The Beermat Entrepreneur on investors

At the Alba Innovation Centre’s One Year On event at the beginning of this month, Young Company Finance's editor was given the opportunity to interview Mike Southon, known to all as “the Beermat Entrepreneur”. Mike had just given a very lively talk about how to start and grow an innovative business. As an example he used the Beatles, describing some of the milestones in their rise to international fame and success and relating these to stages in the development of a young company.

This approach not only gave some interesting new angles on the business points he made, but also gave Mike the opportunity to parade some of his views on 60s music and play some of his favourite tracks! Many Young Company Finance readers will know of Mike, either from reading his book The Beermat Entrepreneur, or from his column in the FT’s Weekend edition, or indeed from hearing him speak at conferences. Those who have read the book will know that Mike has a very sceptical view of independent investors, both big and small. Indeed, in his list of funding sources, in descending order of desirability, he has VCs at number nine, only one place higher than organised crime. Angels are not much more ‘heavenly’ in Mike’s view, coming in at number eight. So what could Young Company Finance, which focuses on independent investments in early stage high growth companies, ask Mike about the sector? Well, firstly, the role of mentors, whom he sees as not only a source of experience, wisdom, contacts, and advice, but also as potential investors themselves – mentors rank fourth in Mike’s list of desirable funders, and friends of mentors rank fifth. For many people, a mentor might be seen as someone very special, difficult to find, above the fray, someone to consult like an oracle – only on rare occasions, when the business is at a turning point and needs special guidance.

Mike’s view is quite different. He suggests that mentors are all around, and are a real key to success. They must have relevant experience, but everyone, even with little or no business experience, can find someone suitable. For a student, a possible mentor might be a member of staff. The senior members of your industry sector, leaders of the local Chamber of Commerce, directors of businesses which you admire, all can be approached for advice. It is not necessary to have only one mentor, and not all mentors rank equally. Mike gives an example of one of his own mentors, who is the CEO of a FTSE 100 plc; he will not put every minor issue he faces in his business past this contact, but knows that when he has an issue of major importance, this is the person to talk to. Mike has some interesting thoughts on why mentors will take an interest in an ambitious young business. It goes without saying that the business must have good growth prospects, and that the founders are passionate about realising the potential of their ideas. In these cases, mentors might be looking for what Mike calls “radiance” – the reflected glory of being associated with young, dynamic, innovative companies, and the prospect of even greater glory if the company makes a major impression on global markets. Many experienced mentors will come from large organisations, and entrepreneurs must remember that such organisations can be cumbersome and conservative, and that therefore their more go-ahead people welcome the opportunity to be associated with companies which are more innovative and faster on their feet. Mentors in such organisations can often find a budget allocation which allows them to invest in a young company.

Whereas the organisation’s R&D department might resist funding a project conducted by a third party, a mentor at a suitably senior level can, as Mike suggests, perhaps find funding for a project under a broad heading like ‘training’. Funding of this sort, which can be a substantial sum from the point of view of the entrepreneur, can often be written off if the project is less successful than hoped, but can lead to very helpful collaborations and further funding if its cost-saving potential to the larger partner can be demonstrated. Mike recognises that many technology companies cannot avoid independent investors if they need to complete prototypes, or demonstrate the value of their products to their market sector. He has a number of observations on how mentors can help companies in this situation. In the first place, many technology companies start with a concept which has potential applications in a number of market sectors. Here, Mike feels it is essential for the mentor to be able to open doors and also give an excellent ‘elevator pitch’ in his or her own right. This means that the mentor must have some high level contacts who know the structure of the target industry and the names of the decision makers, then is able to lean on the contacts for the chance to make the pitch. It is also essential that the mentor is brutally honest; if the feedback he or she gets from a particular market sector indicates that the product would not have much chance of success, this message must be put across unambiguously, so that no time is wasted going down dead ends. When dealing with VCs, whom Mike sees as very ruthless, his advice is to get business angel investment first, then ask the angel investors to provide funds to hire a top notch executive, known to the VC community, who knows their negotiating tactics and is able to meet them on a level basis. So what about Mike’s top recommendations for sources of funding? For that you’ll have to buy the book (The Beermat Entrepreneur by Mike Southon and Chris West). Young Company Finance gets no commission from this recommendation, but is confident that its price will repay itself many times over for entrepreneurs wanting to “turn good ideas into great businesses”.

One final piece of advice from Mike, not in the book – never raise money from someone younger than yourself. But that’s a subject for discussion at another time or in another place.

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