If you want money, ask for advice

Posted on November 22, 2010. Filed under: Investors | Tags: , , , , , , , |

For the last 3 years I have been helping start-ups and early stage companies raise investment finance in the equity gap.

Having been through a successful trade exit (Century Dynamics, sold in 2005 to ANSYS (NASDAQ: ANSS)), I am often asked: “Why have you not made investments in the companies that your are helping?”. The short answer, for most cases, is that I cannot: As a Portfolio Director, with the Innovation & Growth Teams, I am paid to be a impartial supporter to companies and to sit on their side of the table.

Now, I have helped in my spare time, other entrepreneurs and companies who fall outside the remit of my day job with the Innovation & Growth Team which has a geographical boundary. So there is a longer answer and angel investing was something I considered. However back in 2006 my personal enquiries into angel investing led me to the apparent collective wisdom that:

  1. You need to make at least 10 investments to hedge your bets
  2. One should expect only one of those 10 investments to do very well and compensate for complete losses on 6 or more of the others
  3. Investing as part of a syndicate (group of angels) is likely to be more successful
  4. Only invest money which you would not lose sleep over losing

So on balance the priorities of investing in my young kids or making 10 investments and not worrying about losing all the money were clear.

More recent research in a report “Siding with the Angels” by NESTA backs up what I learnt a few years before: “In the UK, 9 per cent of the exits produced 80 per cent of the cash returned. In the US, 10 per cent of the exits produced 90 per cent of all the cash returned”. Other conclusions from that report are:

  • Angels with entrepreneurial expertise outperformed those without it, especially in earlier-stage opportunities
  • Those who invested in opportunities where they have specific industry expertise failed significantly less
  • Those who perform at least some due diligence, even just 20 hours, experienced fewer failed investments
  • Post investment some involvement with the venture was related to improved investment outcomes

Over time, I have come to regard the “collective wisdom” in numbered points 1 to 3 above as being rather pessimistic in outlook. Wise perhaps but it rather comes across to me as being all about risk management rather than opportunity creation. After all, there are other ways to balance your investment portfolio which I won’t go into here. Some other aspects of some angel investor behaviour also irritate me:

  • Lack of interest in meeting with the entrepreneurs face-to-face early on. Why assess a business plan when the business is run by people. Business models and plans can and do change. People don’t change much! If I want to hear about an investment proposition I would rather hear a pitch by a CEO than receive a business plan.
  • Lack of politeness: Many angels do not even bother to send any response to propositions unless they are interested and currently investing. Nobody is too busy to write a short email of response simply saying: “Thanks for sharing this short investment proposition with me. It’s not really for me this time but I wish you well in your efforts”. I can understand sending no response to unsolicited, dreadfully prepared and presented, propositions. But is this wise, on the part of the angel, to a well prepared solicited proposition?
  • Middle men: Those who will take an upfront fee to introduce you to their network of investors and then take a success fee (typically 5%) of the money raised. If you are good enough at this why do you need an upfront fee? Some of these people are great but many are a waste of space. I could do a whole rant on this topic alone but it’s been done by others notably Jason Calacanis here.

So what would interest me enough to invest? You may ask, and my answer is, in rough order of importance:

  1. A great CEO and/or founding team
  2. An idea , technology or business model with disruptive potential
  3. A business where I can contribute with much more than money
  4. A business that through success makes the world a better place
  5. A new interesting challenge where there is an opportunity to learn and grow

And, of course, since it’s an investment a big potential upside and good return.

Well after four years of mentoring entrepreneurs, working closely with around 100 early stage businesses and interacting with angel investors, I have now made an investment for an exceptional case.

Three months ago at a TWiST (This Week in Startups) London event I saw 4 great pitches by @Teamly, @opentwit, @campingninja and @Tripbod. You can read more about this great little event organised by all action Steve Schofield of  @Fidgetstick here.  The video for the winning pitch by Sally Broom, founder and CEO of Tripbod is here. To say, I was impressed would be an understatement and afterwards in conversation with Sally she enquired as to whether I was an investor and I replied that I wasn’t, explaining some of the reasons why. Shortly afterwards she asked me if I could provide some advice. Naturally, I was delighted to be of help to enthusiastic entrepreneur with a interesting business. In short, this led onto much interaction over several weeks. It was clear that advice and guidance was helpful to them but some financial support was required too. I really did want to help and by this time had got to know Sally and the business well. It just goes to show that the old adage “If you need money, ask for advice” does work!

This whole process has reinforced my contention that you should invest in people first. Sally has many great attributes but perhaps most of all she is relentlessly resourceful. The same  applies to her co-founder Liz.  So what is  Tripbod?

