Posts Tagged ‘Venture capital’

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‘Seven habits of highly successful people’ was the title of a book published in the late 1980s and seems to have sparked off a trend. Successful people behave in a certain way, so if you behave that way too, you will be successful. But here is something we don’t often consider. How many of these characteristics shared by successful people, are also shared by unsuccessful people?

It depends on what you mean by success of course. But for the sake of this article let’s assume success equates to making a great deal of money.

Maybe what successful people really need is an eighth ingredient, and that ingredient is called luck. You can’t do much about luck; it is after all down to sheer… well to sheer luck. But there is something you can do to ensure fortune favours you. Alas, this is a lesson few entrepreneurs have grasped.

Actually, some successful entrepreneurs seem to have grasped it. Maybe they are trying to appear humble, or likeable, or just plain modest, but many successful people in business admit to luck. They will quite honestly say that if the particular gamble they had taken had not come off, things would have been very different for them.

They might also admit to major mistakes they made in their carrier, or bad judgement calls, but supposing those bad judgment calls were made very early on in their career before they had, as it were, made it? Maybe the difference between a highly creative and hard-working entrepreneur who makes it and one who doesn’t is one of timing. The successful entrepreneurs made the good gambles early on, while the unsuccessful one didn’t.

Bill Gates famously failed to recognise the potential of the Internet. He also admitted to a degree of luck with Microsoft. Supposing his first big business decision was as hopelessly wrong as his judgment over the Internet. Would he still have become the world’s richest man?

Luck is not something to which we like to admit. It is also hard to accept that we are mortal. It is built into us, and for the young especially this is a very hard concept with which to come to terms. But here is something else it is hard to accept; not all our ideas are good, and if we are of an entrepreneurial leaning, not all our ideas will work.

But the narrative to which so many of us cling tells a different story. It tells us that successful people have seven characteristics in common. We hear of life stories, and how key decisions were made, and it is as if fate was working, making one person’s success inevitable. But if fate really does exist, why is it so hard to predict the future? If it was inevitable that someone was going to be successful, why is that so rarely predicted in advance?

The narrative of success only works in hindsight.

The European Flash Barometer once found that around 43 per cent of people in the UK (compared with 19 per cent in the US) believe that a new business should not be created if there is a risk it may fail. The implications of the findings of this survey are absurd. How can Brits really believe that a business should not be formed if there is a chance it might fail? A business that is guaranteed of success is a business that measures success by the most modest of ambitions.

Those 43 per cent of Brits who think a new business should not be created if there is a risk it may fail have fallen for the narrative that success is somehow predictable.

But while entrepreneurs may laugh at the findings of the European Flash Barometer, they themselves are just as guilty. They concede that risk surrounds us, except that they rarely acknowledge that their own business idea is risky; instead they say and appear to believe that it is guaranteed to succeed.

An entrepreneur might say don’t put money in other companies, on the stock market or in investment trusts, invest every penny you have in your own business. Business advisors may advise focus. A venture capital firm might say it is essential that entrepreneurs do not deviate from their core focus; from their business plan.

From the point of view of a venture capital firm, or VC, with diversified investments, it makes sense to urge entrepreneurs to remain focused. A VC may only need a small number of its investments to come off to stay in businesses. A VC with a portfolio of driven entrepreneurs, who put their heart and soul into their business idea, only need luck to smile on some of those entrepreneurs.

But for the individual, who can see the shortcomings in the narrative sold to them by the VC and public perception, will know that at least some diversification might make the difference between a comfortable old age and one spent in poverty.

© Investment & Business News 2013

Despite the economy avoiding a triple dip recession many leading entrepreneurs remain concerned about long-term growth prospects, according to the latest Smith & Williamson Enterprise Index. There was a marginal drop in the headline figure, although there were signs of positivity elsewhere.

The inaugural Index, carried out in January of this year, recorded a positive outlook as far as the economy was concerned, whilst the latest one has seen a slight dip in respondents’ optimism. The main concern for respondents centred around the fact they don’t believe Chancellor George Osborne is doing enough in terms of deficit reduction.

However, despite the fall in confidence, other figures from the survey suggest that the rise of crowdfunding as a means of finance for businesses could help with future growth.

With many businesses still struggling to get finance from the banks, crowdfunding is a route that many entrepreneurial businesses are considering.

“With most businesses unwilling or unsuited to raising traditional venture or growth capital, and with a scarcity of bank loans and overdrafts, there’s an increasing focus on the alternatives,” explained Guy Rigby, head of entrepreneurs at Smith & Williamson, the accountancy and investment management group.

“Enter crowdfunding. For businesses, there are essentially three types of crowdfunding: reward-based, loan-based or equity-based and there are an increasing number of providers competing to fill this space. Whilst, in some cases, there are regulatory challenges which undoubtedly need to be resolved, it’s new, it’s here and it’s a welcome alternative for the nation’s entrepreneurs.”

Coinciding with the increased interest in crowdfunding was a rise in export confidence. Of those entrepreneurs surveyed who actively engage in export, many expect their turnover to increase during 2013. However, this is not reflected across the wider spectrum, where turnover expectations for exporting and non-exporting businesses combined fell back against the initial reading.

Despite the fledgling signs of optimism in certain areas, it is the growing concern around Osborne’s deficit reduction plans that remain the biggest concern for entrepreneurs.

“Growth is returning but both tax rates and spending are still too high for the economy to really move forward,” said Steve Hallam, CFO at Legacy Portfolio.

“The imbalances that caused the recession still remain largely unaddressed and I don’t believe that simply throwing money at the housing market will help this.”

© Investment & Business News 2013

It was the best year since the heady day of the mid-noughties for the venture capital business. At least it was the best year for Venture Capital Trusts (VCTS), which is not necessarily the same thing, although it should be a pretty good guide.

According to the Association of Investment Companies – or AIC if you are in a hurry – the VCT sector raised £402.5m in the 2012/13 tax year.

This compares with £331 million in the previous year, and as little as £158 million in 2009/09. In the year 2005/06, however, the sector raised £779 million, which was its record year. It also did better in 2005/05 and 2000/01.

The year 2003/04 was the worst recorded, (stats go back to 1995/96), when just £50 million was raised.

From an investor’s point of view there are strong tax benefits in investing into VCTs. Of course these days, tax avoidance is considered a bit fly, a bit immoral. But this does not apply to investing in VCTs; the government wants investors to pile their money into this sector.

Actually, this is the kind of news that UK plc needs. In all the criticisms aimed at banks, it is forgotten that truly innovative companies don’t need bank loans. They need investors, who take equity and a share in future profits, rather than charge a fixed interest rate, which is the same regardless of how successful the recipient of the investment is.

Think of it this way. When it comes to measuring the success of innovative companies, say ten years after inception, the curve representing success does not follow a normal distribution pattern. Rather a small number of companies – the likes of Google and Facebook – make it really big, but many others fail altogether. A banking model applying debt is manifestly not the right model for such a scenario.

Just remember, however, that smaller companies and real start-ups are too small to interest the VCTs.

For the UK it is good news that the VCT sector seems to be growing in popularity again. The UK also needs another investment level, relevant to companies that fall outside the VCT radar.