Tag Archives for Investment

Should I invest in A and/or B and/or C?

Dinner with Italian angels delegation-1Image by BAIA via Flickr Not able to identify the companies as they are all fund-raising at present, all on their second or third round.  It is not easy being a founder of an Active Equity Company nor being an angel investor as I hope that this post demonstrates.

We brave angels plunged into company A to prove a new idea.  Let us be clear, this idea may or may not work so we were taking an almighty risk.  The demo works but the idea can only be funded by people from the East and by governments seeking to attract new technologies.  The initial offer gives the angels a cap of 4 times our investment and then the founders and the new investors get the rest.  After much bad-tempered negotiations by e-mail, the good chair does no “do” phone calls, an offer was made to let us stay in with no limit to the upside.  Would you have taken up the offer to invest more funds?

Company B had a great start and raised millions but then the two experienced founders fell out and one left after considerable legal costs funded by the shareholders.  From the original business plan, company B should be minting money and everyone should be looking to pick up bargains in the property market.  With no warning, I return from the wedding celebrations (ps five days is too long) to receive documents saying that the company is running out of cash and is seeking to raise so much cash with a minimum of X.  My share will be such and such – but is that to meet the minimum or the maximum.  In the small print, it mentions that this round is at a discount of 50% to the previous round; lucky I did not invest in that round!  Perhaps we need a new chair to bring some fresh ideas to the table but will the old chair cancel his options and walk away?  If not, perhaps I should walk away again.

Last but not least is the very differnt company C. You can phone the office late on Saturday afternoon, recieve a warm welcome, gratitude for some suggestions and real appreciation that you are involved – so different from A and B who fight any ideas.  This time the pre-money valuation has increased four times and the issue is informally underwritten by people anxious to join the part.  One interesting matter is that because the initial round was at a generous valuation, the founders still own a good percentage of the business and so are eligible but unable to subscribe for their part of the new issue.  But existing shareholders have first call on the issue and so can increase their holding in the company.  So it is not just a question of keeping up but of jumping up the equity holding.  And the person on charge finds time to charm minnow investors.  Imagine what he will do to customers of the product and of the company.

But then that is probably why companies A and B are struggling.

Now all I need to do is to work out the Equity Fingerprints, the business plan resource, of each company to make an informed decision.

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Even Babylicious needs an Equity Fingerprint!

Boots GroupImage via WikipediaBabylicious provides healthy food for babies and kids all in special size containers. It saves the parents all the cooking and preparation time which used to bring the family together – now just microwave!

Production is outsourced with the only problem being to make sure the recipes scale from the home to 200 kilo batch production. Routes to market are via Waitrose and Boots.
Sally Preston started the business with family funds of £75,000 and two years later she raised new money from private investor. She says that she took no pay for the first three years and says that she is comfortable with her shareholding.

It is similar to Innocent drinks but they started with a team of three Cambridge graduates and a £250k investment which left four equal shareholders. Innocent also sub-contracts all the manufacture and concentrates on the marketing and selling but the Innocent drinks appeal to a much larger market and not cash-strapped young families.

Babylicious seems to have the same problem as Cobra Beer – working on fine margins in competitive markets.

Equity Fingerprint, the business plan resource, shows that multiple founders with multiple rounds of resources (people and cash) is an easier way to start a business than the lone founder.

One intriguing part of the Babylicious story is that Preston had to spend £34,000 to enforce her trademark as someone tried the equivalent of cybersquatting. It is not only the cash but so much time from a lone founder. Is Babylicious such a good name?

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