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When we talk about raising seed investment, we are mostly talking about raising in the region of £150k-£350k from angel investors - perhaps as a first raise or perhaps after raising a pre-seed round from friends and family.

So, when you are raising investment from angels you need to understand the investor mindset. Too many people treat investors as ‘wealthy customers’ and don’t get into the psychographics of the investor, the mindsets behind them, and the decision drivers that are at work when they consider making an investment.

In this article we will consider:

1. Investor psychographics

2. The psychological drivers underlying investment decisions

So, why do angels invest? According to Bill Morrow, one of the founders of Angel’s Den and a man whose seen more of the UK angel investment landscape than almost anyone, the top reasons are:

1. I’m bored

2. I want to give something back

3. The money

4. Give me something interesting to talk about

Does it surprise you that money isn’t #1? It did me when I first heard it. But if you think about it, they already have money, and if money was their primary concern then property is a much safer bet.

The reality is that a lot of angels get bored. Being retired seems great but there’s only so much golf or tennis you can play. On average it takes less than two years before they realise it’s all a bit dull. But what can they do? They’re not crazy enough to to start a venture of their own, but if they find someone doing something interesting where there is an alignment of values - well, being an investor can make a lot of sense!

In London, many angels will have made money through property or finance. They may be angel investors but by no means are angelic. Investing in companies with a good mission is a way to give something back. Further, they may feel they have useful skills and experience and being able to mentor is another opportunity to give something back.

And then there’s money. As we’ve already discussed, money is not the primary reason to invest and it’s worth bearing in mind that serious angels are already wealthy; their relationship with money isn’t necessarily that of you or I. They’re not philanthropists, so they want financial success but they accept this may not happen. What they don’t want to see is their money being squandered foolishly.

So, having established some of the psychographics of the angel investor, let’s turn to the decision model for investing in any given business. Most investors are operating with three concerns in mind:

1. Value potential of the opportunity

2. Risk of wasting their money

3. FOMO

1. Some entrepreneurs make the mistake of thinking of investors as ‘big customers’. This can be the case but it’s rare. It’s not even likely that they will be interested in/knowledgeable about your space - you will need to persuade them. It seems obvious when you write it down, but I see a lot of people assume the investor will already be interested and it can doom them. You also need to persuade them that the opportunity your business represents has sufficient value to help drive their portfolio.

EXAMPLE

2. Angel investors may be wealthy but they also know that you don’t stay that way by investing foolishly. No investor wants to put their money into something daft. They want results - not a beautiful office of beanbags and exotic plants.

You need to spend on what you think is right, but it is key to prove to potential investors that you are a responsible custodian of their money and that you make good use of it. A great way of demonstrating this is through investing money in your own company. Angel investors like this. By putting your money where you mouth is, you show the investors that you are spending funds as precious to you as they are to them.

Now think about how you can demonstrate that you have been a wise and successful custodian of the money you’ve raised to date. What milestones did you predict and hit? How have you de-risked your project? What advantages have you created? And how you can present these to best advantage in front of a sceptical ex-accountant with £25k to give you.

EXAMPLE

3. The third factor you have to play upon is their fear of missing out. All investors face the fear of missing out on something good and this is largely because most investor business models are predicated on needing one or two break-out hits to make their portfolio return numbers work. An investors ability to predict the future is probably no better than average - this is a problem. And the fear of missing out is not only financial - ego comes into it too, of course.

EXAMPLE

It is therefore imperative that you are able to show how not investing in you will feed that fear. You need to articulate how your business model will exploit trends that can be credibly argued to be moving in a direction that will generate success for you.

A reliable model for understanding how to think about this is Rowan Gibson’s 4 Lenses of Innovation. I plan to cover this in more detail later, but in brief the lenses are:

• Understanding customer needs

• Challenging orthodoxies

• Harnessing trends

• Marshalling resources

Using a model like this, you can create a position in which the investor faces a risk of missing out on something good. Although investors do suffer from FOMO - good investors will still take a long-term view.

Your job, when thinking about things like a pitch deck or an executive summary, is to understand the investor mindset and balance the 3 forces to create something compelling.

