Under Control

WHERE ANGELS FEAR TO TREAD

This is written for those who want to break out of their job and go to work. World wide, most work for themselves and few have jobs. But in the developed world, the reverse is true. Yet may jobholders want to escape from the cloistered world of Dilbert and the oxymoronic procedural / behavioral rules. In other words, we want to start our own company.

I am an Angel - a venture capitalist, if you will. My group of angels is known as the "Breakfast Club." Most angels have guidelines for investment. Ours, for example, say we don't do deals that are more than an hour away from home.

We invest in technology, and the earlier the investment, the better we like it. We're looking for 100% market share in all of our investments. This requires serious thought.

The breakfast club has four members, with specialists in marketing, finance, and the techie, me. We see about a hundred business plans a year, and only invest in several. There is no average investment - only failures, the living dead and the winners.

So what interest us? And what can you do to attract an Angel? First, you need a business plan. Short plans are best, about 20 pages. It should cover all of the four legged dog. The four legs are: people, market, dollars, and product.

Don't forget to show how we, the investors, will improve our life style as a result of investing in your idea. We want to get back ten times our investment in five years. We're not interested in a percentage of a failure.

Why do you need us? There are other sources of capitol in the early years. Family is best. Borrow and don't pay back. Families will forgive. Don't pay the vendors right away. Make deals with the customers to prepay. In other words, deal, deal, and deal. But don't make promises that you can't keep, and stay away from the back pages of Byte magazine.

Some say it's hard to start your own company. But what's hard is getting out of business, with money. Never forget that's the goal? Most liquidity comes from a corporate buyout. Investors' problems come with defining an exit strategy, if any. Management is seduced by the perks and the power, and the stockholders are left languishing on the vine. Make sure the business plan takes into account that the investors want their money back.

Take an electronics hardware manufacturer as an example. About 20 percent of revenue is earmarked for marketing, 10 percent each for engineering and administration, 40 percent for goods, and 20 percent is gross profit. Too many disregard the latter, and measure success only as revenue. We talk about a ten-million-dollar company based on revenue figures. But companies are actually valued at one times revenue or ten times profit, whichever is lower. Value is more than that, of course. But never trade profit for revenue growth.

What's our batting average? Most venture capitalists consider success if 15 percent of the portfolio succeeds. Return on investment ranges from 10 percent to as high as 40 percent, with the median about 20perrcent.

As an investor, we must keep stepping up to the plate. No play, no batting average. Our prejudices are many.

· We don't invest is a deal if;

· We like it if :

As appeared in Manufacturing Systems Magazine December 1994 Page 18
http://www.manufacturingsystems.com




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