is required.  Perhaps Cambridge Enterprise should establish a new division to support the likes of Rahul Vohra – after all the experience, skills and opportunities given to Rahul Vohra served him well until he upped and offed to Silicon Valley.

The only worry to me as a low-grade angel is that the convertible debt stacks the cards too much in the favour of the entrepreneur and the second round investors.  The first round investors need a great big uplift to justify the huge risk we take.  We might not fund a company to revenue but we fund social network companies to their first major step of customer engagement with hundreds of thousands of users.

Will all this help The Entrepreneurs Graphic Novel when it is is published as an app?

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Remember ’87, ’97, ’07

mobile social networkingImage by Will Lion via Flickr

Friends Reunited is now valued as little as £20m to £40m compared to the price paid by ITV of £175m.  Perhaps it is time for the Founders to buy it back or else think that social networks have moved on and Facebook has won with 200million users.

It is why you need an outside investor onboard to keep you in touch with the market; it is so easy to keep a life-style or passive equity company chugging along but it is not the role of entrepreneurs.

I remember the words said in ’87, “We could work for another ten years and not be as well off”.  And not just us, all the staff with their options and all the investors.

So essential and so difficult to do; build a business and keep a watchful eye on the value you are creating.  Of course, it takes special people to be busy building a business and going through the tortuous route of due diligence and closing the biggest deal of their lives.

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Book now for 5th Social Enterprise Conference

A guest post from Marilyn Tippett:

The 5th UK conference for social enterprise is in February this year; go to www.socialenterprise.org.uk for more information.

Social enterprise has been a big part of American business life for  many years now, and is beginning to make an impact in the U.K.  A social enterprise (SE) is similar to  conventional business; both are out to make a profit and deliver a product or service.  Social enterprises, however,  are set up to ensure that all profits (surplus) go back to fund the project or business.  There are no shareholders and no individual will take a profit from the business, although, of course, salaries are paid as with any other business.

Many people will already have heard of SEs without realising that this is what they are: heard of The Big Issue? Jamie Oliver‘s 15 restaurants? Divine Chocolate? All examples of successful SEs.  That  said, most SEs are smaller and more local, and grow directly from the communities in which they are placed.  So there are companies offering nursery and after school provision, counselling and mental health services, art programmes and running local shops.

Social entrepreneurs have been called a curious mixture between the conventional entrepreneur (hard-headed, go-getting) and the socially-motivated community worker ( working close to communities, ethically-motivated). They are often very driven individuals, can be idealistic, but always have great “stickability”; it is usually many times harder to get a social enterprise off the ground than a conventional business.

For more information on social entrepreneurs & their businesses, take a look at the following websites:

www.sse.org.uk

www.SE-Alliance.org

socialenterprise.co.uk

sbs.ox.ac.uk/skoll




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Selling at the top.

Business Plan in a Day bookImage by Raymond Yee via FlickrLawrence Bailey of Price Bailey in Cambridge has some good comments to make about selling companies.  There is a feature in a Cambridge Evening News supplement sponsored by his firm.  He talks about four different scenarios but the one I like talks about the sale of an Internet based insurance intermediary in January of this year, 2008.

At the time, the entrepreneur felt that the time was not right and the price was too low.  Nearly twelve months on, the same person reckons the company would be worth on third of the price.  Most companies plod along working away and not keeping any eye on the value of their business.  It is understandable as it is hard making a crust.  But every company should have a business plan resource which makes them track the valuation of their company and also makes sure that it is always optimised for sale.

Twenty years ago, one entrepreneur summed it up with the phrase “We could work for another ten years and not be as well off!”.  So keep one eye on the inside and the other on the outside.  But gosh, you have to be clever to close before a market stalls – and very brave! And to have Price Bailey holding your hand!

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Law firms charge

London by SPOT SatelliteImage via Wikipedia Highly qualified founders of firms spinning out of a university need to be compensated by a high first round valuation for the careers they have forfeited to start a company.  For example, newly qualified solicitors in London can earn £100k per year; senior partners in large professional firms can expect to earn over £2million per year and salaries of senior people – equivalent to successful entrepreneurs will start at £500k.

So if we have four founders, they have “given up” earnings of 4 * £500k = £2million per year say over ten years amounting to £20million.  So the minimum the company must be sold for after ten years is £20million.  But when we do our busines plan with Equity Fingerprint, we have to allow for dilution.  So if the founders are left with 25% after ten years, they need to sell the business for £80million to be as well off.  Of course, you can apply all sort of discounts and NPVs but if you allow for salaries and pensions of top Civil Servants the figure will be the same.

Of course if you want to live the good life, you will need a couple of houses and yachts and cars and the odd football club.  So you have to motor to keep up with your city slicker friends!

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Goodbye to Captain Arthur Jarman and hello Bare Necessities

Burj al Arab Hotel in DubaiImage via WikipediaLymington was the UK base for Captain Arthur Jarman who died earlier this year after 90 busy years in Africa and finally as a port captain in Dubai.  A fine man missed by all the young (although not so young now) he had always helped.

Cpt Jarman would have enjoyed a day at the helm of The Bare Necessities and this has nothing to do with lingerie!  Bare Necessities is for the successful entrepreneur who has played his Equity Fingerprint, the business plan resource, right and is now looking for fun.  The 82′ yacht is available for charter and prices start at some £4,000 per day.  You can take nearly twenty friends and the crew of four all bunker down ahead of the mast so no mixing!  It would be good for geeks as there are 17 computers feeding 20 LCDs.  You can pull on the sheets or let the crew take the strain.

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It is good to be wrong, sometimes

Thoroughbred racing at Churchill Downs.Image via WikipediaLysanda raises a second round of funding and Simon Harris, MBA from LBS and the commercial brains, looks like he has launched a second company. I was offered the chance to be an early angel investor but turned the chance down. However with two funding rounds already, I wonder what the Equity Fingerprint, the business plan resource, looks like.

Hats off to Simon who says: “My aim of course is not just to make other people rich but to share in and contribute to their success. My philosophy is therefore to play a significant part in the business, not just to provide funding, and stick with it until it is up and running. It’s horribly risky of course because it means you don’t have the time to do much else, and if it doesn’t work you are older, wiser but poorer. But it seems to me more likely to succeed than angel investing at arm’s length. It’s like betting at Newmarket to win on one race, rather than each way on all the races. But you need to breed the horse, train it and ride it too!

This seems to be working with Quotient and Lysanda, but I need one or two more to be sure of a minimum outcome. Talking of which, I have found some promising technology in the Engineering Lab which I am casting my eye over.”

Third time lucky we hope but I guess this time the valuations will be high in the early stages – will I be invited to the party?

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Global Entrepreneurship Monitor 2007 report

The GEM report for 2007 – a fascinating comparison of entrepreneurship in 42 nations.