I believe they could not have been more wrong!

I don’t know their situation or how desperate they are, but that’s not the point. What I do know is that any company looking for investment needs to be as selective in their approach as the most hard-nosed VC. I accept that it’s a tough market at the moment but the rules have not changed – doing a deal with the “wrong” investment partner will end in tears……every time!

I believe that when you look for investment you need to have clear selection criteria, make sure you know the people sitting opposite you, understand why they are investing in you and be VERY conscious that there are two sides to the discussion (negotiation). If not, this early stage can very easily develop into an “interview” with the person holding the cash in total control – it’s then too easy to be under pressure and take the first offer you get. Having a clear strategy of the “type” of investment you want, asking detailed and direct questions and not being afraid to take time to consider your options (there are always options) are an essential part of the negotiation process. Not only will you know each other’s expectations and avoid future problems, but you will also improve your business case by clearly demonstrating you know what your business needs to be successful.

So what is “good” money?…

I was once told you should look for investors that are “Patient” and “Passionate” and I have added “Proven” and “Participatory” to come up with “The 4 P’s of an Ideal Investor”.

1. Patient - Understanding each other’s expectations is vital – you need to set out your best realistic estimate of time to market and revenue; claiming or agreeing to shorter timelines or unrealistic returns is short-sighted and setting yourself up for failure

2. Passionate - Empathy will make the road ahead far easier – if you can find people who feel passionately about your opportunity and its market, goals and potential is a real bonus.

3. Participatory – More than just a financial relationship – you are asking for investment but a good investor can offer so much more. Access to new markets, partners, skills and general support can be worth almost as much as the cash!. As a side note, if you are paying directors’ fees or “management” charges as part of the investment package,  then they MUST contribute to the day to day activity and add value – apply the same rules to them as to ANY expenditure.

4. Proven – Ideally don’t be the first – in your market space or type of business. Research your potential investors; speak to other companies they work with – find out what they are really like to work with!

As you see I believe the relationship must be about more than just the cash and should include an understanding, passion and contribution. These combined with shared expectations and good communication can only increase the chances of success….for EVERYONE!

I acknowledge this is not a exact science and not every company wants the characteristics outlined above, BUT you should at least ask yourself the questions and be prepared for the process.

Disagree? What do you feel makes an ideal investor?

I thought for a moment and then said “focus”.

My point was, that although there are many elements to any successful business (start up or otherwise), in the “chaos” that often typifies an early stage business, the ability to focus on the right things is key.

Following the meeting I got to thinking about the question in a wider sense and decided to set out what I feel makes for a successful start up and how to I try to spot them.

Over the past 15 years I have been involved in several start ups and emerging companies; in a hands-on capacity, as an advisor and as an investor – some have been successful and others less so….but why?

I believe success has 3 key components:
A. Core – the “right” product/service and business model
B. Talent – with the “right” skills and attitude
C. Support – access to services, skills and methodologies.

In short – a perfect scenario would be a great idea/model with passionate and skilled people who are open to input and support.

Although this sounds “idealistic” I have seen it happen a number of times and it’s great fun to be involved. The reverse of this is the frustration of having a strong “core” but failing to see (refusing to accept) what is needed to succeed, focusing on the wrong things and then missing the opportunity!

To expand a little further

A. The Core
When I look at an opportunity I always start with the “core” questions – is there a demand for what being proposed and does the business model stack

1. Product/service - clearly demonstrated customer need (critical is nice!); total focus on the customer needs; don’t “over engineer”; move to actual users/customers as soon as possible – if not sooner!; flexible to change if demand exists
2. Business model - knowing the cost of development and incremental delivery/roll out – particularly in non software situations; understanding the real cost of acquisition; demand at a price that stacks up against these cost elements; realistic and sustainable market channels; potential for significant growth

It’s worth saying that often if (1) is “workable” then I am more than willing to help defining (2) further – something that’s vital for expanded/second round funding.

B. Talent – the “right” people
To me this is reasonably straightforward and is all about leadership. I have always found that people in successful start ups:

• Believe it’s a mission – not a career
• Focus on things they can do now -  not just the dream
• Are obsessed with customers - and what they want/need
• Are driven by excellence
• Communicate – good and bad news
• Contribute – with clear roles for everyone
• Work with integrity and respect
• Do stuff
• Enjoy it
• Know their limits - and actively seek help to fill the gaps

C. Support
I group these areas together because, although they are all critical, I classify them (although not all agree!) as “commodities” which can be out-sourced or supplemented by external resources.

• Finance – from bookkeeping through to access to strategic guidance (CFO level) – separate skills!
• Funding - from initial seed through to identifying sources for later rounds and securing
• Grants – identifying, securing and complying with the terms
• Marketing – full range of services from supporting the business growth and sales through to investor work
• Legal – from business terms and employee contracts to structure/equity and IP
• Environment - having a location/”environment” where people want to be and work – this is often overlooked and is not just about spending money

Every start up has a different collection of internal skills; however when certain skills are lacking, it is VITAL to identify this and react accordingly. A further complication for many start ups is that although they need a wide range of skills and access at different levels of seniority, they don’t need them full time. The reaction from some is to try to handle everything internally which not only causes a loss of focus, BUT can also result in dire consequences. I recently experienced a situation where, over a 6 month period, the core team met regularly and frequently with their investors, completed numerous grant reports and make hundreds of product changes (they even moved offices!) – but NEVER met with a customer or secured revenue!…..you can guess the outcome!

This is why I strongly believe that the support of an incubator can put these critical pieces in place without losing focus on (or taking resources from) the core opportunity. An incubator can provide access to advisors and support services that make the difference between success and failure, between achievement and frustration.

So these are my thoughts  on what makes a successful start up!

What have I missed? What do you think makes the difference?

I guess it’s a simple process which I try to apply:

1. Vision - must have have a vision(s) I can relate to and love – feel passion!
2. Plan – must have set challenges – know what’s required to succeed
3. Involvement - I must see where (if) I can I add something
4. Complete - will I be able to achieve?
5. Satisfaction – will I enjoy it?
6. Fulfillment – a MUST

I also…..

• Often use this approach in day to day areas
• Aim to take fulfillment from each step – ALWAYS – or don’t even start