START-UP ADVICE

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I think what works well for me is the
fact I have a broad skillset really. So I’ve
always been involved in starting business
and being an entrepreneur, but along
the way I’ve become a qualified venture
capitalist, private equity corporate lawyer,
and investment banker, so I understand
numbers and balance sheets and cash
flows.
I’ve worked in corporate finance and
made business plans for people and
raised money for entrepreneurs. So my
background actually is the professional
side of venture capital and private equity
and hedge funds.
That’s my professional capability and it
means that when I think about financing
or legal or intellectual property or
structuring these things, I just know how
to do it.
What particularly impresses you?
If a reader has an idea and wanted
to pitch it into you, what would they
need to do to impress you and win you
over?
For me it’s scale to be honest with
you. In ‘Dragon’s Den’ some businesses
are more scalable than others and I
think that’s why I’m always particularly
attracted to technology, because it can
scale.
For example, the ‘Lostmy.name’,
the book business, they could sell ten
books, they could sell a million books.
It’s software and clearly there’s some
printing and there’s some logistics, but
that the scale of the business, because it’s
outsourced.
Some people come in to the ‘Den’,
who are painters or do caricatures of
people and want investment for these
businesses, but relying on just their own
efforts means these are just not scalable,
because they can only do a finite number
of projects by themselves in a day, or
a week. So those pitches don’t attract
me too much. It’s about scale, and
technology enables you to scale, both in
your country and globally.
Do you think many budding
entrepreneurs are being unrealistic in
terms of how much money they might
be able to secure from investors when
starting out?
I haven’t got a problem with people
being unrealistic. If you’ve got a dream
and you think you need 100 million to do
it, then go and do it. Look at Jack Mar,
‘Mr Alibaba’, I’m sure he had a bit of help
from the Chinese government, but he
started in his bedroom and just raised 28
billion dollars.
What I will say is you’ve got to have a
plan and the plan’s got to be realistic. If
you go to 100 people and they all tell you
that you’re nuts, then you probably need
to listen and have a re-think. I’ve done
that myself. When you’re younger you
can take a lot more risks because you’ve
got time, but there comes a point where
you’ve got to stop chasing a rabbit down
a hole and just fill it in.
Do you think some of them don’t
appreciate the amount of preparation,
research and effort they need to put in
before they even present?
Well, there’s that. You’ve got to be
prepared. If you haven’t done that prep
work and research, then you shouldn’t
be starting a business because you really
don’t know what you’re getting yourself
into.
I think the more important thing to
appreciate is that being an entrepreneur
can be extremely painful. It can be very
costly in financial terms, in terms of
your time, which impacts on family and
relationships, and can be very stressful.
You have other people relying on you,
if you’ve got employees, that can be a real
worry. You have your ups and downs.
You have days where you’re staring into
your desk with your head in your hands
thinking, “How on earth am I going to get
through this week?” You’ll be staring at
the ceiling at three four in the morning
on the odd occasion, worrying about an
issue and there’s a lot of that in starting a
business until you really do find your feet
and I think people forget that it is hard
work.
How else can start-ups find and
secure investments other than
through Angel investors or ‘Dragons’
like yourself?
Well there are actually lots of other
schemes, like start-up loans, for example,
but the best way to start a business at
the end of the day is to use your own
resources, because when you bring in
investors very early, you can lose quite
a big part of your business at the start
which is not ideal. What I always say to
people is, “If you want to get involved,
keep your overheads low” and by that I
mean, not just business overheads, but
your personal overheads too, because if
you’ve got a flash car and go on holidays
you can’t really afford and have an
expensive mortgage or rent etc, they all
act like anchors that could prevent you
taking potentially beneficial risks and
also, that fixed cost you’ve got to cover
every month typically means you’re going
to have to get a job.
Any advice on how to negotiate
equity with a potential investor and
how much equity should you hold on
to?
Treat it like gold dust! Equity, at the
end of the day, is why you do it. Equity
is the difference between being master
of your own destiny and working
for somebody else. I’ve had heated
discussions about 1% of my business
before, never mind 10%. Do not part with
it without a very, very good reason.
Is there a kind of magic formula to
use as a guide i.e. for x £ expect to give
“EQUITY IS THE DIFFERENCE
BETWEEN BEING MASTER OF YOUR
OWN DESTINY AND WORKING FOR
SOMEBODY ELSE.”
x % of the company?
If you’re a private company, especially
and Angel backed business or you’re
talking to friends and family, the value of
your company is what they’re willing to
agree to. Simple as that.
So if you’ve got a very high valuation
and you’re giving a small piece of equity,
they’ll get a very small percentage. If
it’s a very low valuation and they’re
giving a lot of money, then it’s going to
be big percentage. So that’s my point,
it’s about as an entrepreneur you need
to bootstrap your business as far as
possible, prove it as much as you possibly
can, before you go and ask other people
for money, because that increases the
valuation and your negotiating position.
In technology, for example, you need
to have your ‘minimum viable product’,
they call it. So, it’s not perfect, it’s not
finished, but it enables you to show this is
what it’s going to do. This is how it works.
Here’s the market. What do you think?