Cleantech entrepreneurs prepare to pitch to sophisticated investors

Conduit Partners is giving the chance for start-up and early-stage cleantech businesses to pitch to equity investors in a sophisticated investment forum.

If you’ve been following Dragons Den, you may believe that pitching to a room full of investors involves quaking in your boots in front of a panel of multi-millionaires who dismantle your dream and send you packing. We can’t promise the investors at our investment forum won’t give the entrepreneurs a tough time, because investors need to do their due diligence and understand how they can add value to the business and when they’ll receive a return on their investment. But what we can assure you is that they’re looking for quality investment opportunities.

What makes this investment forum different is the level of commercial preparation compared with many of the entrepreneurs in the Den. I was amazed by the range of innovations presented for investment this series. There were great ideas with no commercial plan whatsoever; wacky ideas that people may buy as a one-off but created no consumer need at all; and products that needed more work and fine-tuning than the dragons were prepared to deliver.

But what truly astounded me was the astonishing lack of preparation from many of the company owners in Dragons’ Den. They didn’t know figures, projections or costs, and they couldn’t even articulate their value proposition. Not a great way of convincing the dragons to invest.

In contrast, the five companies pitching at the Conduit Partners investment forum  in central London this autumn have been primed and prepared for investment by taking part in the Carbon Trust Entrepreneurs Fast Track (EFT) programme.

Working with Conduit Partners, which is an EFT partner, the entrepreneurs have benefited from professional advice on how to prepare for market, develop an investable business plan and commercialise their products or services. They’ve had expert input on their market positioning, their value proposition, their sales pipeline and their team structure – and, most importantly, how to communicate to investors what a valuable investment opportunity they are offering.

We’ll be revealing more information about the Conduit Partners investment forum, and who’s taking part, over the coming weeks.

Whether you are an investor or early-stage business if you would like to register your interest in the Conduit Partners investment event, or if you’re a start-up business or early-stage cleantech venture looking for assistance from the EFT programme that may lead to investment, then we’d love to hear from you. Email info@conduitpartners.co.uk or call 01235 831777.

Why entrepreneurs need support, not sarcasm

Investors with a wealth of experience often intimidate would-be entrepreneurs. They’ve been there and done it, have several multi-million pound companies under their belt, and ultimately have power over the fate of a fledgling business.

Successful investors know that the stress and pressure of building a business is enormous. They need to be sure that the entrepreneur has the resilience to go the distance, and won’t fade or fall over. They also have to check that the entrepreneurs their eyes open to the fact that there are no get-rich-quick schemes, and no “this time tomorrow, Rodney, we’ll be millionaires” moments.

If a business idea sounds too good to be true, it usually is. By way of example, we evaluate numerous new low-carbon technologies on behalf of the Carbon Trust, many of which are truly amazing. However, few make it through. Often the reason is down to underestimating how long it will take to realise revenue and take these ideas to market.

Except when we give feedback to these new businesses, we do it with support, not sarcasm. We’re not like the investors on Dragons’ Den, who are capable of bringing some entrepreneurs to tears. We offer constructive, valuable input that is the culmination of hundreds of investments we’ve been involved with.

Our role is provided and paid for by the Carbon Trust for successful applicants. We work intensively with successful applicants to ensure they are investment or market ready in the shortest time with the minimum risk.

We are keen to hear from companies that could benefit from our extensive commercial experience via the Carbon Trust Entrepreneurs Fast Track programme.

If you believe you could benefit from our expert services and would like to apply for the Carbon Trust programme, email susandunstall@conduitpartners.co.uk with an outline of your idea and we will call you back.

Why the Dragons are right to roar at the unprepared

If you’re seeking investment to transform your business, and you know you’re going to pitch to investors with a ferocious reputation, then doing your homework should be your top priority. As an entrepreneur, you should know your business inside out – the proposition, the figures, the projections – and you should do some research on the personalities and preferences of the panel you’ll be facing, or you risk being eaten alive.

This is exactly what happened on Dragons Den episode eight.

Deborah Meaden was right to put the young guys under pressure. Companies going for investment need to be prepared for intensive scrutiny and intrusive due diligence. It is the most uncomfortable process, and if unprepared you will be caught out and exposed.

However, I believe that Duncan Bannatyne took advantage of the youth and inexperience of the RKA Records entrepreneurs. High risk? Possibly. A punt? Maybe. But grabbing 79% is, in my view, wrong. It has helped Duncan hit the headlines for securing a record stake (pun intended!) in the company. He is quoted as saying: “With my investment and hands-on involvement, we can really take the business forward and achieve their ambitions.” Some may argue that being left with 21% equity in a potentially huge business is better than 100% of a tiny one, but I can’t help feeling that the teenagers have been ripped off.

