I met former TV Dragon James Caan when he came to speak at Saïd Business School, Oxford. I was an MBA student with a couple of businesses already under my belt. I knew the right backing could make a vision reality.
Experience and experiences
Venture capitalists want people with a strong track record who are recognised in their sector. When I gauge experience, I look at a combination of things. I’ll start off general and home in on the specifics. I need to form an opinion on the soft aspects as well as the hard aspects. I want to know who is the entrepreneur is, what motivates them, and what their strengths and weaknesses are.
I’ll want around seven to 10 references. I need to talk with everyone; an investor that might have invested with them before, former clients – both a happy client and unhappy client, colleagues who reported to them and bosses that they reported to, service providers, and any legal or financial advisors.
I try to form a 360 degree view on them. I’ll even speak to friend so I can find out what they’re like personally. There’s no better way of finding this out than through references yet a lot of VCs don’t pay enough attention to them, probably because they don’t know how to go about it.
It’s only then that I look at what they’ve done. I look at the level of transactions and the deals they’ve closed over the last 24 months. I talk to them about it in detail. It helps me to understand the role they played, the challenges faced, and how they overcame them.
Work in a team
The most successful entrepreneurs work in a team. If they can get another person to join them – it’s another layer of vetting for me – because they’ve demonstrated that they can attract people. Also, I can look at that person and see if they’re a ‘heavy hitter’ in the industry. It shows they can attract talent, what type of talent they attract and who they will continue to attract.
Moreover, two or three people can scale up a lot faster and they can work together to attract new people. Because I invest in start-ups and need to see fast results, I’m usually disinclined to back a lone entrepreneur. In business you also want someone to bounce ideas off, someone that’s going through the exact same thing as you. When you’re lying awake late at night thinking about the challenges facing the business, having somebody else that’s going through the same thing gives you that emotional and psychological support. It can be a lonely place for one person.
Entrepreneurs need to be practical about their earnings. If they expect the same level of guaranteed payment that they had working for someone, it’s going to affect their mind-set. They’re coming in with an employee mind-set which is completely contrary to the concept of entrepreneurialism. Entrepreneurs need to realise that their earnings are linked to how the business performs.
Use your contacts
The ‘heavy hitters’ tend to flock together, so being well connected is important to VCs. Being introduced through a mutual contact certainly helps. I’m always keen to meet somebody if I rate the referrer. You can form a view on someone through those they associate with. Someone that’s well connected will be able to win clients and recruit top talent – two essentials for developing a successful business.
I don’t take offense from persistent people. It’s a good entrepreneurial quality to have. I myself never take no for an answer. It shows me they’re going to go out and win business. There’s nothing wrong with a few follow ups. I don’t see it as desperate; I see it as knowing what you want and going for it.
There’ve been occasions where I’ve said no to an entrepreneur and their persistency brought me round to it. One person I said no to kept me in touch with their progress. They updated me on their monthly figures without me asking for it. And because the figures were encouraging, I’ve warmed to it. They could have moved on but chose not to. It showed character, professionalism and business smarts. They knew if they could demonstrate a ‘hockey stick’ growth curve, it’s going to make me interested.
Good pitchers are good for business
Most of the people I’ve backed are sales orientated. If they can’t pitch their business, it makes me think that they can’t sell. Sales people will always be good pitchers whether it’s to sell products or win investment for their business. Other skills can be brought in as the business grows, but the initial team has to be sales orientated because there isn’t business without sales.
The business plan
Once the entrepreneur has come up with a headline business plan based on their own commercial assumptions, one of my business planning experts will sit down with them and break the plan down to its building blocks. This process helps us to learn more about their business, and gives them the chance to work closely with us on something and establish a relationship with us. It provides useful insight into how we’re likely to work together as partners.
Unlike many VCs, my approach isn’t all empirical. It involves a lot of emotional intelligence work. I judge the person as well as the business idea. As an investor in start-ups, I know that success is down to the people within the business and the people joining it. And – of course – the right backing helps too.