Coming up fast - Want a date with an angel? Get set to talk business - When you receive 1,000 business proposals a year, it is not only wise to have some well-honed criteria, it is essential. Chris Evans discusses his investment strategy with Alexander Garrett.
Scientist and business angel Chris Evans answers the door of his Belgravia townhouse-cum-office wearing a blue tracksuit. This isn't his usual garb, he explains, but he's had to reschedule his personal trainer to accommodate a hugely important lunch-time meeting. 'Somebody is flying in this morning to discuss a really big deal involving many millions of pounds,' he confides with his undisguised Welsh lilt.
In a stereotypical world of egghead boffin scientists, Evans cuts a colourful figure. True, he has a microbe named after him, but he's also into fast cars, rugby and Fender guitars. Even more important, he is probably the UK's leading business angel in the technology field and has created a personal fortune of more than £50 million by creating and floating a string of these companies. Successive governments have called upon his expertise and he has even chaired a European Commission committee on SMEs.
At 40, this tall, lean man continues to plough millions of his own money into start-up ventures spinning out of university laboratories, largely through the Merlin Fund, his venture-capital vehicle.
Of the 1,000 investment proposals he receives a year, a handful are given serious consideration by Merlin, a few are referred on to other business angels and the remainder receive a polite 'thanks, but no thanks' letter.
Few people, then, are better placed to advise would-be entrepreneurs on how best to obtain that all-important start-up finance.
THE CONCEPT. The first hurdle in persuading a business angel to part with money is usually selling the idea - typically a product or a service. 'If it's boring - moving sludge from A to B - then I probably won't be interested,' says Evans. The founder of Kindertec, a company set up to develop a sophisticated child monitor to check on breathing and room temperature, impressed Evans by giving him a product he could hold. The monitor has since been taken up by Johnson & Johnson. 'As an angel, I'm looking for that innovation, that excitement,' says Evans.
THE PEOPLE can be even more important than ideas. 'If you don't like the people, forget it,' says Evans. 'It's totally subjective, but all business angels do that.' Liking has less to do with affection than believing in their abilities and experience. Evans will look for complementary skills among the founders and thinks the bigger the team, the better. Communication and presentational skills are important, he says, particularly in subsequent rounds of financing. But while an impressive track record can tip the scales in favour of investment, extreme personalities can be a turn-off. 'People who are very shy or very arrogant often balls up the business because they haven't got the personality, charisma or communications skills to build the thing.' Occasionally, an entrepreneur may have no business experience but may possess other, more valuable skills. Merlin invested millions in Cyclacel, a company that researches cancer therapies, largely because of the involvement of David Lane, a leading researcher into cancer genes.
PLAN THE PLAN. Evans believes the business plan must demonstrate that the strategy is fundamentally sound. 'The business angel has to ask if the plan makes sense. How are they going to develop and sell their product?' he asks. 'You've got to test their thought processes. If they are asking for a couple of hundred grand, where does that lead to in the plan?'
While the plan may not contain all the answers, it should demonstrate that the questions have been asked. Evans backed some very young people with no track record, but who had done their background reading and thought everything through. Their plan may have been 'a bit clinical' and naive in places, but they were willing to learn and knew what they didn't know, says Evans.
SELL, SELL, SELL. Salesmanship is often overlooked. 'If you want people to back your business plans, what you're selling is you - your commitment, your belief in and enthusiasm for what you're doing,' says Evans. Entrepreneurs must be fully prepared so that they can quash doubts at the outset. 'Angels will look to see if you stall with a question: Do you dither, or do you just blurt out an answer, which is wrong,' says Evans.
HOW MUCH? Too often, entrepreneurs seeking start-up finance ask for too little. In biotechnology, this spells certain failure because of the cost of hiring labs for research, says Evans. He reckons the start-up seed capital in biotechnology should be about £500,000 just to get it off the ground, £10 million in its second year and £25 million the year after. Smaller sums go further in areas such as IT or telecoms, where many world-class businesses have been started on a kitchen table or in a garage.
'People often shy away, thinking if they ask for too much they'll put everybody off,' says Evans. 'The business angel should really appraise that. They should say: 'I'm giving you £50,000 but you'll need another £150,000.' If they don't do that, the founders should look at the angel and wonder if he's really credible.'
Lottery winners who have just come out of a steelworks 'don't bring anything to the party', he adds.
AMBITION. The desire to make money is essential but, says Evans: 'I'd be concerned if somebody was only in it for the money and didn't seem to care about the products. It is also about the success they want to achieve for themselves, the challenge of making it happen and running their own firm.' That said, an entrepreneur cannot afford to be squeamish about big sums, he says: 'How am I going to make £10 million if this guy is fazed by a couple of million?' Those looking for high risks and high reward match his own investment proclivities but, he concedes, not all angels take this stance. 'I need guys who are falling off their seats, leaping in the air, who love technology, who think they're going to be Bill Gates. I'm looking for a dynamic group of people with dynamic ideas. That's the opposite to what most business angels here do.'
LETTING GO. Most entrepreneurs are unwilling to give up enough in return for finance. It's a negotiation, says Evans, but he adds: 'It's better to have a small percentage of something that's definitely going to work, than 100% of something that's definitely not going to work.' Business angels tend to take 10% to 50% and there's little point in arguing. 'If I say I'll give you £100,000, but I want 45%, they shouldn't even be querying it. They should be thinking: 'I'm glad I've got him involved.' It's better to have cash and credibility. You can make 55% worth a lot of money.'
Small businesses can be too protective and greedy about their shares. With his company Chiros, Evans says he gave the venture capitalists 74% and settled for the remainder. 'The next day, I had a company worth millions, with many millions in the bank to do all the things the plan said it needed. By the time it floated, my 26% was still worth £25 million.'
THE KEY PIECE OF ADVICE. 'Really think every single thing through before you meet the business angel,' says Evans. 'My advice is know your business. After all, it's your business, not mine; that means know your markets, your competitors, your products, your patents, your downsides, your upsides. Do your homework carefully, because you only get one chance. The finance guys - the reason they are where they are - is that they have thought everything through and, if your strategy is flawed, they can see through it in seconds. It's very rare they'll see you a second time.'
HOW TO FIND AN ANGEL INVESTOR
- The most straightforward way to find a business angel is to sign up with an introduction agency, but beware, the services they offer and the number and quality of investors on their books vary
- A comprehensive list of angel introduction agencies is available from the British Venture Capital Association on 0171 240 3846
- Venture Capital Reports, an introduction agency, helped Peter Eales to find business angels willing to invest £240,000 in his sticker-printing business, Sticker Station (above). The company intends to install booths across the UK over the next three years. Software company iOra plans to raise its second round of finance in a similar way
- Before signing up with any agency, find out how much it charges, how closely it vets businesses and investors for quality, and what investments it has facilitated in the past year
- Personal networking can also be effective. Ask your accountant or bank manager if they know of local investors who might be interested in your product n Even chance opportunities can pay dividends. Chris van der Kuyl sat next to a top banker at a formal dinner, persuaded him to visit his video games company, Vis Interactive, and secured further investment
- Advertising is another option but it doesn't guarantee the calibre of investors who reply n The Financial Times and the Daily Telegraph run ads for businesses seeking investors. A credit-card sized advert will cost around £700, including VAT
- The cost of newspaper advertising is sometimes included in an agency's fee. This is the case with National Business Angels Network: 0171 329 4141.