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Wednesday, December 2, 2009

Venture Capital Focus on Growing Firms Says Shuttleworth

'Venture capital is better spend on existing and growing firms' This is the opinion of South African venture capital company HBD, which is still strongly associated with information-technology entrepreneur Mark Shuttleworth. The organisation expects to have disbursed some R100-million by year-end as part of its second fund, launched in late 2006.

CEO Julia Long tells Engineer-ing News that it is currently interrogating several potential investment opportunities, mostly in high-technology companies, but not necessarily information-technology enterprises.

Its so-called ‘HBD Fund2’ will run for two years, with Shuttle-worth having made some R150-million available to the initiative. However, Long says it is possible that more than R150-million could be disbursed over the period, citing a possible investment figure of R200-million.

Unlike the initial HDB fund, or ‘Fund1’, which focused on pure start-up-type enterprises, the current facility is seeking to finance more “mature” businesses that already have products, services and customers.

Long says the idea is to fill a gap in the South African capital market by offering equity funding to enterprises that are keen to either accelerate domestic growth or embark on an internationalisation endeavour.

Given this greater level of maturity, the size of the investment tranches has also been raised to between R10-million and R25-million – Fund1’s limit was set closer to R10-million. “By contrast, the companies we financed between 2000 and 2005, when Mark set aside R70-million for venture capital, were generally at a far less developed stage, some even at the concept stage,” Long explains.

She argues that there is still a desperate need for ‘angel investors’ to support start-ups, but that, following a broad-ranging analysis of the South African environment, HBD (short for ‘Here Be Dragons’) decided there was greater opportunity and less risk slightly further up the value chain.

She says the fund is open to just about any sector, excluding direct investments into real estate and agriculture, and hints to the fact that HBD is in the final stages of a due diligence involving an investment into a leisure-and-entertainment enterprise that offers a “unique” restaurant experience. It is also interrogating an equity position in a logistics enterprise.

To date, though, capital from Fund2 has been deployed in only two instances: an investment into EDH, which develops products and services for the sport, defense and industrial- inspection markets, including a radar-based solution used by broadcasters to track and display shots made by golfers during tournaments; and an investment into a company called incuBeta, which is an Internet search-engine marketing business, with a turnover of R50-million a year.

Long says its basic criterion remains that the companies be established and domiciled in South Africa.

She anticipates that HDB will remain invested in the companies for a period of about five years, and says its partners accept upfront that HDB will be seeking to make a profitable exit at some point. These exits can take various forms, from selling the business to similarly-styled entities, through to an initial public offering, most probably through a listing on the JSE’s small- company board, AltX.

The company has already exited from some of its initial investments made during the roll-out of Fund1, but Long admits that most of these have been conducted at a loss.

“We are acutely aware of the risks involved and don’t take them lightly. But our assessment is that, if we invest in ten companies and spend R100-million in the process, just one might turn out to be core. But that core investment will offer a return that more than covers the upfront investment with a healthy return, with the balance of the disposals offering a bonus over and above that return,” she concludes.

This may be a typical move by venture capital funds in the current economic climate trying to limit their risks and increase returns from businesses already proven to be successes in the market. Despite the importance of business finance being available to this market segment it should not be forgotten that with many banks trying to do the same the investors and banks in South Africa should not forget the army of entrepreneurs hoping to bring their own ideas to the market. Both Shuttleworth and the growing firms his company now invest in was at some stage a start-up and was it not for someone investing in these businesses at early stage they to may not have been in the position they are in today.

Wednesday, October 21, 2009

Starting a business with Venture Capital Funds

Both Venture capitalists & Business Angels are really just investors in your business providing business finance together with experience, business links and support. This is because the objective is still the same. The business or individuals involved will normally be reviewing tons of business plans until one is found that have some synchronicity with the values and objectives of the funder.

Venture capitalists & Business Angels will normally find you through a combination of ways. As an entrepreneur looking for business funding you may be found either through joining a network of investors, sending your business plan to investors that you know of, or in some rare cases they may find you, either through a referral or recommendation from someone else.

Once contact has been made and a background check has been done, the management team will contact the entrepreneur so a meeting can be set to talk more about the idea that was envisioned by the person. If everything sounds good, then the funding will take place similar to how a student in school is able to get a grant in order to conduct the project.
The difference here is that the Venture capitalists & Business Angels will hold a certain percentage of shares in the business. This means a team of people will be working with the entrepreneur in seeing things through. This is done to protect the investment given by the company to ensure its success in the long term.

One of the industries being funded regularly by Venture capitalists & Business Angels is the information technology industry. Despite that, the chances of someone in another field who would like the same thing to happen is still possible because there are also companies out there looking for the next big break.

Everyone becomes a winner when VSs, business angels and the entrepreneur sign an agreement and turn that idea into a reality. This is because despite the risks involved in starting something new, the determination of the entrepreneur and the experience of the Venture capitalists & Business Angels can easily tackle the bumps on the road by steering clear from it.

Venture capital funding is when a startup business or an existing one needs funds from outside people to sustain or keep it growing. While there are banks that can help do this, it is easier to deal with private individuals since the interest rates are not that high and these supporters become strategic partners.

So where do you go for venture capital or business finance? Depending on where you find yourself, most countries today will have venture capital associations or networks where business investors and entrepreneurs are introduced and do business. Do a google search for business finance, venture capital or angel finance in your country and you are likely to be taking the first step to gain funding for your new business.

Wednesday, October 7, 2009

How To Open A Business Using Venture Capital Funds

Both Venture capitalists & Business Angels are really just investors in your business. This is because the objective is simmilar to what it will be for any other investor. The business or individuals involved will normally be reviewing tons of business profiles until one is found that have some synchronicity with the values and objectives of the funder.

Venture capitalists & Business Angels will normally find you through a combination of channels. As an entrepreneur looking for business funding you may be found either through joining a network of investors, sending your business plan to investors that you know of, or in some rare cases they may find you, either through a referral or recommendation from someone else.

Once contact has been made and a background check has been done, the management team will contact the entrepreneur so a meeting can be set to talk more about the idea that was envisioned by the person. If everything sounds good, then the funding will take place similar to how a student in school is able to get a grant in order to conduct the project.
The difference here is that the Venture capitalists & Business Angels will hold a certain percentage of shares in the business. This means a team of people will be working with the entrepreneur in seeing things through. This is done to protect the investment given by the company to ensure its success in the long term.

One of the industries being funded regularly by Venture capitalists & Business Angelss is the information technology industry. Despite that, the chances of someone in another field who would like the same thing to happen is still possible because there are also companies out there looking for the next big break.

Everyone becomes a winner when VCs, business angels and the entrepreneur sign an agreement and turn that idea into a reality. This is because despite the risks involved in starting something new, the determination of the entrepreneur and the experience of the Venture capitalists & Business Angels can easily tackle the bumps on the road by steering clear from it.

Venture capital funding is when a startup business or an existing one needs funds from outside people to sustain or keep it growing. While there are banks that can help do this, it is easier to deal with private individuals since the interest rates are not that high and these supporters become strategic partners.

As an entrepreneur, attracting venture capital funding of course also holds many other benefits for your business. You only need to speak to a business owner who has been there and done that to know that VCs, not only will provide you with the funding, but as their money is on the line, you will gain, experience, valuable contacts, a much needed confidant when times are tough.

Tuesday, August 25, 2009

Google announces Venture Fund

The New York Times this week reported that Google will be launching its own venture capital arm investing in new and growing ventures around the globe.

Google, which has invested in many business start-ups over the years, announced late Monday that it is creating a venture capital arm whose main objective will be to turn a profit.

The group, called Google Ventures, is expected to invest up to $100 million over the next 12 months, The New York Times’s Miguel Helft reported. It will be overseen by David Drummond, who will continue in his role as senior vice president of corporate developing and chief legal officer at Google.

This is an almost natural progression of what Google has been doing for some time now and we will keep you posted on any further developments from the search engine turned venture giant.

