How to attract a business investor
Ever wondered what it takes to get someone interested in investing in your business?
Peter Cowley was UK Business Angel of the Year 2014/15, is a charity chair and trustee, mentor and non-executive director.
Peter’s talk at Drive Cambridge was, in the words of one of the delegates, “... the whole story, warts and all. Fascinating and unflinching in his delivery, we all left the meeting wiser and energised. The banks are now in the back seat and private equity is in the front and available. But you have to have the right idea and, most importantly, you have to be the right person for Angels to invest.”
Win some, lose some
Peter started by putting things in perspective and illustrating that investing is an educated gamble. Of the businesses he invested in recently, he has had 4 positive exits, 5 failures and 5 are terminally ill, so likely to fail soon.
Of over 1,000 positive leads he gets annually, only 30 are likely to survive the due diligence process and of those, only 10 will go on to a completed deal.
The ideal team size of founders for Peter is two or three.
What could go wrong?
In the US, of all tech businesses founded in 2000, only 20% were still in existence in 2009.
The top five reasons for failure include:
No market need 42%
Ran out of cash 29%
Not the right team 23%
Outcompeted 19%
Poor product 17%
It’s not just about the money
It was obvious that Peter likes to invest in businesses where his experience and expertise can add real value and where he can form an enjoyable working relationship with the founders.
Angels typically invest £40k - £60k a year and get between 25% - 30% return.
Of the people Peter invests in, the average age is nearly 40.
1/3 were born overseas and 43% are repeat entrepreneurs.
A previous failure is not an obstacle to future success.
A typical deal timescale is 3 - 6 months.
The business plan is crucial
Many plans that Peter sees are ludicrous, many are untrue and many wildly optimistic.
The numbers Peter looks for in every business are, “How much does it cost to acquire a new customer?” In B2C business this can be £40. In B2B it can £20,000 per customer.
The next one is, “What is the profit over the lifetime of each customer?”
Too many businesses don’t work this out properly and end up running out of money because the business can’t be run at a profit.
Lessons learned
Don’t back founders who are in a personal relationship - a couple is more like one person than two.
Build up trust and knowledge of founders before investing.
Have the difficult conversations as early as possible.
Choose co-investors with care.
Have an open, trusting relationship with founders.
It’s easier to get divorced than sell illiquid shares!
These are some of the comments sent to us after the event:
From Jeremy Harrall PhD RIBA:
Thank you for Friday’s event, I enjoyed it so much so I felt compelled to contribute a few words.
The profession of entrepreneurship, is not to be confused with the fashionable yet trite references used to describe the well trodden and relatively safe business activities of most people. Peter Cowley is a professional entrepreneur, one of a handful in the UK that can lay claim to a full-time career in this arena.
As a front row attendee, I witnessed close-up the innate passion and confidence that underpins Peter's no-nonsense approach to his chosen endeavours. It became apparent that one of his singular tenets is a self-belief that when an opportunity is identified, he can play a pivotal role in making it a reality. Few people have this ability, even fewer have the gonads to put their own money at risk.
Listening to Peter Cowley's words of wisdom will benefit any entrepreneur at any stage of their business.
From Mary Mansfield:
"It was good to learn that Angel investment is not just about money, but also about networking and working with businesses as they hatch and grow. It was also useful to be informed about the criteria that Angel investors use when they consider applications, given the fact they are bombarded with thousands of applications at any one time, which are then whittled down to 30, then just 10!
Some of the advice given was that:
- the business plan must be realistic.
- that those seeking investment are actually LISTENING to their market, suppliers etc. The investor is also listening and deciding whether they can work together with you.
- Trust – no use lying on your application.
- Do due diligence – investors need to know you are going to be honest and good to work with and will check out your network.
- Team size matters – hard for an investor to back a single founder. Although less to argue with, if there is a problem, there is no one else to turn to.
- Failure is okay, if you learn from it. Look at Silicone Valley."
From Sam Sales:
It was great to hear from Peter Cowley some very straightforward advice about growing your business. The list of why businesses fail is certainly something that should be given to all business when they start out. Peter mentioned that you should listen to your investors, it is a key skill in business, and taking advice that might not be what you want to hear could be a factor for a businesses success.
From Kelly Anstee:
Peter Cowley really is a genius, with a personality. I never imagined an Angel (Peter in this case) to be so entertaining and I was chuckling throughout - the best way to finish your working week. (I guess that's how people perceive accountants so I should be used to this mismatched alignment.) His presentation was honest from start to end. The skill sets, experience and tips he laid down were fantastic. Down to earth and completely an expert in his field - it was a pleasure to hear his story (and he Rt'd @TaxSwag too - Happy Days!)