The estate agent guys had not prepared, and I think they missed an opportunity to review and revamp the way homes are sold. A flat-fee approach would be more attractive for example. The whole model the guys presented was flawed, in my opinion, and again their lack of preparation let them down. And it was the same for the hotdog guy, who had not thought through his proposition.

We spend our working days with early-stage businesses, preparing them for investment. We have years of experience on mentoring and coaching entrepreneurs, working with them to put a robust plan in place in anticipation of those testing and sometimes awkward questions when they come to face investors.

Don’t let your brilliant idea go up in smoke because you haven’t done your research. Call us on 01235 831777 or email info@conduitpartners.co.uk to discover how to put fire into your pitch.

The alchemy of a deal: when there’s a doubt, there is no doubt

Ask entrepreneurs what helps them decide whether to invest in a new project, sign up to a joint venture, or launch a new business, and pretty much all of them will say that their intuition plays a huge part in their decisions.

I’m reminded of one of my favourite quotes, from the late-1990s action-thriller movie Ronin, starring Robert De Niro and Jean Reno, where De Niro’s character says: “Whenever there is any doubt, there is no doubt.” In other words, your intuition and instincts will guide you to exactly what is right for you.

We see this played out in Dragons Den. When Hilary Devey says “you make my foot itch”, there has to be something playing out in her subsconscious, telling her that the person, the deal, or the business just isn’t right.

Yet when we see Peter Jones investing in the fast-cars with the superbike engines, Theo Paphitis buying into the Bog in a Bag, and Hilary Devey and Duncan Bannatyne jointly agreeing to support the Kiddimoto balance bike company, there is a certain alchemy in those partnerships. The product is right, the opportunity is right, and the rapport between investor and investee is right.

The same can’t be said of the snot pickers, swings, or glass pouring slings – a smorgasbord of uninvestable things. The would-be entrepreneurs let emotion get the better of them. While I believe that passion drives a business, emotion blurs it and can bring the P&L to a halt. We see many business plans based on practical ideas, fuelled by emotion, that will never make money or be a business.

Of course, there are many practical things that businesses can do to focus on reality and improve their chances of a deal. We work with start-ups and SMEs to stress test every potential investment opportunity. Why? Because we know from 10 years of looking at ideas you need the business facts to prove it has a real market. Entrepreneurs can then enter an investment pitch armed with business plan, market tests, a list of unique selling points – and their personality.

However, at the end of the day, whether businesses win investment or not will depend on the alchemy of the relationship. If there is any doubt in the mind of investors you’re pitching to, then you’ll be out.

The Psychology of Investment: Keep Emotions Out of It

I believe that passion has a pivotal part to play in fuelling and sustaining your business – and don’t accept what the Dragons have to say about passion not producing profit. Without passion, you won’t get your idea off the ground, you won’t have that ‘buzz’ that gets you bouncing out of bed in the morning, and you won’t have the inner conviction that cushions the knock backs along the way.

But when I say passion I mean that drive, excitement and inner belief of knowing that you’re bringing an unbeatable idea to market, and trusting that you’ll find the internal and external resources to fuel and fire your business. What I don’t mean is making strategic or tactical decisions about your business with your emotions on show. Yes, go with your gut feel, but don’t let the heat of your emotional reactions affect the cool head you’ll need to face investors, partners and clients.

Emotions have been evident in a recent episode of Dragons’ Den – from the Dragons as well as the companies – which saw two entrepreneurs declare their preference as to which Dragon they’d like to go into business with. It’s generally best not to show your hand, even if you do have a preference, as it’s better to see what offers emerge to work out which one is best for you.

For example, I think the guys from Jog Post should have chosen distribution expert Hilary Devey as their investment partner; it was an obvious fit, and Hilary knows every single postcode in the UK. But they didn’t want to give away too much equity, and they got the Dragon they wanted – Deborah – while Hilary maintained a dignified silence at having lost out.

Kate Castle from Bog in a Bag (brilliant idea, by the way, and I can see myself gifting it to many of my friends and colleagues) was less cool about it, and took a high-risk strategy by stating that she wanted retail expert Theo Paphitis to be her Dragon – even before he’d made an offer. He was initially reticent about investing, making his usual point the business was still in the early stages, and why should he give his expertise and contacts and not just his money. Well, in my opinion, because that’s what good investors do: they mentor and coach and advise and help grow the business and share in the success, ensuring that they all get a good return on the investment.

However, the point here is that Kate’s risk nearly didn’t pay off because not only was she showing her hand but, in doing so, I saw Deborah act like a Dragon scorned. At the first sign of her offer not being the preferred one, she immediately withdrew it and declared herself out. Kate eventually secured Theo, but she could have walked away with nothing.