Tuesday, August 18, 2009

Finding venture capital as an female entrepreneur

South Africa is seeing an increasing amount of woman entrepreneurs. The huge range of industries now including woman entrepreneurs is encouraging and these stats have now even been made official by organizations such as the global entrepreneurship monitor. But how do female entrepreneurs find business funding. Where and how do they source there venture capital or angel funding from. In an increasingly competitive business environment it’s crucial that woman know how to go about finding funding for their businesses.

Below are some important tips if you are a woman finding your way in the world of venture capital.

Network the Financial Industry

Women must be able to network not only among other women business owners, but with all who are involved in the financial market. Expand networking possibilities with other entrepreneurs, men or women, who have successfully won venture capital funding. Talk with others who are connected with the VC industry. A local entrepreneur club may be a great way to share ideas and get venture capital contacts for financing your business.

Study the Main VC Industries

VCs invest heavily in technology businesses. Many women entrepreneurs have a great retail business idea, but find it difficult to obtain VC funding when there is no model for large scale expansion and sales. If you want to get a business kick started with venture capital funds, be sure to study the industry of your business idea and discover if it is likely to be viewed favorably among VC firms.

Strengthen Your Idea

As with any entrepreneur or company vying for VC funding, your business idea must be solidly defined, marketable, and in demand. Discover a niche for your business idea that will allow your company to experience potentially huge sales. This may take time, trial, and error to narrow and focus your business idea to where it is attractive to venture capital firms.

Assemble a Winning Team

In order to give your business an edge in getting accepted for VC funding, you must have a winning team in place before you approach VC firms. Take the time to assemble a list of potential managers, directors and executives of your company that have the right experience in their industry and preferably in other startup companies as well.
Above all its important that you remain true to yourself. Be choosy when choosing venture partners even when you may feel that you are reaching the end of your patience. Don’t loose hope and if you have done your business plan, completed your feasibility study and have confidence in your business as a prospect, chances are that the right venture partner for you is just around the corner.

Thank you for the contribution made by to this article on where to find venture capital as an female entrepreneur.

Friday, August 14, 2009

More than Just Money - What VC's can really bring to the table

South African Entrepreneurs and business start-ups benefit hugely from joining forces with venture capital firms or even look for angel funding. Once you have your business plan and feasibility study done and are confident that this business idea is the way forward for you there may be numerous avenues for you to explore to get investment for a business.

Not only is there the obvious advantage of having cash in the business for research and development, marketing, product proto-types and all the other many business processes that benefit from an inflow of cash into the business, but the the other side of the deal, and in my view perhaps the best part of it is the expertise that the the business gains from either an individual or business who have been there and done it, more often than not, on numerous occasions.

There has been a number of recent Blog threads on the issue this year.

Recently on Venture Blog, David Hornik writes in More Than Just Writing a Check, about the enormous benefits that entrepreneurs can experience from working with the right VC firm.

Recently in the web strategy blog, Jeremiah Owyang in his thread entitled Beyond the Money lists the following benefits to working with a venture capital firm:

VCs Provide Startups With A Competitive Edge by Offering Additional Services:

Thought Leadership
VCs are required to anticipate future trends, and as a result they are highly connected, obtain information from a variety of sources, and have to quickly synthesize what’s next. Some of the VCs are more active in public, and are on the speaking circuit, and are sharing their ideas. Take for example David Hornick, who does a great job at this as he discusses why and how he’ll invest the $650mm they raised in high tech. Considering the recession this fund will fuel a great deal of innovation –even during a downturn.

Strategic Guidance
Often, VCs sit on the Board of Directors of their portfolio companies and provide guidance, direction, and access to other decision makers. This not only protects the VC to keep an eye on the company, but gives the entrepreneurs a chance to bounce ideas off senior and seasoned investors.

Being Part of The Family
Access is important. When I meet with startups, it’s important to know who invested in them, as it indicates their network. If you watch carefully (real carefully) you can see that startups that share the same investor use each others products, exchange executives, and are talking to each other. They often have offsites

Ancillary Services
Some VC firms have education teams and marketing teams that provide a broad range of services to the portfolio companies who don’t have the resources to hire full time marketing staff. In fact, I’ll be doing a workshop with Giovanni Rodriguez in the near future for a VC group. Recently I held a dinner discussion with Allegis capital and Scale Venture Partners, to meet their portfolio and discuss market trends.

Umbrella Branding
Perhaps the most under utilized is the benefit of being part of the brand of a well known firm. There are certain firms that are known for investing in certain verticals, or have a track record of success that lights my eyes up. Companies often tout their investors in briefings, especially if they are a top tier firm.

Parties… eerr um Networking
Ok, that’s my polite way of saying great parties, well networking too. During the height of the economy, some VC firms flew the executives of their portfolio companies out to a one week retreat in Hawaii. Also, some of the best parties in all of Silicon Valley are at August capital –social media networking nirvana.

Recruiting and Fundraising
I added this bullet after the fact, after seeing how David Hornick has added to the conversation it’s too important to pass up. VCs offer additional services like recruiting, which I’d be so bold to say is often executive placement of the right folks. Secondly, they help with fundraising, which I would assume would be for additional rounds of investment, I would expect that this would often mean a solid reference from one investor to the next.

Entrepreneurs should weigh all benefits
Of course, with the top tier VC firms, there are certainly considerations, getting backed by a very successful VC firm may mean they have more influence over the terms, may drive the direction of your company, and ultimately, may have more equity of the company. I encourage you to think about the other services, network, and events that your VC will offer you, find out by observing or talking to companies in their portfolio.

VCs offer more than just funding
VC should continue to provide thought leadership in their space, discussing in public why they are raising money, where they anticipate market growth, and how they plan to invest. This not only attracts new investors for their fund, but gives branding cover for their portfolio, and the folks in the industry, like me, visibility on the next trends. What they do beyond the investment makes a different –I can see it.

Most of these sounds like an offer you would seldom be able to refuse. Remember though that if you do go down the road of looking for a venture capital partner to go into business with, do your homework, ask for references and check out the FAQ's on the topic on the SA Investors Network site.

Monday, August 10, 2009

How to become a venture capitalist

How do I become a venture capitalist? A common question asked by graduates, professionals and entrepreneurs who may have been through the process of finding venture capital to grow their business. Venture capital is of course not for everyone and you need to be certain of your motivations of why to enter this are of business.

If you have the money to invest and has the appetite for high-risk, high-return investments, you might consider investing in new, rapidly growing companies that have potential to bring you large returns.

People and companies that do this are called venture capitalists. They help small and fledgling companies take off by providing them capital as well as technical and administrative inputs, usually, at their startup stage.

How Does Venture Capital Investing Work
How do you become a venture capitalist? If you are an individual, you can act alone and become an "angel investor" providing low-level financing and management expertise or you can partner with another investor or become part of a group of people and institutions funding a corporation.

If you are pursuing the plan with a partner or a group, you basically start a firm first, which is usually structured as a partnership or a corporation
The venture firm, as your group will be called, will form a pool of funds by seeking capital commitments from other investors and institutions to raise a pre-determined amount of money. This happens with the firm seeking out prospective investors and sending them prospectus about the capital raising. Out of the capital commitments solicited, a fund will be created, which will become the legal entity transacting business in behalf of the investors. The process could take weeks to years. The fund is usually structured as an LP or an LLC, which has a fixed lifespan, usually up to 10 years.

The venture firm will have to decide whether it wants to invest the fund in a particular industry or area or invest across industries, in various locations and in companies at different stages of development. The venture firm might also choose to concentrate on acquisitions or helping failing companies get back to financial health (turnarounds).

The venture firm considers various investment opportunities presented to it. The firm then conducts due diligence to choose an investee company (usually among many, which could be a hundred). Typically, the firm will be given shares in the investee company and members of the venture firm become managers or directors of the company. The capital commitments will be during several stages of the company’s development.
The firm may decide to do another round of rounds of fund raising for other investments.

Venture firms anticipate investments to generate returns in three to five or seven years. Usually expected return on investment is 20-40%. The maturity of the investment is heralded favourably by an initial public offering of the company or a sale or merger, which shows it has gained enough footing to be able to attract investor interest.
As a venture capitalist, you help many companies get through their startup stage, while helping create jobs and fuelling the economic growth of the country.

