START-UP ADVICE

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If you’re an investor, what should
you ask for in terms of equity and
active control and is anything else
you should go for?
In small companies, private
companies, when you make an
investment it’s typically a shareholder’s
agreement and actually that and
the content of that is probably more
important than anything else, because
most investors in private companies,
although they may only own, say 30%
of the company; call it 1% of 49% of the
company, they don’t actually control it.
So you need to write in certain
clauses to protect your interests. The
entrepreneur then might have control
of the company in terms of the number
of shares, and control of day to day
operation, but they couldn’t go and buy
an asset or sell the business or do this
or do that without the consent of their
investors.
So for an investor, it’s important to
have that, but for the entrepreneur and
investor, you’ve got to get that balance
right.
That’s quite key actually. The
structure of your shareholder
agreement can actually sometimes be
more important than whether you’re
giving away 25% or 27%.
Who do you look up to in business
and why?
The only person really I’ve ever
looking up to, I think, and I’ve had the
good fortune to spend time with him,
is Richard Branson. I just like the way
he’s gone about things. I spent time
with him in Africa, so I know what he’s
like. So he’s the only person… the
only entrepreneur I’ve only ever really
looked up to.
How can you tell if an investor is
really serious?
When you’re selling, or when you’re
looking for an investment, just like
anything else at the end of the day,
you’re selling a product, you’re telling
a story and when you’re selling to
somebody. This applies whether it’s
a business idea or whether it’s a bag
of tomatoes, and, people start making
buying signs.
If they haven’t said, “Get lost not for
me” and left the room, and they start
saying things like “Oh, right, okay. I
get it, but what about this?” and keep
asking more questions which hopefully
you can of course answer to their
satisfaction, then it’s a good indication
they are interested.
Any presenting tips that you can
give?
Well, you’ve got to have the right pitch
and tone and present yourself well
and get it across and be yourself really,
because there’s no point pretending
you’re something else.
I read somewhere that the Netscape
founders who are both billionaires now,
and invest in all sorts of stuff, didn’t
invest in anyone who came into their
offices to pitch to them wearing a suit.
Anything else you’d like to share
with our readers who are investors?
I’ve done lots of structured
investment. So the thing about investing
is, investing is really easy, you write
cheques. Getting out is the tricky bit,
so it’s structuring your investments to
increase the likelihood of you exiting.
Now, if a company’s a flyer and it goes
from zero to be worth 50 million, you’re
going to float on the stock market or
somebody’s going to buy it. I’ve got it,
it’s fine. If your business just becomes a
lifestyle company for the entrepreneur,
how do you actually get out? And you
can sit there and get dividends forever
and people are happy with dividends,
but for me it’s different. I’m kind of
more grow big, go home. I’m not
interested in dividends. I want to build
a business from nothing to 100 million
so I then get my share of the spoils.
So really it’s about structure debt and
equities. Just think about it. Now, what
drives vanilla structures these days,
especially equity, is the tax structures
like Enterprise Investment Scheme. So
Enterprise Investment Scheme, you
might have heard of EIS; it’s got to
be a very vanilla ordinary share and
if you accept that, that’s fine, you get
30% back off your tax bill, off your
investment from the tax man and you
get some loss relief if it all goes horribly
wrong. That’s fine, but if you think you
don’t need the loss relief, it’s a flyer,
sometimes you might want to give
up the tax advantages for a structural
advantage.
I suppose people don’t think about
exit strategies enough?
Investors think about, if I get an EIS,
I get 30% off which is good, because
that reduced my entry price and if it
all goes wrong then I’ll get 50% back
off. So that’s pretty good actually, but
you’re only thinking about the downside
protection there, not the up-side.
If you don’t believe in the up-side, you
probably shouldn’t make an investment,
but it’s nice to have.
Also, people tend to invest debt
equity. You don’t think about investing
across the capital structure, so it could
be debt equity mezzanine, just think of
it that way.
Any other advice for budding
entrepreneurs, people who’ve got
an idea and they now want to try
and make a business out of it, make
it grow and start trying to secure
investment?
Get out there and do something
about it!
Is youth a barrier? Can they
start quite young and still be
taken seriously enough to secure
investment?
I’m not a massive believer in walking
out of school at sixteen and trying
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