In the negotiating room, power resides with the investors. If you find yourself in a situation where several investors (who may not all be in the same room together!) are interested in you, then keep negotiations balanced, don’t show your hand, and certainly don’t let any of them know who your preferred partner is. Most importantly, keep a cool head and your investors hot.

 

 

How to understand the investment power play

When coming face to face with potential investors, there will always be a power imbalance. They have it; you don’t. You need something they’ve got, and it’s totally within their power whether to give it to you. Just look at the Dragons’ Den and you’ll see how, when faced with that power differential, the entrepreneurs either rise up to it and blossom or back down and wither.

My experience of people with power is generally one of two things. They can be comfortable with their power and use it compassionately and constructively – like Dragons Peter Jones and Hilary Devey, for example, who, even when they declare themselves ‘out’, still give the entrepreneurs some words of advice and encouragement.

The other form of power I’ve witnessed is the power that’s fear based, where the person wields their power like a weapon to undermine and threaten – and this form of power is more open to abuse. You see it in the workplace where middle managers will use the power they believe their job title confers on them to coerce, manipulate and sometimes punish. They act like this because, underneath it all, they fear their power will be taken away.

I’m not saying this kind of power resides in the Dragons Den, but I have seen some moments when one of the dragons asks for too high a percentage in someone’s business – just because they can – and the entrepreneur will agree, believing he/she has no power and no other option. (Though the PostSaver guys proved that you can turn down six offers and walk away with nothing!)

Knowing how to hold your own in a den of power – or when faced with any investment panel – isn’t often something that people prepare for when getting their business investment-ready. But there are some key things you can do to make sure you don’t give your power away:

  • Know your figures: you have to show your revenues and your profits, and outline where you foresee profit potential and a substantial return on any investment. So many times, the entrepreneurs seeking Dragon money lose out because they just didn’t know the commercial side of their business well enough.
  • Be able to articulate your value proposition: you need to know your unique selling points, and how you will differentiate your service or product in the market.
  • Show how the investment will make a difference to your company. If you’d really prefer to keep it as a lifestyle business – one that supports you and your family – rather than an investable proposition where an investor can add and receive value, then you may not convince them to part with their funds.
  • Don’t lose your passion – or your head. I believe that passion can make profit, and without passion a business is nothing. Don’t let the fact you’re asking for money dent your belief in your business. Stand firm, and hold out for what you’re worth.

For more on the psychology of investors, and to ensure you handle an investment pitch so that it goes your way, sign up to one of Conduit Partners’ investment-ready workshops. We’ll help you identify areas that need more work, and equip you with the skills and confidence to win the investment you deserve.

Call 01235 831777 or email info@conduitpartners.co.uk for more information.

 

Why the dragons shouldn’t underestimate passion as a business driver

Yet again, Dragons’ Den dishes up a smorgasbord of nonsensical business opportunities: the spray tan man without a clue makes a mockery of it all.

That said, these are budding entrepreneurs who don’t have all the answers. Of course they need guidance and mentoring – but I think taking 45% of a fledgling business for a £70k investment just because the dragons knew the owners needed help is pushing it too far. It might be a ‘punt’ but it’s still ridiculous. Saying that an inexperienced business person ‘has not thought it through’ is an insult. Of course they haven’t: they’re not experienced. At least new dragon Hilary Devey was realistic and didn’t try and fleece the caravan couple who were clueless.

I don’t get why the dragons – and indeed many in the investment community – like to instil fear into budding entrepreneurs. Is it not supposed to be a potential partnership they’re investing in? Who in their right mind would become the prey in a den of dragons, let alone go into business with them? Partnerships work best when respect is shown – not when one party feels intimidated or fearful of the other.

I’ve had years of experience with investors – and the reputation of some VCs as Vulture Capitalists isn’t built without reason. I’ve also had hugely rewarding and productive relationships with sophisticated and valuable investors who really do bring more than money to the table. Crucially, if you’re a company looking for funding, you must do due diligence on the type of investor you’re attracting as rigorously as they’ll do the due diligence on you.

Social enterprise doesn’t excite investors, as ‘not for profit’ is a concept they cannot comprehend. They want a return or they won’t risk it. I don’t subscribe to this because I believe you can have both. I believe in people who have passion, who will succeed. The return may not be measured by the money they put in the bank, but it might be measured by different metrics that mean something in a greedy world where that greed has taken us close to financial meltdown.

Passion is the greatest business driver. Passion underpinned by a mechanism to demonstrate a return for an investor might not be profit today, but it can be tomorrow. Look at Levi Roots and his Reggae Reggae Sauce: don’t these dragons learn? Do any of us?