If you are looking for venture capital in South Africa or want to try your hand at becoming a venture capital professional visit the investors network site and see if you can start your bright future in business investment today.

Thank you for the contribution of to this article

Thursday, July 30, 2009

Venture finance deals for July 09

After a relatively slow month in June we saw that venture finance activity started picking up again in July. A few of the more interesting deals are listed below.

VentureBeat Reported that Twitter may not have figured out a way to make money from its business yet, but that is not stopping spinoffs of the microblogger. Twitter’s increasing popularity as way for business to communicate with its customers has translated into a $1 million fund-raising round for CoTweet, a start-up that helps companies manage their customer relations on Twitter in real time

Qik, a start-up that enables live video streaming from a cellphone onto the Internet, has landed $5.5 million in fresh funding. Quest Venture Partners and CampVentures led the round, according to VentureBeat

PaidContent reported thatAustin Ventures has provided an additional $20 million for Asset International, the business-to-business financial information provider.

peHUB reported that Quantcast, the Web analytics start-up, is seeking to raise about $50 million at a $300 million pre-money valuation.

VentureBeat reported that Facebook co-founder Dustin Moskovitz and a colleague, Justin Rosenstein, left the firm last year to start their own company focusing on collaborative business software and tools. They raised money from some of the same investors who backed the social networking site, .

Paltalk, the video-based social networking start-up, is buying back the 20 percent stake it sold to Softbank for $6 million in its second round of financing five years ago, reported.

VentureBeat reported that Aptana, a maker of open-source software for Web sites, has nabbed $7.8 million in a fresh round of financing. Rembrandt Venture Partners and Accel Partners provided the second-round funding, which the start-up plans to use towards Aptana Cloud, a free service that allows users to deploy and manage their web applications from a central location.

Generate topped up its $6 million first round with an additional $2 million, the online video firm’s chief, Jordan Levin, reported PaidContent. The add-on, completed last month, was led led by existing backers Fuse Capital and MK Capital.

VentureBeat also reported that Outspark, which runs a “virtual playground” for online gamers, said it closed an $8.3 million venture financing round led by Syncom Venture Partners, a new investor.

Bono is one of the co-founders of the investment firm Elevation Partners, which has put $435 million into Palm. But he has been appearing as a pitchman in a commercial for the BlackBerry. The New York Post reported.

San Francisco Chronicle reports that Blog network Sportsblogs has raised $7 million in a Series B round, The San Francisco Chronicle reported. The round was led by Comcast Corporation. The network, which is popularly known as SB Nation, was founded in 2003 by Markos Moulitsas, who previously started the political blog DailyKos. SB Nation is a network of 200 sports-related sites that draw 3.5 million unique visitors a month.

Networking site Ning has raised $15 million in a fifth round of venture funding that gives social networking start-up a hefty $750 million valuation. Lightspeed Venture Partners led the round, which brings Ning’s total funds raised to date to $119 million.

And finally

SlideRocket, a startup that helps users build online presentations, said it raised $5million in a second round of venture financing led by Azure Capital Partners. Hummer Winblad Venture Partners, the lead investor in its previous, $2 million round, also participated in the latest financing, the company said in a press release.

Tuesday, July 28, 2009

Tips when Presenting to VCs

Presenting your idea to a VC can be a nerve wrecking experience at the best of times so most businesses will take all the help they can get when it comes to the presentation. Once you have found the right VC firm, remember that VC's are also just people and most importantly looking for good investment opportunities. I was sitting in a presentation a few months ago when the speaker and also head of a large venture capital firm shared their frustrations of just not getting enough attractive opportunities to invest in. At time the figure mentioned was that around 75% of their available funds were never used due to a lack of investable projects. Remember that they need you as much as you need them.

A few further tips to take note of are:

1. VCs are pessimistic. Just understanding this before you go in and pitch is going to help you realize you’re talking to people who are skeptic about your idea before they even hear about it. You’re optimistic, but they see people lying about figures and numbers all the time, so they may expect it from you.

2. Keep your opinion out. Stick to statistics and facts, because your opinion doesn’t count for crap unless you’re really credible, plus the VCs can instantly make a case not to fund you based on even the smallest and most insignificant differences of opinion.

3. Have something that’s already established. 1 of the 5 finalists in the Cozad had a business that was established and making money. Guess who won the competition? Trying to ask a VC for money based on an idea that you have is like trying to ask a vegetarian to eat steak. If you’re not established, build a prototype.

4. Don’t claim outrageous financial projections. I’ve heard someone try and claim that a R20k investment would return R40 million very quickly. Those types of projections--without much credibility or factual data to back it up--are raising red flags to your potential investors.  The logic would also suggest that if this was the case, why not just go get a loan from a bank?

5. Prepare to be grilled. You’re going to be asked direct, no-nonsense questions. Rise to the challenge, but if you don’t know an answer, just say so. One student was asked “What are your top 2 compliments and top 2 complaints from your current customer?” His answer was a blank stare, followed by an “I’m not sure.” That student still won the contest.

6. 10/20/30. Plan on giving 10 slides in under 20 minutes with 30 point font. Please do this unless you absolutely plan on giving lunch and recess breaks to your audience.

7. Practice the presentation. At least 20 times out loud, is Kawasaki’s recommendation. Enough said. If you don’t practice, you’ll be nervous and you won’t be seen as confident.

8. Entertain if you’re good. Most VCs don’t mind being entertained in the process of being pitched. In my experience, VCs are very laid back and have a good sense of humor. Try and reciprocate that behavior, but this usually only works effectively with extroverted personality types.

9. Don’t come off as desperate (read: don’t care). If you’re over-enthusiastic about your idea, people may think you’re just desperate. Be calm, present your case, and answer the questions. VCs are everywhere, so if you don’t get this one, pack your bags and move on to the next. Many sales theories state that the best way to attract a sale is to not care if a prospect is interested or not (watch the scene of Vin Diesel in Boiler Room for a perfect example).  I like the analogy of VCs compared to women.  If you go on a date and act too interested, it’s a huge turn off.  Many girls are attracted to guys who are independent, think for themselves, do intriguing things in their life, and don’t seek approval.

10. Know the competition (and yes, they’re out there). One of the biggest questions you answer is “How are you different from XYZ Company?” If you don’t have a definitive answer, you won’t see a dime. VCs are very sophisticated people and know their industries. If you “don’t have competition,” you’re not looking hard enough.  I’ve seen VCs call a person out on this one too, and they usually already know the answers, they just want to see if you do.

Let us know if you need guidance or coaching in more specific areas of the process, whether it being the Pitch, the deal, the negotiations or anything else.

Tuesday, June 30, 2009

Business Funding Deals for July 09

In our regular monthly blog on business funding activity around the globe, this month again we saw some interesting activity some of which are listed below., a do-it-yourself social networking start-up, has landed an additional $1 million in its first round of financing, led by Golden Horn Ventures.

Google has invested an additional $2.6 million in 23andMe reports the New York Times. The personal genetics company co-founded by Anne Wojcicki, the wife of Sergey Brin, a Google co-founder. The investment, which Google disclosed in a regulatory filing on Thursday, brings Google’s total investment in the company to $6.5 million.

The man who popularized the Web browser has started a venture capital fund to back the next generation of new technologies.

Marc Andreessen (above), a founder of Netscape, announced Monday that he and Ben Horowitz, a longtime business associate, had raised $300 million that they intended to invest in technology companies, Claire Cain Miller of The New York Times reported. The venture capital firm, Andreessen Horowitz, will risk small sums, some as small as $50,000, on new ideas.

The The New York Times and VentureBeat reported that Bling Nation, which allows users to pay for goods in stores via their mobile phones, has landed $8 million in financing, VentureBeat. Investors include Lightspeed Venture Partners, Meck and Camp Ventures

Business funding: Interesting Deals for June 09

June saw some great business funding activity around the globe. See below for some of the more interesting deals and let us know if we're leaving anything of note out. reported that Cloudera, an data storage and management start-up, has attracted $6 million in a second round of financing led by Greylock Partners. A previous backer, Accel Partners, also ponied up for the round, which brings Cloudera’s total financing raised to date to $11 million.