What’s are your thoughts and experiences in raising investment? Feel free to comment below.

My special thanks to Bill Morrow for his help in refreshing my memory on some important points that really improved this post. All the mistakes… totally mine.

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Being a CEO is hard, and I’ve alluded to some of the reasons for that in prior posts about the curses of being an entrepreneur and mastering goal-setting. But today, I want to talk about something else that is very difficult. It particularly pertains to the problem of focus that I went into more detail on.

As the CEO, your role straddles two entirely different worlds. In one, which I will call the ‘world of the board’, your role is to be custodian of the vision and the strategy. You are primarily oriented towards the future - towards the opportunity - to ''imagining the factory after next, ” as my old mentor Mike used to teach me, cribbing from John Harvey-Jones. It’s all about keeping larger opportunities in the frame. The other one, which I will call the ‘world of the management’ is about today, reality, day-to-day operations, keeping the doors open and the cash flowing.

The problem is that both are important and are vital to a thriving business, but that they lie in entirely different directions and have different pressures. As CEO - you are the fulcrum, and nobody else cares.

I call problem 1 the ‘world of the board’, because typically we see it as the board’s role to be interested in, and custodian of, strategy. In fact, many boards are far too operational and not strategic enough - but that’s a post for another day. To the board, the CEO is their interface to reality and they challenge the CEO to ‘make it real’.

I call problem 2 the ‘world of management’, because we typically see it as the management teams’ role to be interested in, and custodian of, the operating plan. In fact, many management teams are swamped by challenge and just can’t see the wood for the trees.

Typically, this can be expressed in one of two ways. Sometimes the CEO can be distracted by future thinking when the strategy has been settled. The, “I’ve had a great idea!” syndrome. Sometimes its right and proper to talk strategy but there is no room for it. The CEO needs support but the the team has no bandwidth for anything beyond the problems of today.

And there you are as CEO, trapped in the middle, a foot in each world - born of neither - and trying desperately to balance the competing demands of each.

How do you do this?

1) Recognise that what you are doing is very hard and that we’re not looking for perfection, but simply something that can work.

2) Recognise that there no ‘balance’ so much as a moving, shifting balance that you will have to keep up with. The thing will move in waves. As you resolve some of your strategy it will inform operations, and as you develop operations it will create (or remove) strategic options.

3) You must be conscious and act with intent. Decide, in advance, how much of your time will be devoted to each realm, and stick to it. Yes, you will be driven off course. Pick yourself up and start again. The key is not to let todays fire obscure what makes tomorrow possible. (Or as Stephen Covey would put it - Quadrant 1 starves Quadrant 2).

4) In strategy, focus your efforts on diagnosing and addressing the ‘critical factors’ (for more on this try Good Strategy/Bad Strategy: The difference, and why it matters by Richard Rumelt). By paying attention to your activities here, you give yourself the best chance of resolving or side-stepping operational issues that have the capacity to strangle progress.

5) Get help. If your board does not apply itself properly to strategy - change it. Find a mentor or an advisor who can work with you to work with your board and help it to see what its real role should be.

Do these worlds and problems sound familiar? What are you doing to steer yourself in the right direction? 

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The vision statement. How many have you seen that are no more than bland drivel? How about these beauties:

‘We work hard every day to make X the world's most respected service brand.’

‘X’s mission is focused on six core aspirations the company continually strives to achieve.’

‘At X, our purpose is to build trust in society and solve important problems. It is this focus which informs the services we provide and the decisions we make.’

‘X’s business is to utilise crowdsourced technology that provide key differentiators between us and our competitors.’

Actually, I cheated. That last one was created using the Mission Statement Generator. But, let’s be honest - there’s not a lot in it.

I’m not sure why some companies bother with them; half-hearted, dull and meaningless vision statements are worse than useless and expensive (McKinsey don’t come cheap you know!) But a carefully created, powerful one is a very useful thing for a small business to have. 