  • A Tripbod is a trusted local person, with local knowledge, who can help you plan your trip before you go
  • Tripbod provides on-line personalised bespoke trip planning across the globe
  • The one-to-one service includes unlimited on-line contact with your Tripbod through a private trip planning page and personal calendar before you go

Some of you may be wondering whether I have any relevant industry experience to contribute to Tripbod. Well, I don’t. I can certainly claim to have a lot of experience of international travel both as an independent tourist and businessman. However, no worries there, as I am being delighted to be joining as an investor and active board member with Martin Dunford, who was a co-founder of Rough Guides, and who stayed with them through acquisitions by Penguin and Pearson until last year.

No doubt, I’ll be blogging about progress with Tripbod in future posts, so I’ll leave it there. If you’ve read this far, thank you for your interest. We would love your feedback on what you think of Tripbod. Would you use it? Do you think a local travel expert can enhance your next trip? Let us know here.

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16 Responses to “If you want money, ask for advice”

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Thanks for sharing this news Colin. I’ve known Sally for a little while now and have always been hugely impressed by her dedication and passion for her business and genuine ability to seek advice. I’m sure Tripbod will benefit massively from your involvement and are headed for great things.

Thanks Rachel.

We think Zoombu is going to be a great way to get our friends to the other end. You provide the trip planning to get them there and we’ll make sure they have a great time on arrival.

Best wishes, Colin

Brilliant to see insightful content like this being created locally! I’m very encouraged to learn that an increasing number of angels in Sussex are thinking progressively and making investments in software startups.

Thank you for sharing.

Thanks Jon. Yes, it’s about time the UK and local talent, in particular, got the recognition and backing it deserves.

Be good to get your thoughts and other peoples comments on making this happen more?

Nice blog post and thanks for taking the time to write about it. I’m sure it will be a very profitable investment for you. Sally is a fantastic entrepreneur and very committed!

I believe these are very exciting times to do business. Not only is technology changing but so are people’s attitude to do business. Coupled with the fact that have just come out of recession, it’s an interesting time. Certainly many good businesses will come out of it and change the way we conduct ourselves, make investments, grow and work as a company.

Excellent article Colin. Congratulations on your investment! I think it’s a wise one. It’s certainly very useful to get an insight into your thought process behind the investment decision. Best of luck!

[...] Liz), entrepreneur, are in some humble way to thank (of which Colin has graciously done). Colin announced on his blog this week that he had invested in Tripbod, Sally and Liz’s travel company following their [...]

Congratulations to you Colin, Sally and Liz. Was great news to hear how you guys have got together and thanks so much for the honourable mention. Many of the pitching companies are reporting some very exciting times ahead, testament to the industry as it is right now and the hard work of some very talented entrepreneurs. I wrote up a short post on the TWiSTldn site http://twistldn.com/uncategorized/tripbod-get-their-man-at-twistldn/

Looking forward to a 2011 filled with many more TWiSTldn meetup events.

Thanks Steve for all your support, this really is all down to the great event you organised!

It’s also good to mention that Martin Dunford (co-founder of Rough Guides) joined the board as an investor alongside Colin, so our team breathes travel and tech

Looking forward to 2011 too and to more TWiSTldn events. At this rate it looks like our focus for the year ahead will be on strategic partnerships, developments to our core platform and possibly some further team announcements. So, watch this space!

Hi Colin, This sounds like excellent news. I really like Sally’s drive and attitude, and hope that Tripbod does really well. All the best.

There is great potential for visitors coming to Europe as well as far off places.

Hi Colin

A really interesting article, many thanks for sending me the link. I’ve been a fan of Tripbod on Facebook for a few months now and they really do appear to have an excellent product. Funnily enough I emailed Sally to see how I could be more involved – perhaps as a tripbod. Good luck with the venture, I really do like your attitude to investing. It is really refreshing to read. People buy from people and this is such a great case study.

If there is anything I can do to help do let me know.

Thanks, Gareth. Great that we were both fans of Tripbod: Not so great we had not shared that. I’ll be in touch soon.

This very true. Thanks Colin. Your blog will be a very good resource for eBusiness.lk and Sri Lankan entrepreneurs.

Thanks Nirosha, for your kind words and hope that will be true

I’m so sold on Tripbod. Were I in your position, I’d keep it ALL to myself. Good choice!
Anne


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    I help entrepreneurs and small high growth potential companies in Sussex, Surrey, London & sometimes further afield. Flexible to your needs but typically help in raising investment finance and mentoring. Previously I was co-founder, CTO then CEO of a software company which we sold to a NASDAQ listed company

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