Philip Davies, has been involved in ‘angel’ investing in a local and national capacity for many years. Here he discusses how being an investor goes hand in hand with business mentoring.
If you have spent virtually your entire life in business, and you’re known for having built up a successful enterprise locally, it doesn’t take a long time into a conversation for people to want to start talking about their ideas for a start-up, or how their existing business is doing one way or another. A common talking point is how it’s almost impossible to get a business loan without there being very heavy arrangement charges and interest rates, coupled with onerous T&Cs and security requirements.
Small businesses are usually attached to a ‘Relationship Manager’ who it is often impossible to actually have a relationship with. The Bank Manager for the Recording Studio I have invested in told me at our annual review that he has 1500 clients – perhaps he could hire the Brighton Dome to bring them together as a community! He was keen and very hard working, but inexperienced business-wise and his only purpose was therefore to reconfirm our arrangements and try and sell us various ‘bolt-ons’ of dubious worth. If we wanted a loan for a new bit of kit we would have to phone the ‘Business Centre’ where the person at the other end would go through the procedure of looking at the conduct on the account over the past year, and if the algorithms set up on the system said ‘yes’ (after another set of questions!) we were in the money – but at 18pc APR plus an arrangement fee with personal guarantees etc…and so it goes on.
When I first started out in business, it was obviously very different and you were able to build a strong and meaningful relationship with your banker, who also had seen enough of what was good and bad practice in business to help you with sound advice as well.
But that was then, and times have changed. The young entrepreneurs that I meet understand the ‘now’, so no wonder then that they are not only crying out for investment but also place a high value on mentoring – particularly if it plugs vital skill gaps in their own repertoire. If somebody invests in them, it’s because they believe in their idea/business and, crucially, believe in the person. All successful business in the end is driven by the energy and passion of the owner. We are all going to make mistakes, but an experienced investor also acting as a mentor should help avoid the pitfalls and pratfalls of growing a business and bring some polish to the enterprise.
“Investors themselves are looking for businesses/ideas that are potentially sustainable, scalable and profitable. The investors that I know don’t expect to get instant returns but are more likely to be looking to sell their equity stake back to the owners/founders (usually 3 to 5 years ahead) and, if cash flow allows, get some dividends in the meantime.