Thursday 19th of April 2012 was a fantastic day here at the Docklands Innovation Park when we had the chance to meet Bill Payne, America’s 2009 Angel Investor of the year. Bill has invested in over 50 companies including DoubleClick. His successful track record makes amazing reading.
Bill was visiting the HotHouse entrepreneurship program based in the Docklands Innovation Park where STAR has its Dublin office. It was great to be able to meet and discuss this topic with him. The title of his presentation was “Fundable Companies” which caught my eye straight away. At the end of the day, the real question for any investor or managing director is “the project or company actually fundable?” All too often business plans have great ideas and lots of out-of-the-air sales figures and projections, but what investors look for is the core of the business.
Management Team is Key
One of the key factors that Bill highlighted was the strength of the management team. You may have a great product and a million-dollar market, but can you actually manage the company when it gets to that size? As companies grow, you have to evaluate your management skills (across the company) and ascertain who is the right person to manage it and what skills they require.
The skills to manage a 5-person start-up are not the same as those required to manage a 100-person company. Sometimes a CEO has to decide and plan when they need to be replaced. If you are looking to have an exit sale of your company, perhaps it is better to put in a CEO that has done it before, so they can manage up and out for that trade sale.
But I’m only a Start-up
You might not be the million-dollar company looking to be bought out if you are just a start-up. Again Bill offered some excellent advice on how to manage the early-start investment (or whatever cash you had) and how to focus on building your company. Start-up companies should first consider…
- where to focus?
- how to spend and manage cash?
- and where to build the correct value in your organization?
Angels are people too
Young entrepreneurs often forget that angels are people too. They have the same concerns and worries about any business as you do. They may have the money you need to build a company, but have to be careful where they put it. Bill told us that 50pc of his investments go nowhere. That’s a lot of money to lose; he looks for companies that might deliver back 20 times a return. If you were looking to have an angel invest between 500K and 1 million in your company, they would be looking at getting 20 million in a trade sale in perhaps 5 years. So think before you leap.
Top 7 tips given to us by Bill…
- your management team is important
- scalability: your business needs to be able to scale fast (i.e. production, people and management skills)
- Angel Investors tend to invest in local companies, so do your homework on who is in your area
- potential fundable companies should be customer-ready
- you should have some customers and a little traction in the market
- Angel money gives you the funding you need to scale, it is not research money
- competitive advantage: you need to have some form of competitive advantage
- if someone can copy you tomorrow and take the market away forget it. It doesn’t mean you need IP rights etc, this can come later, just an edge to get the first 10 million in sales!
- niche markets helps
- if you are in a market the big companies aren’t looking at, you can take market share quickly
- sales and marketing plan: make sure you have a proper sales plan
- not that we’ll get 1pc of the market by 2012; how are you actually going to sell your product?