VentureBeat Reported that MyBuys, which helps e-tailers make personalized recommendations to customers, said it raised $7 million in second round financing round from Lightspeed Venture Partners and Palomar Ventures. Both firms participated in the company’s previous round in 2007. In a press release, MyBuys said it planned to use the new money to invest in products, client services and market expansion., the Twitter-focused search engine that has nabbed a total $15 million in financing to date, was introduced last week says VentureBeat. Investors in the start-up, whose search functions operate Google’s for Twitter accounts, include Blue Run Ventures, Ignition Partners and Founders Fund.

The chief of a soon-to-be-independent AOL is expected to create a unit called AOL Ventures, which will house some of the start-ups AOL recently acquired and seek new venture-capital investment for them, according to All Things Digital. reported that Seatwave, the secondary ticketing Web site, is catching up with its rival Viagogo in terms of fund-raising, announcing that it has received another $17 million from its venture capital backers: Atlas, Mangrove and Fidelity, and a newcomer, Accel.

Wednesday, June 24, 2009

Go Where the Money is

If you're still in two minds about whether to push ahead with a clean tech or healthcare project, take comfort from the latest VC investment figures. Funds are definitely out there to back good ideas - and record amounts of cash are now being poured into some sectors.

Data released by Dow Jones VentureOne over the weekend indicates that US VC firms pumped $590m into energy investments in the third quarter of 2007, a leap of 28 per cent over the same period last year. Investment in advanced specialty materials and chemicals companies - another substantial subset of the clean tech equation - doubled from the previous year to $277m. UK investment trends don't slavishly follow the US, of course, but with Silicon Valley emerging as a leader in clean technologies, the figures give some indication about where investment preferences might swing in the UK and elsewhere going forward.

Alongside green concerns, of course, healthcare remains a big talking point in the US and has also proved to be fertile ground for entrepreneurs. Earlier this month, the first Baby Boomer, a retired teacher, applied for social security - and as VentureOne points out, there are 76m other Boomers waiting to follow suit. Aside from the impact on social security funds, all of these new retirees are going to need medical care - which helps explain why overall investment in the healthcare sector grew four per cent. The medical devices sector in particular continues to grow strongly - while the number of actual deals fell, total investment climbed 19 per cent to $830m, taking the sector to record annual figures with just three quarters gone.

Elsewhere, traditional information technology investment slipped a little, with ten per cent fewer deals and five per cent less overall investment in the third quarter. It remains, however, the largest VC investment area overall with $3.77bn of investment. Not surprisingly, the information services category - which includes Web 2.0 companies - now accounts for around a quarter of overall IT funds. Significantly, some 60 per cent of IT deals went to second and later round companies, a trend that was borne out across the whole VC arena. While the level of early-stage investment remained steady, this later-stage focus helped push median deal sizes to a new record of $7.92m.

Finally, if you ever decide to seek out US investment, bear in mind that just like house prices, location is everything. New England and New York both saw healthy growth on the East Coast - but it's hard to argue with California, which alone accounts for a staggering 44 per cent of all US VC activity in the third quarter. While the Bay Area's share fell slightly, Southern California saw its biggest deal volume since 2001 - suggesting that we'll have to wait a while before any other state makes a serious challenge for the number one slot.

By Keith Rodgers

For South African Business Invetment Opportunities and Capital check out SA Investors Network

Growing your business exponentially

Want to know how to grow your business 20,000 per cent over the next three years? Take a look at the September issue of US entrepreneur's magazine Inc., which contains this year's list of the fastest growing private companies in America.

The ludicrously high headline figure (20,128.9 per cent, to be precise) comes from a company called MemberHealth, which struck it rich in the US health market prior to agreeing a tasty $630m buyout offer earlier this year. But while it leads Inc.'s highly-respected Top 500 listing, it's just one of many companies enjoying super-quick growth. Companies from a broad cross-section of industry have made it into the ratings, and as always, the tech sector has a fair showing.

One point that stares you in the face on the listings is just how big a part luck plays in making silly money. After MemberHealth, the second fastest-growth company on Inc.'s list this year is a telephone switch supplier that happened to get a big break from a deal with a large US cable company. Net result? Three-year growth of 14,853 per cent with current revenue of $68.1m.

But while luck matters, good ideas still count. In the software field, Turning Technologies is the highest ranked company at number 18 - it develops software and hardware extensions to Microsoft PowerPoint which allow members of the audience to interact with a presenter using handheld devices. If the thought of presenting in public makes you break out in a cold sweat, this is probably the last thing you want to get involved with, but the software clearly has applications in education and other fields.

Other noteworthy representatives from the software sector include SPADAC at number 32, which makes predictive geospatial software - the sort of stuff governments use to predict where terrorist infrastructure attacks might take place, and the stuff companies use to work out where they should locate. And then there's TopCoder, 45th in the growth stakes with revenue of $14.8m and three-year growth of 2,459 per cent. This is a company that really is breaking the mould with its software coding competitions, where companies - including blue-chips - submit coding problems to a network of over 115,000 freelances, who compete to provide answers. The set-up works well for everyone: the customers get some relatively cheap development work, while prize money for freelances can reach a cool $100k.

Inevitably, though, the success of some of the top-performers is less about technology and more about its creative application. Take Bill Me Later, number six in the list with three-year growth of 8,650 per cent, revenue of $53.6m and 100 employees. It provides an online billing system that eases consumer concerns about entering credit card details over the internet by using purchasers' birth dates and part of their social security number. As its name implies, consumers also get billed later, which definitely helps get them excited.

And good ideas don't have to be ground-breaking ideas either. Position number 34 in Inc.s' list is held by a company that sells software for medical practice billing and record-keeping, and brings in revenue of $38.2m in the process. Likewise, TaxStream, which makes accounting software for large public companies, comes in at 51.

Finally, if you're of a creative bent, take comfort from the fact that style can indeed win over substance. The consumer products field is led by one of last year's listed firms, Digital Lifestyle Outfitters, which makes a range of accessories, including cases, for iPods and other handhelds, and was recently bought out. No mystery there about the cause of its success - although with revenue of $98.6m and just 70 employees, it definitely fits into the 'wish I'd thought of it first' category.

By Keith Rodgers

Saturday, May 30, 2009

Business Finance: Deals for May 09

Some of the interesting venture funding deals and almost deals for May included the following:

Facebook, the social networking site, has held meetings with a bevy of private equity firms to explore raising another round of financing, The New York Post reported. Facebook held “valuation discussions” with Providence Equity Partners, General Atlantic, Bain Capital and Kohlberg Kravis Roberts, among others.

Associated Content, an online publishing start-up, has rounded up $6 million in funding, one month after it named a new chief chief executive, former CBS Interactive executive Patrick Keane, reported. The latest round comes from existing investors including SoftBank Capital, Canaan Partners and AOL chief executive Tim Armstrong, the publication said. The additional cash brings the company’s fund-raising total to $21 million.

Marin Software, a provider of search marketing technology, said it raised $13 million in a third round of funding led by DAG Ventures.

EveryZing, a publisher-based search engine, has nabbed $8.25 million in a third round of financing. NBC Universal’s Peacock Equity provided $3 million of the total, while existing investors Fairhaven Capital, Accel Partners, General Catalyst Partners and BBN Technologies also participated.

Apparently Apple, with $29 billion in cash burning a hole in its pocket, was mulling a deal to buy Twitter for about $700 million. Putting aside the will-they-won’t-they chatter started by a report from Valleywag, trains its sights on the price tag.

Slacker, a maker of portable musical devices, has taken in $9.6 million of a $10.2 million round, reported, citing a regulatory filing released Thursday. The financing came from nine undisclosed investors, the publication said. Previous backers of Slacker include Centennial Ventures, Rho Ventures, and Austin Ventures. The new capital brings Slacker’s total funds raised to $68.7 million, PaidContent said.