As a small business, it is often the case that you don’t have the money for marketing or hiring to compete with the larger players. A good vision can help you connect with the people who work for you, the people you’d like to work for you, and the people you want to buy your product.

Because a good vision statement will resonate with people who agree with your vision. A good vision will move them to action.

So, how do you go about it?

The first thing you should do is recognise that your mission is about how you want to change the world; for some value of ‘change’ and ‘the world’. It should talk about what that end state looks like.

Let’s say you were making a smart fire alarm, your vision might be ‘Nobody dies due to fire or smoke inhalation in their home by 2028’. We’re not talking about excellence, our brand reputation or striving to achieve. We’re stating our purpose, what we’re about and why we exist.

Do you see how a vision like this can be powerful? Anyone who cares about fire safety, has had someone they care about affected by a home fire or is simply worried themselves, would have an emotional response to this message. A nod of the head, an “I want this” or, even, “This is my mission too.”

Many businesses struggle to find the right people and can’t afford to pay top rate in their industry. A powerful vision that really speaks to the people you want can act as an attractor and help tell them they are in the right place. That they want to go on this journey too.

Maybe this vision risks trying to boil the ocean, though. How would you tackle that? You might use something like:

‘Halve the number of UK deaths from home fires by 2028.’

This is slightly less powerful but perhaps more honestly achievable. Honesty is another incredibly valuable trait in such statements. There are around 325-397 domestic fire deaths per year, so you are talking about a major reduction and potentially saving thousands of lives. That’s still a worthy goal.

It is also a measurable one. In 2028 we can look at the number of people who died due to home fires and see if it halved or not. Better yet, every year we can see if we are making progress towards delivering on our vision.

A good vision is simple, clear, direct, and purposeful.

Some things to ask yourself when developing a great vision statement:

Does it say what impact we are going to have?
Can it be measured?
Is it worthy of our time and attention?
Are there people who will care?
Is it pithy?

A good vision statement will pass all these tests and be both enjoyable to read, meaningful, and - to the right people - inspiring.

What about your vision statement? Have you shared it with prospective customers or hires? What do they think?

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2018 is coming to a close and, as we head into the festive break and switch on the ‘out of office’, it’s a good time to review and reflect on the challenges and successes of the past year. 

Are you happy with the position your business is in? Are there areas you want to improve on for the New Year? Have you identified how best to move forwards? Over the past weeks, I’ve covered goal-setting, ambition, the curses of being an entrepreneur and great strategy. Today - for my final post of the year - I am going to share what I think it takes to grow a business effectively. 

To start with, it certainly takes some luck; you have to be in the right place at the right time, have the right people around you. You need to catch a break or two. But if you believe in the Sherlock Holmes adage that, ‘chance favours the prepared mind’, then what does it take to be prepared?

Here are the minimum requirements I think that you need:

1. A clear vision of the future (as you would like it to be) defined in terms of measurable outcomes

2. A set of values that define the way you, and the people in your orbit, will work together and what will not be tolerated

3. A diagnosis of the challenge between you and delivering on the vision

4. A strategy ‘kernel’ outlining the high-level approach to addressing the challenge: your “principles of battle” and the critical factors that will need to be managed

5. One or more value propositions, with assumptions gradually tested through customer engagement, that lead to feasible and desirable products/services

6. A viable business model expressing how those products/services will be created and sold to customers

7. An operating plan that measures how effectively the strategy and business models are being delivered over time

8. A feedback driven approach to leadership and management

9. A system that integrates these various components into a process that can be followed

The core of this methodology is to take a high-level position and convert it into the kind of valuable products and services that move your business in the right direction. Then you can build and deliver them - test it out, see how well they work.

The key is that, at each step of the process, you are measuring what is actually happening - not trusting to luck - and sensing whether you are moving in the right direction or not. Then you need to ask what you should do (whether it’s ‘more of the same’ or ‘make a change’).

Adopting almost any of these practices will give you an advantage but the real benefits begin to stack up when you approach them systematically, with the outputs of these processes feeding into each other. 

So, if you’re looking to kick off the New Year by being more effective with your business, this should give you some food for thought to digest over the break. 

