Entrepreneurial Advice, Motivation & Startup Strategies

This post is inspired by a pointless but interesting little Facebook app I have installed on my profile, Art of War Quotes. Basically the app displays random quotes from Sun Tzu’s, The Art of War. This one particular quote I found interesting.

“He who exercises no forethought but makes light of his opponents is sure to be captured by them.”

This quote got me thinking about business competition and more specifically how this relates when a business is looking to secure investment, using the elevator pitch and beyond.

A common misconception that those seeking investment for the first time have is the strategy of underplaying the strength of their market competition. Logically it makes a lot of sense to sell the investors on the idea that there is little of no competition in the market place, or that existing competition doesn’t pose a significant threat. This may well be the case but more often than not underestimating the competition has the opposite of the effect desired when pitching for investment.

Competition is good

An investor will respect your honesty and you will gain instant credibility if, instead of hiding the strengths of your competition, you focus on how the other players in your industry go about things and how your business will differentiate itself. Having strong competition in your business field can actually be very positive and can go a long way to compensate for any lack of IP. It proves there is a market for your product or service and that other businesses are willing to spend big marketing bucks to capture the target market.

Displaying true insight in to your competition can only be a positive thing when seeking investment.

The term “Angel” comes from the days where investors used to help theatrical productions get produced. In the modern era angel investors provide angel capital to early stage companies with high growth potential.

Angel Investors are typically successful entrepreneurs in their own right who would like to get involved with a business at an early stage, this could be for an opportunity to put their knowledge and expertise to good use, for tax reasons, or simply to benefit from having shrewd business investments with the potential of high returns.

Why Angel Financing

Releasing an equity stake in your business in exchange for angel capital will enable you to achieve your goals much quicker than growing organically or relying on increasingly hard to find bank financing.

Angels will also bring a wealth of experience that money can’t buy. They will often have industry contacts and will add a level of credibility to your venture, in the eyes of your clients, suppliers and future investors.

Where to find Angel Capital

Finding Angel Financing can be nutoriously difficult, in the UK you can browse the British Business Angels Association website where you will find information on angel networks. In the US there is the Angel Capital Association which segments angel networks in to regions.

What Angels are looking for

The criteria for Angel Capital is less structured and rigid than the requirements for Venture Capital. The Angel, being a private investor, is in a position to take a more optimistic view towards potential drawbacks.

There are certain key factors that an angel investor will be looking for in potential investments:

• You have researched and understand the target market
• Your business has clear goals and you stand firmly behind your business plans
• You have a clear understanding of how you will go about achieving targeted growth
• You have the necessary skills within your management team

You management team may well be laking in certain areas. The good thing about angel investors is that they will often step in to the role of adviser and mentor, which will go a long way to compensate for any areas that are lacking in your current management team.

Should you go for equity rather than debt financing?

If you have rapid expansion plans and want to achieve your goals in the shortest space of time, whilst minimising the risk to your personal assets then seeking angel financing could definitely be a good route to follow.

For a couple of years now, especially in the technology startups industry we are seeing a lot of businesses being built for the sole purpose of being acquired by one of the large players such as Google. From the outset it is clear that the business is being structured in such a way to make it appealing for acquisition, now it is important to have a clearly thought out exit strategy when seeking investment but grooming your company to be acquired by Google makes for shaky foundations.

The Googlebait Phenomenon

Google’s growing appetite for buying small technology startups has fueled a lot of innovation in the tech startup scene. So called “Googlebait” companies are appearing on an almost daily basis, positioning themselves to be the next beneficiary of the search giants bottomless “ad dollars” pockets.

Indeed it is important to work out potential exit strategies at inception but putting “all eggs in one basket” and forming the venture with this one goal in mind is risky to say the least. We are witnessing a unique time where technology startups can go from idea to launch with very little seed capital. This combined with other routes of exit such as IPO being increasingly difficult to obtain, fuels this Googlebait mentality.

Investors will be focusing as much on the execution of your business and its own revenue earning potential, as it operates and not solely at the exit. If you are hell bent at targeting Google as your exit strategy then they do make things easier for you, providing you have clear advantages that aid Google’s future business development goals. Google have a team of 15 full time employers in their acquisitions team and they have a policy of reading every pitch for acquisition.

“We see a lot of companies built to be acquired,” says John Burley, the head of Burley & Associates, a Washington-based business acquisitions services firm. “They come to us talking about how Google or some other large firm should buy them. More often than not, we decline to take these clients.”

The acquisition companies can often be reticent to take on these kinds of projects. The good news is Business Angels will have been through the acquisition process many times before so can add valuable advice, insights and the credibility which opens doors.