Sunday, May 24, 2009

The Power of Marketing

Are you making the most of the web to build your business? With the right combination of classic marketing principles and clever techniques, even the smallest companies can reach a big audience

Type 'treatment abroad' into Google and the top four non-sponsored results take you to a site run by Berkhamsted-based Intuition Communication. 'Private health' produces the top two results for Intuition. And for 'breast implant' and 'cosmetic surgery', its private healthcare website appears in a prime spot at the top of the second listings page. Intuition is only a small company and it doesn't pay a penny in banner ads or pay-per-click advertising, but there it is topping the most popular method of finding services on the web. That's the power of internet marketing.

'We have a search engine optimisation expert and every month of his life is spent optimising our content for the search engines,' says Intuition managing director Keith Pollard. 'We have around 2,000 search terms which we target and our average position on Google is 6.2. The reason that's important to us is not only for our own sake, but also our clients, who advertise with us because of our positioning.'

For many entrepreneurs, internet marketing will be less about driving traffic to the site and more about establishing their business's credentials in a particular area - a marketing brochure to the outside world. But lessons from internet businesses still provide useful pointers. Using the internet as part of the marketing mix is an extremely cost-effective way of getting your message out there. It's also a good way of targeting a particular audience, since visits, clicks and links are so transparent on the web. The internet marketer has a number of tools to help - including the site itself, blogs, forums, links, and of course search engine optimisation. But it's important to bear in mind that some of these are more effective than others.

To a certain extent, the four Ps of marketing hold true in the web domain - product, place, price and promotion are still the most important considerations. It's relatively easy, for example, to drive some level of traffic to your website, but if visitors don't find what you've promised them when they arrive, they'll soon go elsewhere. Equally, you could spend a lot of time and effort promoting your website through articles on other sites, blogs, and links, but if there's not a compelling reason to visit right now, then you won't pull people in.

Creating the right site

So what ranks as a good website from a marketing perspective? It's the combination of strong content, good design and clear, easy navigation that scores highly, according to the Web Marketing Association. It recently released its 2007 web awards report, which features a decade of data on what its judges decided were the best websites across a wide range of industries since it started in 1997. The sites are scored by independent judges against seven criteria: design, innovation, content, technology, interactivity, copywriting and ease of use. Although the competition is largely US-based, UK sites did well, rated the best in Europe.

Industry-wise, the airlines came out best, scoring above average every year and achieving the highest average score in 2006. The judges noted that airline sites were moving from being purely transactional sites where you could book flights to providing in-depth travel information on destinations. The top pick was the American Airlines site.

In the technology space, biotech was slightly better than average, using design and copywriting well, including flash presentations to convey complex ideas. Cara Therapeutics, a New York-based drug development company came out on top in 2006. Computer hardware meanwhile, was also a high performer, with voted the best site for the three years before this year, when the accolade was handed to Broadcom. It's easy to see why HP's site scores so highly, with a clear demarcation as to where its different audiences should navigate and strong offers encouraging visitors to take further action.

Misunderstanding the audience and poorly targeting offers are the most frequent mistakes firms make in internet marketing. But another advantage of the web as a marketing medium is it's relatively easy to test, monitor and continually improve sites based on audience feedback. Studying visitor stats can show which elements of the site are most popular, and where visitors are experiencing difficulties finding what they're looking for.

Driving traffic

Once your site is as strong as it can be, you need to think about driving traffic back to it - but it's important to consider first what sort of traffic you want. Pay-per-click advertising - where you're only charged when a user clicks back to your site - is offered by various online agencies and can be a good way of targeting a user with a particular interest. Fees can be high though, particularly for popular keywords or titles and you may have to bid for a particular spot. Equally, banner ads can help drive targeted traffic to your site - and since each page on your site can serve a different banner, you can ensure your message is targeted to a particular niche. However, static banner ads can seem outdated now, and you're not guaranteed a specific number of clicks.

The sort of viral marketing that led to much of the early excitement about the web is perhaps more relevant, particularly in terms of mentions and links from other sites on the internet, which also help guarantee good ranking in the search engines. No one knows the exact algorithms Google uses to determine the relevance of sites, but links from other sites are part of the equation, along with regularly updated content and longevity.

'The fact that we've been around 10 years makes us an established presence, an authority in the eyes of Google,' says Intuition's Pollard. 'The fact that our content is changing daily, has 6,000 pages and over 1,000 other websites linking to us says to Google this is a fresh, interesting and important site. All these factors are in our favour and we make the most of that by tweaking content, and title tags.' Pollard recommends ensuring URLs are search engine friendly - those delivered out of a database with odd characters like question marks will not necessarily be spotted by the search engines.

And the results are impressive - at least for Pollard's business. 'Across all our sites, we probably had around 450,000 visits last month and all of that activity comes from natural visibility on search engines. We don't advertise, buy pay-per-click or promote ourselves through other sites.'

Finally, it may be that your ultimate goal isn't to drive traffic back to your site. An equally valid strategy for some companies would be to contribute blogs and articles elsewhere which simply establish your expertise in a particular area. It's curious to note that the worst performing sites in the web awards report were those you might expect to score higher, but which have no real reason to be out there in the full public glare: credit unions (where members just input transactions), brokerages (which simply facilitate trading for existing clients) and, the backbone of the internet (but mostly behind the scenes), ISPs.

By David Longworth, Webster Buchanan Research

For South African Business Invetment Opportunities and Capital check out SA Investors Network

Thursday, April 30, 2009

Venture funding: some deals for April

There were a few interesting business funding deals and almost deals in April. Here are a few:

HyTrust, a virtualization start-up, launched its flagship product Monday with $5 million from its backers, VentureBeat reported. Trident Capital led the round, which included participation from Epic Ventures. HyTrust’s launch partners include VMWare, Symantec, Cisco and Citrix, the publication said. The start-up aims to enable the broader adoption of virtualization software by companies, by cutting down on security risk and aiding compliance.

Teradici, a Canadian start-up that is developing chips to deliver a PC-like experience over a network, said it completed a $17 million Series C round of venture funding. The investors included the venture arm of Telus, as well as Alloy Ventures, GrowthWorks Capital, Skypoint Capital, BDC Venture Capital and Alta Berkeley Venture Partners, Teradici said in a press release.

Facebook’s chief executive, Mark Zuckerberg, after a board-level conversation, has declined a funding offer that would value the social network firm at $4 billion, VentureBeat reported. VentureBeat, citing sources, said the company rejected the funding because it doesn’t need it.

Twitter is talking to big Internet companies about forming partnerships with them, but not looking to sell itself, a Twitter investor and board member, Fred Wilson, told the Bits blog.

Stoke, a mobile broadband start-up, has landed $15 million in a fourth round of financing, VentureBeat reported. New investor Net One Systems, Japan’s leading networking and systems integration provider, provided money as did previous investors, including Reliance Technology Ventures Limited, Sequoia Capital and Kleiner Perkins Caufield & Byers, VentureBeat said.

FreeWheel, an online video advertising broker, has nabbed $12 million in a third round of funding, VentureBeat reported. Funding for the start-up, founded by former DoubleClick executives, was provided by Foundation Capital and Battery Ventures.

Friday, April 24, 2009

Investors are Still Keen to Invest

We may all be mired in economic uncertainty, but if you’re looking for funding, there’s no need to be unduly discouraged by the current slowdown. Getting funded has never been a pushover, but the current economic uncertainties don’t seem to be stopping the right people with the right product.

In recent weeks there have been a plenty of upbeat messages from funding groups - it’s just that the reassuring words tend to be couched with more caveats these days. One venture capitalist told me that business plans were being scrutinised more closely in 2008, especially market forecasts, growth estimates and profit margins. As he succinctly put it: “The dumb money has long gone. The smart money is still there. We back favourites, not the long shots.” Or as David Giampaolo of Pi Capital says: “We are still looking at plenty of deals – but we are in no rush”.