Next up - how to develop a great vision statement. Until then….

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You are playing two games, fighting two battles - the one going on in the office and the one going on in your head. Every entrepreneur has to solve the problem of how to make their business a success, whilst simultaneously battling the consequences of the scarcity of their time, attention, and energy. One of these problems is hard, the other almost insurmountable. 

Most of my efforts are directed towards solving the first - the easier - of these problems: i.e. how to create a vehicle to deliver on your business goals. I say its easier because it’s typically aligned with where you want to go anyway, plus we have a process for doing it. But the mental game - how you stay in the game - that’s your Everest. The best I can offer you is a diagnosis and some pointers for how to help yourself.

In a previous piece, The Five Curses for an Entrepreneur, I observed that there are five evil forces at work in the lives of most business leaders. Forces that conspire to hinder them and prevent them from achieving their goals. They are:

1. Stress

2. Overconfidence

3. Poorly understood business needs

4. Untested assumptions

5. Failure to communicate

If we wanted to create a simple model for a successful entrepreneur it might look something like:

good idea + skill + confidence + passion = success

But this belies the evidence, because passionate, skilful, confident people fail with their ideas all the time. I’ve already mentioned the Startup Genome Report and it’s rather horrible picture of failure. But I’ve been in the London startup scene almost 20 years, meeting a lot of new enterprises along the way, and can count on my fingers the number of entrepreneurs I met who didn’t blend most or all of these qualities.

So if a good idea, skill, confidence and passion are not enough - what else do we need? In developing a talk called ‘The Effective Entrepreneur’. I extended the model to include three further factors: presence, focus, and judgement.

Presence

Are we present in the moment? Or are we absent, distracted or unavailable?

If we are more present, we are more alive to the opportunities and threats that swirl around us. Success can often turn on a chance meeting - sometimes it is not the meeting that you anticipated or planned for.

Yet, so often we are not present and find our head is elsewhere. We’re in the middle of doing something but feel distracted; thinking about - or getting anxious about - our next meeting, tomorrow’s presentation, or next week’s pitch.

Mindfulness practice can help here. It can also be enough to remind ourselves, periodically, that there is no point in doing work that we’re not willing to be in. If you have a co-founder or team members, maybe you should challenge each other to be present?

Focus

This one presents an incredible challenge for smart, creative, people.

Can we focus on one idea, on one product, long enough to make it as successful as it can and deserves to be?

The trap is that smart people believe they can multi-task and that they are not cheating themselves or the opportunities they are working on. Maybe some can. Maybe you are one of those rare Elon Musk types? More likely, you’re like me and would be better off just doing the most important thing in front of us.

Try to remind yourself focus is good. Decide what is most important and do that. This means saying no to things that are less important. This is the right thing to do. If you’re struggling with that you might have a problem with…

Judgement

Do we display sound judgement most or all of the time? Or is our judgement suspect, either in terms of being unable to make decisions, or making relatively poor decisions?

Presence, focus, and judgement are quite closely related to each other. As various factors affect our judgement and decision making, we are far less likely to be as present and focused as we should be. But the most insidious of the three is judgement because, as your judgement suffers, your ability to realise this gets diminished. People with poor judgement are often the last to know!

The only defence that I can suggest is that you need someone in your life who, when they tell you that your judgement is not A-1, you trust them enough to listen and do something about it. This could be a mentor, advisor or maybe even a navigator! But it shouldn’t be a family member or friend (they will find it hard to be objective about your ‘baby’). If you don’t have such a person in your life, or can’t find one, maybe that’s also a signal you should listen to.

Now, let’s be honest here - nobody is going to display 100% faculty across these all of these factors all of the time. That’s not human. So, we have to ask ourselves, “What should I be shooting for? What is achievable? What is good enough? And how would/will I know if I am achieving it?”

Again, this can be very hard to judge if you are on your own. So, find someone who can help you and, in the meantime - listen to your gut. It won’t steer you wrong. Accept that you will commit a cardinal sin from time-to-time,  don’t beat yourself up about it, move on and try to do better tomorrow.

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