roundtable ... continued from previous page
Customer traction or va-va- voom?
Sikorski queried whether ‘va-va-voom’ was enough or whether customer traction or pre-sales were investment pre-requisites for angels.
It could depend on the business, suggested Hopkinson. Pre-sales for an internet service provider would likely be more risky than a business manufacturing kitchen gadgets.
Dan Wagner
Operating largely in the high-capital internet infrastructure space, Wagner agreed that endorsed customer pre-sales was ‘a huge tick in the box’ for investors and showed that the management team could sell. “Selling can be taught, but some people are naturals at it.”
Sikorski stressed that entrepreneurs had to be able to sell – not only to customers but angels or other investors – and importantly, learn to ask the basic question: ‘How much can I put you down for?’
James Malone
Harris: “Anyone can sell, but they often don’t know how to ask for big numbers. Typically they undersell what they have, particularly in the tech sector. They seem frightened of asking for money, seeing that aspect as almost ‘dirty’.”
Wagner: “Price can be a ‘chicken and egg’ factor. You might go in low to get customer traction and attract investors, but if you go big ticket the sales cycle can be very long, finding funding can be endangered and it’s difficult to maintain business momentum or move upwards from the original low pricing.”
Rodriquez didn’t agree that everyone can sell, but exampled service technicians being trained to ‘warm up’ customers with relevant marketing and sales detail when visiting client premises.
Tim Carswell: “At CCG we typically get enthusiastic but inexperienced entrepreneurs. They may have been running a corporate division and have a product or service idea that they feel they can offer and sell better. They may well be persuasive, but I simply ask: ‘Is the world ready for this, the market timing right, the commercial infrastructure in place?’”
His key things learned as an angel investor were:
• Not all entrepreneurs with a great idea are good at running and growing a business.
• Not all business founders recognise their limitations, their need for help or time to exit.
• Co-investors may not have deep enough pockets to maintain appropriate growth.
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What’s not working for today’s angel sector?
HMRC stated Harris bemoaning late repayment of EIS tax relief entitlements. “Clearly the HMRC is overwhelmed, but end-of-year delays of several months have disrupted my control of investment activities. Either HMRC needs more resources or an improved process.” Other roundtablers echoed this concern.
Malone suggested an extension on the artificial financial cap on EIS investment imposed by HMRC. “If you want to encourage investment you have to loosen the reins.”
Wagner highlighted his EIS and SEIS concerns. “They are restrictive for the business owner because he can’t own more than 50%, so to attract an EIS investor he has to sell more than half of his company. And start-up entrepreneurs seldom want to sell out early.”
He also felt strongly that Capital Gains Tax should not be paid by investors supporting start-ups that generate new UK employment. “The Government will get PAYE, NIC, all sorts of taxes from the new business. They don’t need to tax the guy taking the chance.”
UK v US investment mindsets
“European investors seem to have some peculiar psychology around the start- up entrepreneur not being paid like a normal CEO,” suggested Wagner. “Either the entrepreneur is going to be effective at building their business and should be paid a proper salary for doing that, or they are ineffective and should be removed. Problems arise by not paying your entrepreneurial founder appropriately.
“In America, where I have experience, they pay founder/CEOs very well and, if they are good, investors have no problem in them taking money off the table. Here in the UK and Europe, if entrepreneurs are not motivated by investors they will look to sell out, never aim to build big long-term businesses.
“I don’t want the CEO to be worried about paying a mortgage and their actions to be dictated by external concerns.”
In the USA a lot more money is raised for start-ups, thus enabling fledgling businesses to underpin their founder/CEOs’ salaries, noted Sikorski.
It comes down to proper initial capitalisation of the start-up and then appropriate allocation of funds – a matter of mindset change, added Wagner.
A good founder/CEO can also bring in seasoned executives to manage a growing business. Such proven talent or sector knowledge may not come cheap, but is often “worth every penny”.
THE BUSINESS MAGAZINE – MAY/JUNE 2018
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