So if funding is still available for the right people with the right ideas – even if they might have to wait longer and it costs them more – how can you make sure you’re first in the queue? One thing to bear in mind is that VCs are looking for more than just a good product, and a compelling business case: it’s also about how you structure your company, how you make it responsive in changing times, and what people you surround yourself with. The latter is often the hardest for entrepreneurs. You know you need someone on your team who’s done it all before – but where do you find them?

For some start-ups, the answer lies with one of the biggest growth areas in the UK in recent years – organisations offering management consultants, business advisors and non executive directors to help young businesses to grow and thrive. It’s not surprising that so many of them are successful – nor that so many are successfully finding funding themselves – since in the main they’re owned by people with a long track record in business advice.

Hiring a non executive director or a business advisor can be a daunting task, but approach it in the same way as you would hire a new employee. Ask them about their experience, to make sure it’s relevant, and establish what they expect to be able to contribute. Start them on a definable task, to see if your ways of working are compatible, and measure their results carefully against their fees. If you feel comfortable with the advisor, and you can see there’s a quantifiable benefit, involve them in more activities. Some advisors will be part of larger networks, offering specialist skills and experience when it’s required. There’s lots of information about what these experts can bring on sites like

Working with a business advisor or a non executive director isn’t just about what they bring to your business – it also sends a clear signal to the investment community that you’re serious about what you’re trying to achieve. It doesn’t guarantee success, of course – but at least you’ll be one of the favourites rather than one of the long shots.

By George Fletcher, Webster Buchanan Research

Learning from the academics

Accessing research skills is easier than you might think through business-university collaboration schemes. But beware - it's not 'free' R&D, and you need to be crystal clear about your objectives

If you're looking for first-mover advantage, you can't do much better than tap into the UK's research talent. Our talent base is up there with the best - a recent report shows that we produce nine per cent of the world's scientific papers and receive 12 per cent of all citations. But accessing academic research isn't simply a case of ringing up your nearest University, and it doesn't necessarily come cheap.

In fact, with some 200 technology departments at around 50 universities in the South East alone, it can literally be a case of sticking a pin in a UK-shaped map. And when you do find that elusive expertise, somebody is probably going to have to pay for it, since universities are becoming more and more aware of their commercial value. The good news, though, is that there's a host of schemes available that can help you navigate your way round and gain funding.

The UK has always had a good track record of collaboration between its research base and industry. A study by Warwick University showed that UK universities generate one spin-off company for every EURO 25m of research budget (as compared to one per EUR 87m in the US). They also disclose one invention for every EUR 2m (compared to EUR 3m in the US) and form one spin-off for every 13 disclosures (29 in the US). Technology transfer success can't just be measured in the number of spin-offs, however - starting an ill-conceived spin-out that crashes and burns is far worse than striking a licensing deal with an established company.

Brian Graves, director of engineering technology transfer at Imperial Innovations, which floated on the AIM market a year ago, says: '[The success of spin-outs] is one measure. But having a good flow of Intellectual Property into the business is also a key factor, as well as being able to find the appropriate route to commercialisation. Another key to our success is investment activity and getting exits around our investments, and finally, building up a licence portfolio that generates a good revenue stream.'

Graves says 'brokering activity' - building relationships between business and academia - is a relatively new activity for Imperial Innovations. And while Imperial covers a wide range of subject areas, the company is particularly focused on two: incubating low-carbon technologies with funding from the Carbon Trust, and recycling technologies funded by the Waste and Resources Action Programme (WRAP).

'This is an important route of access for the [small and mid-sized business]. We can help in developing their business strategy, help with marketing requirements, IP protection issues - anything that's necessary in getting the technology into a fit state for commercialisation.' Graves points out that Imperial Innovations tends to get involved later in the research cycle, for example in Proof of Concept trials to develop technology and bring it to market as a product.

The London Development Agency supports four Proof of Concept funds which divide the capital's 24 universities into groups, one led by Imperial. These provide funding of between �5,000 and �25,000 and are intended to feed into the g2i programme. Another government-funded research programme is the Knowledge Transfer Partnerships (KTPs). Formerly known as the Teaching Company Scheme, KTPs celebrated their thirtieth anniversary last year and are currently responsible for more than a thousand projects where knowledge, technology and skills in various sectors are transferred from academia to businesses. With an average project size of �60,000, businesses with less than 250 employees should expect to contribute a third of this cost.

Aside from these government schemes, the London Technology Network provides access to over 6,000 academics from diverse research centres in the South and East, from Cranfield University to Cambridge. It's also responsible for the London arm of the Innovation Relay Centre, which collates research projects from Universities around Europe. Peter Reid, chief executive of the LTN, says: 'If companies are adopting new technologies they often need external help, which is often available in universities. University departments are either developing new technology or new applications for it and are involved in design, influencing how a product looks so consumers want to engage with it.'

The LTN, like many of the universities themselves, has a structured process for enabling companies to interact with academia, starting with a technology audit of their requirements. Reid says companies are sometimes unclear about what they need, or how a university might be able to help. 'Our job is to help create a market, so first we help businesses understand what the problems are that universities can help them address.'

LTN holds networking events focused on specific technology sectors - upcoming events focus on nutrition and health, grid technology and digital content - to help create these connections. It then passes a short statement of need to various university contacts, which come up with different ways they could help through consulting, training or skills transfer. Once a company chooses which offer it wants to take up, the LTN will also help in framing a contract.

Those who have been involved in business-university collaboration point out that it's important to clearly state the expected outcomes. Kevin Davey, director at The Innovatory, says MBA students can be particularly helpful for a small business and can arrive on placement while they complete a dissertation or carry out a project as part of their course. But he adds: 'It can be something complex and high-level they work on, such as developing a marketing plan or a patent strategy, but it has to be a clearly defined project with boundaries and measurement in terms of the outcomes.'

Ultimately, the key to success in any business-university relationship is to provide benefits for both sides. Graves says the days of companies expecting universities to provide skills or consulting for free are gone: 'There's a greater awareness now that universities deal on a commercial basis and it's all about finding a deal with fits for both sides. It's important to look for mutual inputs.'
For South African Business Invetment Opportunities and Capital check out SA Investors Network

Monday, March 30, 2009

Venture Capital Investment: March 09

Some interesting venture capital deals that took place in March this year are as follows:

Google has joined a $5.75 million investment round for Pixazza, a start-up that hopes to profit by overlaying photos on the Web with links that let people buy the products in the images.

Audience, a maker of mobile-phone technology intended to drown out background noise, has nabbed $15 million in a fourth round of funding. Investors in the latest round include New Enterprise Associates, Tallwood Venture Capital, Vulcan Capital and VentureTech Alliance.

Flat World Knowledge, an online textbook publisher, has landed $8 million in its first round of financing. Investors in the round include Greenhill SAVP, High Peaks Venture Partners and Valhalla Partners.

HyTrust, a virtualization start-up, launched its flagship product Monday with $5 million from its backers, VentureBeat reported. Trident Capital led the round, which included participation from Epic Ventures.

Revolution Money, an online payment firm backed by AOL co-founder Steve Case, said on Monday it has received funding of $42 million from a group that includes a Goldman Sachs affiliate and earlier investors Citigroup and Morgan Stanley, Reuters reported.

Redbrick Health, a provider of employer insurance, landed $15 million in a third round of financing led by Kleiner Perkins Caufield & Byers. Fidelity Ventures, Highland Capital Partners and Versant Ventures also contributed to the round.

Mostly sourced from Venture Beat. If you know of any other interesting venture finance activity please let us know.

Tuesday, March 24, 2009

Cash is still king

The typical response of a business in hard times is to start cutting costs. But managing cash more effectively can have equally significant results. According to the Credit Management Research Centre (CMRC) at Leeds University, there’s one and a half times the volume of the primary money supply (from banks and financial institutions) swilling around in unpaid debt. Since over 80% of B2B business is done on credit, revising your credit policy, improving debtor management or even outsourcing parts of the equation can make a big difference.

