It's certainly not the easiest of tasks raising money for a start-up nor is it easy to meet investors - most of the time you will probably need a warm intro from a colleague that has raised investment from the investor/firm or end up spending most of your time networking at events where you will probably get turned down by investors who do this not out of hatred but irritation of being pitched by a lot of entrepreneur over the course of a day.
After getting an intro to an investor, the job is certainly not done and they are no guarantees, its still a long process before you see those zeros in your bank account.
Dan Somers is an entrepreneur turned angel investor who shares some of his insights about how the investment world works and his story as an entrepreneur.
Here is the full interview below.
Can you give us some background information on yourself? How did you get into business?
I think the short answer was “I had to do it.” I had a great first (and last) job as a management consultant – lots of variety, experience and potential, but it was not in my nature to be an employee. I was developing property in the evenings when I could and bought my first one on a credit card and a mortgage (Once I ran out of money and came into work with paint in my hair!). However I did OK/got lucky enough to leave employment but I didn’t want to develop properties for a living. I set up various ideas/schemes, most of which in hindsight were flawed. VC-Net was the one which worked.
Who was your inspiration growing up and why?
I didn’t really have idols per se. The people that inspired me were people who had overcome adversity or disability, or who pushed the physical limits of the human body such as the legendary explorers and mountaineers. Also historical figures who rose from humble beginnings were always a fascination – Cardinal Wolseley and Thomas Edison spring to mind.
Take me back to the early days of running VC-NET, How the idea come about? What difficulties did you face?
I looked around for problems and trends. It was one of a number of business ideas I thought of, although most of them were non-starters. I had used videoconferencing at work and it was a poor experience and just seemed to be a senior management toy. Yet the technology wasn’t so bad so why didn’t it all work? I figured it was the networks: If a dedicated videoconferencing network could be built, and packaged correctly, then there appeared to be a latent need.
Difficulties … where do you start! I’m sure it’s the same as any other entrepreneur: Money, people, suppliers … maybe the most prominent one in hindsight was that I was a sole founder and had no-one to challenge and improve my thinking.
How was your experience/lesson learned running the company?
Good question. No entrepreneur is qualified for the job they do, so there is lots of learning (i.e. mistakes) on the job, asking advice and trying to figure things out. Picking great people to work with was with hindsight a must and I didn’t always do that. That is one thing I now am religious about.
So tell me about Boundary Capital and why you decided to start it up? What made you decide to get into Angel investing?
From speaking with other entrepreneurs, I think there is consensus that the phase after exiting a business is a paradoxical one. I had been 100% into my business and now there was a void, and I wasn’t going to retire just yet. I found that Angel investing was a way to share in the passions of entrepreneurship and create value whilst giving something back, particularly advice and support to first time entrepreneurs (the sort of advice and support I never had!). However Boundary Capital then began to evolve, particularly when I found other people to partner with, and we found niches and funding gaps, particularly around high tech start-ups and university IP (more below…)
What makes Boundary Capital different from any investment firm out there?
I (and later we) did not set out to create anything ‘different’ per se. However we saw so many business plans that we didn’t think very much of, that we started to look more at venture origination and development. This led me to universities and start-up technology companies who needed more than money. It was (and is) hard work, but this is where we found we could add, and create value, in addition to providing finance. Then once you develop a reputation in something, it tends to be a self-fulfilling prophecy which has been welcome.
What criteria do you consider when evaluating potential investments?
That old chestnut! People is right at the top of the list. Sure the product has to have a competitive advantage in an attractive market and some evidence of traction, but if the founders/ management are not made of the right ‘stuff’ then forget it. I’ve invested in great products in great markets but fallen flat because of klutzes. Experience teaches you, particularly when you’ve been in their shoes, that the business plan (i.e. the document) is relatively meaningless. It will change course into the unknown and you’re in the plane so choose your pilot(s) carefully.
How important is the technology when you're looking at a new investment opportunity?
People are really what you’re investing in. There are loads of great businesses founded with zero technology – think of Ikea, WalMart etc. Even locally, the rise of companies like Addison Lee and Pimlico Plumbers prove the point for me as sustainable growth businesses with little in the way of competitive advantage in pretty unattractive markets.
Having said all of that, I am personally more of a technology investor, although I look more for ‘commercial innovation’ rather than technology per se.
How do you judge the quality of the people?
With extreme rigour! There’s no substitute for gut feel, but there’s also no substitute for process particularly references and getting second opinions. Use your head to validate your gut. There also comes the personal chemistry bit which you can’t really quantify, but which is critical: Once you’ve invested, you’re ‘in the back of the plane’ and in a small business, it will always be a bumpy ride so make sure you get along with the pilot(s). And by getting along I don’t mean passively, I mean both parties challenge each other constructively to get to the best decisions.
How actively engaged are you with the companies you invest in?
As mentioned, Boundary Capital is a commercialising as well as an investing business. So we tend to be (although not always) actively engaged. If we’re not the right people for the job because of domain knowledge, then we always try to find someone to invest alongside us who has those skills and experiences. We’ve found this model works well, and we partner with a company (called Venturedirector) who provide these specialist investing executives and non-executives, where we don’t know them ourselves.
What would you say has changed in the investing scene in the last 5 years?
I’ve only been investing for 3 years so I can only talk for those. It’s also a difficult question because I’ve been learning and developing a lot during that time.
If I can make any useful comment, it would be that over that period, even though it’s been during a recession, I’ve not seen a lack of activity at the ‘angel’ end (even though the stats say it shrunk a bit). Entrepreneurs always think that there is a lack of capital around, and angels always think there is a lack of quality deal flow!
Other characteristics you like to see in your companies you invest in?
We always look for (or try to assist with developing) ventures with a robust financial plan that we, and the founders can sustainably benefit from in the long term. In other words, if the business requires venture capital at some point, then we need to make sure we have enough ‘runway’ (sorry for all the aeronautical analogies) so that we don’t run out of cash and get wiped out by them. It never ceases to amaze me how many angels and founders leave fundraising to the last minute, and are always too optimistic with their projections (OK so I used to be too!). We always reserve capital to support ventures if they don’t hit their initial targets but planning and experience are the best guides.
Looking back, can you tell us about a tough time on your journey and how you overcame it?
There are too many, and I’m sure they’re the usual stories: I guess I’ve nearly been bust many times! However dishonesty by other directors was probably the toughest thing to cope with, particularly since I chose these people! I overcame it by staying cool, gathering facts, and acquiring good, honest people to help rectify the situation and move on. You have to trust the people you work with, and choose to work with people you can trust.
I think I’ll borrow the Henry Ford quote if that’s OK: “Failure is simply the opportunity to begin again, this time more intelligently.”
What has been the highlight of your entrepreneurial/investment journey so far
This is the question that has given me the most pause for thought. The highlight is that I’ve lucky enough to be someone who has a ‘job’ they love, and being able to stay true to my core values.
What three pieces of advice would you offer entrepreneurs starting out today, especially those seeking investments?
1. Most people dream of working for themselves but you may just not be cut out to be an entrepreneur. However the true entrepreneur completely ignores this comment.
2. Be proud of your failures. Communicate how you reflected and learned by your mistakes. Anyone can get ‘lucky’, just ask a Lottery winner. No-one wants to back one of those.
3. Ask for advice and you will get money. Ask for money and you will get advice!
What can we be expecting from you and Boundary Capital in 2012?
From a personal point of view, I am looking for my next venture. However Boundary Capital is starting to become an entrepreneurial journey in its own right and we are raising an EIS technology fund. So let’s speak this time next year and see what transpired!