Tag Archives: Path To Funded

4 Ways to Test a Business Angel

He’s on board. He’s interested. Should you be interested in him? Have you found a Unicorn Investor? The one who has the knowledge, experience and time enhance your business as well as money? How can you find out? Read on…

Have you ever heard that the right investor can accelerate your business through start-up to profit making? Yes, it is true, the right investor can. However they are extremely rare. If you draw a Venn diagram the intersect of those with money AND those with relevant experience is very small so, as an entrepreneur, you have choices. Find money from one source and experience from another or find one person who can do everything. Sure, when you talk to any Business Angel they’ll talk about all the time they will spend with you, the connections they have, the amazing future you’ll have together, etc. but if you don’t ask the right questions, how can you know how serious they are?  Perhaps what you need are some simple questions you can ask that will help you decide if they really are an accountant or your future advisor. Here are four you might like to think about using…

How many exits have your investments had?

Note the key word here: “exit”. You are not asking about all the investments they have made but how many they have received a return from. It is easy to invest in companies, much harder to recover that money with growth. Once you know about the successes find out how much impact their activity had on the return? Did they sit in the background and watch it happen? Or did they take on the role of CFO and drive through some amazing deals?

Can I speak to CEOs of companies you’ve invested in?

Once you have the names of people, look them up and see how their company has progressed. Call them and speak to them. See how your prospective investor has helped them – did they really introduce the company to lots of amazing contacts?

Why is he doing it?

Ask the investor why they have chosen to invest in early stage companies. It is terrifically difficult for investors to beat the stock market growth through early stage investment so what other reasons are there? When I was running an Angel Network I heard many answer to this question including “I am using it to shelter Tax”, “I retired and got fed up of golf all day. My wife complained about me moping around the house so I thought I used some of my knowledge from running a $500M division of Shell to give something back to the community.”, and the best one I heard “because it’s fun to talk about and I just got this great bonus…”.

How many hours per month do you expect to work with me?

Your expectation may well be quite different from the investor so it best to see what time they are allocating. I’ve heard of an entrepreneur who was expecting a day a week from the investor. The same investor was expecting to spend an hour a month with them!

Once you have the answers to these questions you will have a better understanding of the proposition that the Investor is selling to you. This proposition may not match the profile you need. This cuts down your list of potential finance sources. You have three options:

  1. Abandon the search for the Unicorn Investor and go for the money.
  2. Spend a large amount of time interviewing people – perhaps you will need to do this full time to be successful. Do you have that time? Or inclination?
  3. Approach an intermediary who knows a large number of investors. Their role is to match the proposition to the person’s desires more effectively and make personal introductions.

What would you do?

[Original article published on 4-Aug-15 by Brian Dorricott, Principal consultant at Meteorical]

Growing Women-led Businesses

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The evidence of the value of women-led businesses is overwhelming.  Women-led businesses perform better in terms of profit, return on equity, and productivity.  They have greater growth potential, and they grow faster than their male-led equivalents.  And they are more likely to operate efficiently.

Yet when it comes to big business, there are fewer Australian companies that are run by women than by men named Peter.  And women-led businesses of any size still find it tough to get funded to grow.

In Australia, women led-businesses represent around a third of SMEs yet only around 10% of applications for funding.  While there is evidence that VCs are less likely to fund women led-businesses than men, there are substantive bursaries available to women-led businesses, and there are ongoing attempts from business groups and working spaces to help support women in business.

But these grants and business growth services for women-led businesses are often undersubscribed or even ignored.  When Business Connector ran an event on getting women-led businesses funded in June 2015, the interest in the event was high, but actual attendance at the event was poor.

So what’s going on?  Why, if the women-led business funnel is so robust, why are so few women business leaders seeking to grow their business.

The answer to these questions still need to be tested in research, but there are a number of hypotheses  about the disconnect between women business leaders and funding sources.

  1. Women prioritise lifestyle and family

This is possibly accurate for women who wish to raise a family and are concerned that growing a business may keep them away from their families.  But it’s a perspective that needs to be challenged.  It’s not just that there is clear evidence of the benefits of men taking on greater responsibility for parenting, but that it can be possible to balance family and lifestyle with managing a business.

And there is increasing evidence that children who spend time in formal childcare from a young age are better adjusted socially, and perform better academically than those children who are cared for at home only by their parents.  The guilt which female carers feel for ‘abandoning’ their children to childcare is almost entirely unjustified

  1. Women are risk averse, and prefer to bootstrap their businesses

The financial risk of borrowing money or losing equity in a business could be seen as factor in disinclining women from seeking funding. Funding may be seen as a shortcut, even a lazier method of business growth than that which is based on sales.

But again, this is an unnecessarily conservative perspective.  While all debt involves some risk, it can be possible to pursue funding which does not require security in the form of family property or assets.  And equity investment actually spreads risk, and can enable women leaders to tap into the expertise a
and connections of equity-oriented investors.

  1. Women are treated poorly by funding sources

This perspective is clearly evidentially based.  There are several studies on the prejudicial manner in which VCs, angel/private equity investors and traditional funding bodies have treated women seeking investment.

But the way to change behaviours of funding organisations and investors is not to avoid the domain. Instead, greater involvement of women is more likely to shift behaviours sooner than avoiding the market.

  1. Women don’t want to run enterprise-sized businesses

This is perhaps a reason based on ambitions for power rather than concerns over time and complexities of staff management within a large enterprise.

But again it’s a perception which deserves interrogation.  While the complexities of running a business expand as a business grows, it does not necessarily follow that a women business leader has to deal with that complexity. Delegation of responsibility for various business operations enables a woman business leader to maintain control of a company, and continue to perform preferred functions while also developing an enterprise-sized business.

  1. Women are more inclined to focus on quality of production than scale

Again, this perception is based in evidence; the strong performance of women-led businesses is strongly correlated with quality of products and services.  But again, a focus on quality does not negate the potential for scaling a business. Indeed, scalability of a business is more likely to be dependent on timeliness and uniqueness of product experiences rather than quality.

This is not an exhasutive list of reasons for women-led businesses avoiding funding, but in our discussions on the matter at the Path to Funded event, each of these ideas was presented as a possible explanation.  But, each of these hypotheses should be robustly challenged.  At best they are excuses, and they are often premised on misconceptions about the possibilities for women-led businesses.

Clearly there is an education challenge that needs to be overcome in driving women to advance their careers and grow their businesses.  Ideally at the next Business Connector event on funding women-led businesses we’ll have a room full of great business leaders, all willing to take the next step.  If you are, or you know a woman out there who deserves a leg up to drive business growth, do us all a favour and encourage her to consider funding.  It could be Australia’s next business superstar.

Further Reading: The Value of Women, Infinitas Asset Management: http://www.infinitasmgt.com.au/value-women/

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