Implement and communicate your credit policy

A survey by the CMRC found that trade debtor liabilities are the major and riskiest assets on corporate balance sheets, representing up to 30-35% of total assets. Trade credit, it says, is a key source of funding for companies, particularly at the smaller level, where it is typically twice the size of funds from bank credit. But it also points out that this is a two-way street. Credit is both an asset and a liability – many companies, particularly those at an intermediate point in the value chain both use trade credit as customers (accounts payable) and provide it as suppliers (accounts receivable). The key is balancing the two to improve cash flow.

The Better Payment Practice Group has been campaigning over the past few years to improve payment terms for small businesses. A good starting point, it says, is to establish a company credit policy which includes credit limits, both in days and sums outstanding, and a framework for staged payments. However, the CMRC research says that for small businesses this is a particular sticking point. Its report found that 52% of all companies had a written credit policy, but at the smaller-end the figure was much lower – a separate online survey by the BPPG found that only a quarter of small firms confirm their credit terms with customers in writing.

The CMRC points out that now is a good time to revisit your credit policy. “Pro-active credit management is necessary to cope with constant change to adapt to market and economic conditions and that may result in the need to make a change in any credit policy,” it states.

A good credit policy should be prescribed by the senior management of a company but it must also filter down to the different levels of the business to ensure it’s applied. Part of the problem in credit management is that if the policy is not part of common parlance with customers, sales, marketing and account management staff are likely to invent their own credit terms to win business and then pass the buck when it comes to chasing debts.

Focus everyone on debtor management

Debtor management is also a good discipline to focus on – and here the organisational challenges come into sharp focus even in the smallest of company set-ups. Debtor management attempts to pull together the different and often conflicting interests within an organisation towards the common goal of ensuring a debtor pays up the agreed sum on time.

The problem with debtor management is that different parts of your company have different agendas. Sales wants to maximise the value of a deal – and if given carte blanche will do everything it can to ensure the customer gets the best credit terms available. Support will want to ensure that it’s delivering consistent service to the customer on an ongoing basis, regardless of whether they are actually paying their bills. Finance is responsible for chasing the payment, but won’t want to step on anyone’s toes and ruin an ongoing customer relationship.

The financial systems and processes a company uses to log and communicate customers’ ongoing payment situation can help. When a payment is overdue, for example, a flag to the sales team to not continue advancing credit to that customer and to the support team to mention the outstanding payment on an account will often spur the customer into action – preventing the more heavy-handed collections that kick into place when a customer becomes a bad debt.

Taking a risk-based approach to debtor management is also a good idea. To take control of a credit situation, a company needs to understand which customers are least likely to pay on-time, what their credit-worthiness is, where the greatest exposure lies (if for example a handful of large customers account for most of its sales) and what the impact of non-payment would be on the ongoing health of the business – in other words, how much risk it can afford to take.

Drafting in a third party

Involving third parties is another option, one that enables management to focus on its core business while handing over financial management concerns. One approach is to factor debts, where you effectively sell your invoices off to a third-party factoring company. The third party will pay you up to 90% of the invoice value up front, easing the impact of customer delays on cash flows.

One potential downside of factoring is that customer relationships could be damaged if a factoring company is too heavy-handed – and it can be perceived as a sign of a company in trouble. You also might still need to step in if the debts turn bad as the arrangement cannot be terminated until all the debts are settled.

There are other outsourcing options too, such as invoice discounting (where the third party gives you an advance on your debt but you are still responsible for chasing it), credit insurance and using debt collection agencies. In practice, firms will use a combination of devices depending on their situation.

The CMRC survey found that late payment was more of an issue for small firms, where average debtor days was 43. And despite the introduction of the EU late payment directive in 2002, a majority were still not making customers aware of it. Small firms told the CMRC they would wait an average of 39 days before withholding the supply of goods to a late payer – compared with 22 days for large companies. Clearly small firms are still seen as a soft touch when it comes to credit. Perhaps now is a good time to get tough.

For South African Business Invetment Opportunities and Capital check out SA Investors Network

Aspects of Due Dilligence

Due diligence is the final stage in a long investment process, so it's unlikely much can go wrong at this point, right? Wrong - but there are steps you can take to tip the balance in your favour and using the latest business plan software technology will support you with this process.

It's an entrepreneur's worst nightmare. You've given countless presentations and sat through endless meetings with VCs before finally getting a terms document from an interested investor. Then, as due diligence is carried out, the VC's advisors find out a 'dirty little secret' about your company that throws the whole deal into jeopardy.

For many organisations, due diligence is seen as a difficult and time-consuming exercise that caps a stressful and exhausting investment process. But there are a number of steps you can take to help the process go more smoothly, and with the right preparation you can even short-circuit it. Preparation means just that - in many cases, the documentation you will need to present to investors will stretch back over years, so it's important to keep everything up to date as your business grows.

To begin with, keeping secrets of any kind is a singularly bad idea when you're dealing with current or potential investors. 'VCs hate surprises,' says Keith Arundale, author of the British Venture Capital Association's Guide to Private Equity. 'If there's something that's significant to the investment and you don't disclose it until the due diligence stage, that's going to be a problem.' Arundale advises entrepreneurs to outline anything they think might be of the slightest relevance up front and update investors on any new developments in a disclosure letter. Mike Bowman, investment executive at g2i partner company eSynergy, adds that holding back early on may come back to haunt you: 'What you may perceive as a problem may not be a problem to the investor. Problems aired early can be dealt with. Problems uncovered by the investor towards the end of due diligence may well halt the deal.'

Richard Anson, CEO of Reevoo, the on-line reviews service, is even more categorical. 'Honesty is not just the best policy, it's the only policy - there is no other way.'

Reevoo secured $5m from Eden Ventures towards the end of last year to expand its services and tackle new markets, both geographical and vertical. Anson found the due diligence process relatively painless precisely because of the way the company had prepared, beginning with its documentation. He points out that these documents include contracts with customers, suppliers and partners; details of intellectual property (IP) rights; the technology in use at the company, employee service agreements; compliance with relevant legislation; information about key processes; and insurance documents. While the company's advisors may be presenting this 'bundle', it's important to remember that it's the directors themselves who are signing off on it, including providing warrants. The most common example of a warrant required by a VC is to the fact that there's no outstanding litigation against the company, but an investor could ask for warrants about any verbal statement you might have made that if untrue, would affect its investment position.

Equally from the VC's perspective, due diligence is just the final stage in an investment process that starts with an initial application, runs through presentation meetings and deal assessment, includes negotiations over deal structure, and proceeds to approval, offer and completion. At each of these stages, the VC will be screening the prospective investee on different aspects of the deal - 'peeling the onion', as some due diligence experts refer to it - which minimises the formal work that needs doing at the final stage and reduces the risk of surprises.

Arundale, who is about to publish a more in-depth version of his private equity guide in book form called 'Raising Venture Capital Finance in Europe', says: 'Once they've seen business plans or an exec summary and met with the team, the VC will already be carrying out their own informal due diligence enquiries, and they'll do this to the point where they're interested in making the initial offer. It's only once that's in place that they go about the more formal due diligence.'

Questioning assumptions

So what exactly does due diligence cover? The areas entrepreneurs usually think about are the financial figures, including evidence supporting the assumptions that underpin the company's projected growth. But investors will also be looking hard at the business opportunity, the quality of the management team, the technology behind the product and various intangibles, such as the IP. Often external consultants will be brought in to examine these different areas.

eSynergy's Bowman says that as much as digging into the details of the product, due diligence is designed to test the responses of the management team. 'It's about getting to know the company they are investing in and how they deal with the issues raised. This is just as important as the details of the plans and markets, as the team is the most important aspect of any investment.'

One of the most difficult areas for potential investors to judge is market positioning, particularly in emerging technology sectors where it's tough to assess how large a slice of an emerging market you can take. Real customer references - or agreements in principle to make purchases - are the favoured evidence here. But VCs might also bring in technology experts - perhaps from a University department with a particular specialism - to examine the technology opportunity. 'It can be difficult assessing the size of the market, particularly if it's a new technology,' agrees Arundale. 'Maybe the VC will have to carry out new market research about whether people are actually going to buy the technology. There's no point in having fantastic new technology if no one's going to buy it.'

