Power, Job Titles & Oxymorons

The current controversy surrounding the power residing with the Prime Minister versus parliament and the legislature has similar parallels in business. Tensions mount when shareholders and executives having misaligned interests. Surely a lot of the problems the banks have faced are linked to this disconnect. And any system of remuneration that lacks audit or control is always asking for trouble as the politicians have found. In isolation, one can justify any reward or find good reason for a payment that wouldn't stand up to external scrutiny or a wider perspective, which is why this is so important in keeping reality real.

On the subject of power bases, I am always wary of companies that have job titles that start with the 'Deputy' or 'Assistant' which implies that the person they report to believes themselves to warrant such a supporting cast. Similarly, I am not a fan of joint roles and responsibilities, which just serves to be divisive and confusing to other staff. If you have functional heads accountable for the performance of the company in that area then that focus is beneficial and good. Everyone needs to be part of the team, but in the end someone needs to do something to move things forwards in specific areas. Even more against the grain is the 'Executive Chairman' role which is surely an oxymoron, which was a subject of a previous post 'Are Two Heads Better Than One?'.

Clucking About Geography

A recent Northern Way magazine article by Mark l'Anson highlighted that 70% of the fund management 'capacity' is clustered around London. Is it the quality of the company that drives the deal or does geography really matter? Business angels mare certainly more likely to stay closer to home, but professional fund managers really should be where the action is.

Is this a chicken and the egg problem or has the bird well and truly flown? The relative absence of VC money may actually damped demand is an argument the article puts forward. Is it the role of the RDA's to redress this imbalance and provide regional funding to need local business needs? The Northern Way have recently published its first recommendations report ' Realising the £25bn Potential: Stimulating the long term private venture capital markets in the regions'.

The report to my mind misses a key point - supply and demand - it's no use having regional fund managers in place twiddling their thumbs without activities to support and stimulate the innovation ecosystem. At the end of the day it is a fund managers responsibility to make money - not to redistribute wealth.

Activities like Connect are more orientated to helping to stimulate innovation and enterprise at the grass roots level. Putting too much focus on fund management as a means of economic regeneration without regard for the health of the ecosystem is not optimal. Fund managers are tasked with plucking good opportunities out of the ecosystem and then fattening them up. If there are not enough good opportunities, they will look elsewhere. Hence the focus of regeneration should be on creating an environment where good investment opportunities develop. I can't help believing that if the opportunities are there, the fund managers will come to harvest them.

For What It's Worth...

I will be leading a Investment Readiness Programme seminar on How To Do A Deal: Money, Valuations and Deal Structures on the 20th May. How do you value an asset? In simple terms, it is the discounted value of all future cash flows it can generate plus any comfort or benefit you might derive while owning it! But also if you think an asset will go up 20% from what someone else thinks it's worth today, then you might be seduced into buying it. Equally if you think it will be worth less tomorrow than it is today you would be hard pushed to buy it. Which is why macroeconomics and recessions cause all sorts of problems (at least in the short term). Particularly if the only cash an asset is going to generate is when you sell it (as with our fixation with houses as an 'investment' rather than as somewhere nice to live!).

There are all manner of ways of valuing a company and it it is instructive to see what each method comes up with, but in the end the value of an asset is what someone else is prepared to pay for it. Which begs the question is a company sold or bought? My experience is definitely the latter. I know investors want you to have an exit strategy, but it should be just that. Spending too much time too soon trying to sell something you haven't yet formulated can be counter productive. The key focus has to be creating value and reducing risks, both of which mean a higher valuation at whatever point this is crystalised.

And don't forget price is negotiable, so make sure you hone up these skills to maximise the price you get for you get for all your hard work. And remember if you are only selling part of the company, you have to work with whoever purchases equity from you so implicitly it can't be an overwealmingly good deal. Each side has to be reasonably happy with the outcome. If either side isn't just a little unhappy at the outcome it probably is a bad deal! Balancing risk and reward is what it is all about and remember the lower the risk and greater the future value is realised quicker the more you can expect to get if you sell something today. Do the sums can quickly shed some light on whether your business plan proposals have any chance of becoming a done deal.

To register for the workshop on the 20th May, click here!

Laying Polished Pitches Perfectly

In the run up to our June Investment Forum we provide 'pitch' mentoring to presenting companies to help them hone idea into something non-specialists in their field can understand. The ability to talk about a technical subject in layman's terms is rarely what these companies have to do day in day out, but when it comes to raising investment it's crucial. This is also an invaluable opportunity for presenters to get feedback, share good practice and see the other side of presenting an understandable pitch. Often it is not until you have tried to explain what is so sparkling about a proposition that you realise it isn't polished enough!

These Company Assessment Groups (CAGs) are made up of the mentors that are assigned to each company that are drawn from our sponsors. The companies get high-quality feedback from people who have heard it all before. So when they present at the Forum, they have the best possible chance of winning over investors and raising the finance they need to make their dreams a reality. This mentoring and support is a key part of the Connect model. We also provide support to companies that may not looking to raise funding, but still want to benefit from this external input through our Springboard programme.

If you are interested in getting your business plan more polished or pitch perfect, do get in touch...