WHEN Lee Henshaw attended a four-day investment-readiness course to help
develop his idea for a new venture, he didn’t expect to learn much. With a
couple of start-ups behind him and some experience of raising money, he was
confident about his business plan.
Henshaw’s self-belief was soon dashed, however. A panel of experts examined
his investment proposition, along with those of other candidates, and
exposed lazy assumptions, knowledge gaps and unrealistic projections.
“It was a shock from day one and made me realise how little I knew,” he said.
“I turned up full of confidence and arrogance but they soon beat that out of
me. The business plans I had put together in the past were written on the
back of a fag packet. It was clear I would not get away with that this time.”
The programme took candidates through financial reporting, legal and
intellectual property rights and how shareholder agreements are structured.
A role-playing sales exercise also forced Henshaw to reevaluate some of his
own abilities.
“I have done plenty of sales in my time and I thought I was good at it. When
we had the feed-back session they told me they had never heard someone talk
as much as I did. I was shocked at first, but it has taught me to be a much
better listener.”
Close questioning by active venture capitalists made Henshaw realise that he
needed to reshape his plan radically if he wanted to attract investors. His
business idea stemmed from his frustration at not being able to find a good
cuttings service for his PR business (part of any agency’s job is to show
clients press cuttings of what has been written about them).
His plan was to use internet tracking technology to streamline this laborious
process and provide more useful and timely information for other PR
agencies. He had originally planned to serve only the sector he knew, the
entertainment industry, but the investment-readiness team made him realise
he had to apply his product to all PR sectors to create a scaleable business
to interest investors.
Doing the “elevator pitch”, a one-minute presentation aimed at convincing
investors to back the idea, was yet another ordeal. “I am used to presenting
to groups of people and I thought I had done a good job but they thought it
was rubbish. They made us do it again and again. It’s a tough process but
it’s remarkable when the penny drops and you start to understand what
investors are looking for.”
The entrepreneurial boot camp Henshaw attended was run by Gateway 2 Investment
(G2I), a programme led by private-sector firms but partly funded with public
money through the London Development Agency.
It offers the kind of shock treatment that most budding entrepreneurs never
get, but which most need before they start talking to potential investors,
according to Ian Shields, G2I’s programme manager.
“Most entrepreneurs tend to be so absorbed in setting up and running the
business that they become blinkered. An invest-ment-readiness programme
should get them to look beyond the business and look at it though the eyes
of the investor.” Entrepreneurs seeking venture-capital backing too often
make the same kinds of mistakes, talking endlessly about their product or
service and failing to think of, or shape, their business as an investment
proposition, said Shields.
“The investor is interested in four questions – How much money do you want?
What do you need it for? How much am I going to get back? And when will I
get it back? Answer these first and then you can start telling them about
your product.”
Jonathan Gold, director of NStar, an investor-readiness programme in northeast
England, agrees that too many entrepreneurs suffer due to their lack of
knowledge and preparation when they meet investors.
“When people try to raise equity finance they often don’t know what’s about to
hit them. Preparing for it takes time. A one-day investment-readiness
seminar just won’t prepare you for the kind of pressure you will be put
under.”
The problem is that many so-called investment-readiness programmes are nothing
of the kind, according to Colin Mason of the Hunter Centre for
Entre-preneurship. “Some are just a glorified checklist or flimsy computer
programs,” he said.
“Provision is also patchy around Britain. Some good courses disappeared with
the recent changes of responsibilities from Business Link to the regional
development agencies. What’s missing is sustainable funding for the better
courses.”
Unsurprisingly, finding a well-regarded course to attend and then qualifying
for it isn’t always easy. Courses led by people with track records as
entrepreneurs who have raised money for their own firms and with active
investors are likely to be the most worthwhile but also the hardest for
budding entrepreneurs to get on to, said Gold.
Only entrepreneurs who can demonstrate they know the basics and whose plans
show high growth potential will get access to the best courses, said Gold.
“We see a lot of proposals and they often don’t show a proper grasp of the
financial workings of their own business, let alone demonstrating how they
will be able to generate the right returns in the right time scale for
investors.”
Henshaw agrees that the best courses are those run by experienced
entrepreneurs and investors, and warns of the dangers of giving your money
too willingly to commercial consultants offering their own
investment-readiness advice.
“Entrepreneurs are vulnerable people and there are plenty of businesses out
there happy to exploit that. You could spend £10,000 with no guarantees in
the commercial sector, whereas the G2I programme cost me £35.
“We were working with incredibly bright people, with amazing track records as
business people and investors. They were generous people who did not need to
be there.”
Since attending the G2I course, Henshaw has already raised £500,000 for his
business, Five Leaves Left, and for two of his other businesses, thanks
partly to the lessons he learnt on the programme as well as from watching
other entrepreneurs develop their own ideas alongside his own.
“I was fascinated by the other people I met. You realise some people have
really bad ideas, and some are really brilliant, and you can see where yours
falls. When I arrived, I was near the bottom of the pile. Next year I will
be at the top.”
WHERE TO FIND A COURSE
LONDON Gateway 2 Investment g2i.org
MIDLANDS Connect Invored connectmidlands.org
NORTHEAST ENGLAND NStar nstarfinanceandbusiness.com
NORTHERN IRELAND Global Start Team investni.com
SCOTLAND Scottish Enterprise High Growth Start Up Unit scottish-enterprise.com
YORKSHIRE High Growth Start Up Unit yorkshire-forward.com
‘Top ten tips on how to attract investment’
Needless to say you’ve come up with a great idea and all you need is some money to make it happen. Here are my top tips on how to attract an investor:
1.Demonstrate passion and commitment: an investor wants to know you are going to put all your energies into making your idea a success.
2. Know your competition. You are out to steal their lunch, so make sure you can articulate the benefits of your solution over theirs - and remember no competitors equals no market!
3. Start selling as soon as you can. The quicker you prove your value proposition and can start generating revenues the better – real customers are you best friend when it comes to raising finance.
To read my blog on this article and the other seven top tips on raising investment visit my blog at http://connectyorkshire.blogspot.com/
Glen Hopkinson, Leeds,
Please bring this program to South Africa and allow me to introduce it here. I would be very happy to be a participant. Or send me a mandate of how it can be done and i will try to follow the steps to create as much success here
Lee, Cape Town, South Africa