Given how exhausting that process is, you might assume that any unsavoury issues will have been eked out long before you get to the due diligence stage. But not necessarily so, says Arundale. Business changes fast, and during an investment process lasting six to nine months, much can happen. Typical problems include the day-to-day risks that every business faces, such as a big customer contract falling apart at the last minute - which is not unusual, and not necessarily a dealbreaker. More serious problems are rarer, but they can happen. One due diligence advisor, examining a company that had been approved for investment by a VC, found most of its R&D work going through a partner in Dubai. That breached the rules of the government-supported funds that the company was relying on, which require any investment to benefit the UK economy.

Finally, some entrepreneurs are concerned about giving away confidential information to investors, fearing they'll use the information to help their existing portfolio companies. It's difficult to say whether these fears are well grounded, but there are measures companies can take to allay them. Some VCs will refuse to sign non-disclosure agreements upfront, simply because too many ideas cross their desks, but many will do so as discussions progress - the BVCA, for example, provides a confidentiality letter template which its members should be willing to sign. An alternative approach, Arundale adds, is to ask to deal with a different investment executive at the VC firm to the one who's already made investments in your competitors. Ultimately, however, there has to be a certain amount of trust in any business relationship, particularly when you're dealing with reputable firms. 'Hopefully they are people of integrity and trustworthy, so it shouldn't be a major issue,' he says.

By David Longworth, Webster Buchanan Research

Monday, March 2, 2009

The Web 2.0 Band wagon

One of the in jokes at IBM’s support centres is about people who ring up asking to upgrade to Web 2.0. Explaining that it doesn’t come in a box, nor can it be downloaded, inevitably leads to the question: “Well, what is it exactly?”

All the usual suspects have had a go at providing an answer and as usual, when the subject is rather nebulous, nobody can come up with a very good explanation. So it was interesting to see Stephen Fry, the well known “Writer, Broadcaster and National Treasure” as he’s now billed, having a go.

He does a pretty good job, explaining that it’s “an idea in people's heads rather than a reality. It’s actually an idea that the reciprocity between the user and the provider is what's emphasised. In other words, genuine interactivity, if you like, simply because people can upload as well as download’. In other words, it’s the way we use it.

When we were first connected to the internet, we booked flights and read the football scores. Then we started using the web to communicate, writing blogs and interacting with friends through social networking sites such as Friends Reunited, MySpace, Facebook, and YouTube. And without anyone telling us, we were upgrading to Web 2.0.

Human nature being what it is, though, it wasn’t long before we got bored with who we are, and started to step into the shoes of the character we’d like to be. And so we expanded our networks to meet lots of other characters doing just the same thing, using Virtual Worlds, such as Second Life or moove.

Because these virtual worlds became so popular so quickly, and because they’re being used innovatively, it was inevitable that businesses would see commercial opportunities for them. IBM, Cisco, Mattel, HP, MTV and Disney are all at the forefront of exploiting the opportunities that virtual worlds offer. You can buy and sell virtual stuff already, while you chat with virtual friends over a virtual drink and listen to the London Philharmonic playing a virtual concert.

It’s not just the chance to trade that’s attractive though – there’s plenty that we can do in a virtual world to help us in the real world. Many of the firms spearheading the use of virtual worlds are looking to find better ways to do things that they have to do anyway. Some of the first applications were fairly obvious ones – technical or post sales support for example, where the graphic capabilities of virtual worlds offer a great way to show someone what to do, rather than just tell them.

Teleconferences, online meetings and web seminars are also starting to move into virtual worlds, again because of the interactive and graphic potential. And companies like IBM are now setting out to move business processes and procedures onto a virtual world, where they can be done better, more quickly and more efficiently. IBM already communicates with business partners and some customers like this. New hires, for example, go through the onboarding process on Second Life, and are trained in the same way. It’s also used as a collaborative tool for remote teams to work together on projects and delegate tasks to contractors, and a host of other tasks and applications will follow.

Onboarding and training are necessary if somewhat mundane tasks that confront us all – being able to do it in IBM’s virtual replica of the Forbidden City might at least make it a bit more fun.

By George Fletcher, Webster Buchanan Research

For South African Business Invetment Opportunities and Capital check out SA Investors Network

Tuesday, February 24, 2009

Opportunity during challenging times

Talk of recession may be gradually morphing into talk of depression, but many business leaders continue to point to the opportunities that a recession brings. Despite constraints on funding for small businesses, a host of experts point out that things will turn around – and when they do, entrepreneurs need to be ready with their next big idea.

The economy may not get so bad this time around, but a historic parallel exists with the view of some business leaders in the Great Depression of the 1930s. Take then-retired industrialist John D Rockefeller, who said in 1929: “These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.” Prosperity did eventually return, but not even Rockefeller, who died a few years later, could have predicted how the Great Depression sparked by the Wall Street crash of that year would lead to nearly a decade of decline and significant political upheaval.

That said, his optimism is mirrored by public figures and business leaders today as they try to encourage businesses – particularly at the smaller end of the economy – to ride out the storm. But are they right to be accentuating the positives? What historical precedent is there for the idea that we’re currently surrounded not just by threats, but by opportunities? And how can businesses keep going until the next tranche of money arrives?

History lesson

Many of the optimists point to similar crises in the past. Mike Harris, founding CEO of First Direct, Egg, Mercury Communications and now Garlik, points to the last time a massive financial crisis was averted, in 1998. That was when hedge fund Long Term Capital Management was bailed out by a coalition of banks and creditors, including Merrill Lynch – itself recently saved by Bank of America. Harris is optimistic: “If you believe the economists in the US, we are on the verge of a complete financial breakdown. But this is the seventh financial crisis I’ve lived through and none of them have led to a depression. The authorities would have to be inept to turn this into a depression.”

In fact, he sees only opportunities. “What happens when you come out of a recession is that [new opportunities emerge]. The easiest way to describe it is like a forest fire, it clears away all the dead wood and there’s space for new growth. There’s all this pent-up demand - from consumers to buy and investors to invest.”

Speaking at the “Double Everything” evening for entrepreneurs last week, Harris cited the example of the 1970s recession, which saw the emergence of the personal computer market and Bill Gates’ determination to put a PC “in every home and on every desk”. Similarly, the economic problems of the 1980s heralded the arrival of the enterprise software market and the likes of Oracle, SAP and CA. And then there was the dot com collapse, which according to Harris, spawned the digital world and e-mail and web communications.

One of Harris’ fellow speakers was Roger Hamilton, founder of 18 businesses in 15 different countries. Hamilton also harked back to the 1970s, citing the Chinese calendar and the last time we were in this specific cycle, in 1972. In the US, President Nixon was suffering after Watergate, the value of the dollar was plummeting, the oil crisis was in full flow, America was waging a war in Vietnam, terrorism reared its head at the Munich Olympics and the West was looking to the East for inspiration.

Hamilton noted many parallels with the situation in the world today, saying: “There are times when it’s a perfect moment for a big idea.” And sure enough back in 1972, Richard Branson was just starting out with Virgin and Gates with Microsoft. This month, as the money markets struggled, Virgin was busy investing in a Portugese space port for its galactic airline, Google launched its first phone, GM the first fully electric car and there was a new age of giving, with $3bn pledged to end malaria and progress made towards the UN’s 2015 target to halve world poverty.

But Hamilton’s big message is that power in the world’s economy is moving to the East. He maintains Google launched the G1 phone in China because it expects to conduct more business there than in the failing Western economies, and he claims there are already more Internet users in China than in the US and there will soon be more than the entire population of the US. “This is marking the end of the greatest transfer of wealth in the history of man. We see the flow of expertise and human capital to the East in the same way that money has already flown out.”

So how do entrepreneurs take advantage? To Hamilton, it’s all about building an extended network where needs and opportunities are matched across continents. For Harris, the answer is to hang on. “Companies beg, borrow and steal to resource themselves, but you do have to be in the sort of business where you can bootstrap it.” Yet he remains optimistic. “I’m looking forward to seeing what this [recession] is going to create. I think it’s going to be something truly spectacular.”

For South African Business Invetment Opportunities and Capital check out SA Investors Network