HNW February 2014 Issue by High Net World (HNW) Magazine

£2.95

HNW

High Net World Magazine

FEBRUARY 2014

hnwmagazine.co.uk

The State of the Entrepreneur

WEALTH Somewhere in America Global Growth Forecast

ENTREPRENEURS Crowdfunding Flavourly Dengue Fever

INTERNATIONAL Venture Capital Market: From $0 to $1Trillion

ANGELS & INVESTORS Stock Market Crashes Reasons for Optimism

FEATURES Stealing Twitter Tech’s Scariest Words

PRACTICAL BUSINESS Family Succession Gas Sensing Solutions

HEAT Scotland, Manchester Dublin, and London

LINKING ENTREPRENEURS WITH INVESTORS & ADVISERS UK-WIDE

Q Court, 3 Quality Street, Edinburgh, EH4 5BP For further information, please contact Stephen Paterson on: Telephone: 0131 625 5151 spaterson@hwca.com

DISTRIBUTION “A hard day’s write” Since its inception, High Net World HNW Magazine has been extremely fortunate in its associations with leading business angel, entrepreneurial, investment and networking organisations. This includes the Angel Investment Network (AIN), founded in 2004, which has grown into the largest angel investment community in the world. AIN has over 500,000 members across 30 networks in over 80 countries. The Angels Den, the world’s first integrated angel and crowdfunding platform which for over six years has been successfully matching entrepreneurs and angel investors. Since launching in 2007, Angels Den has raised £16 million of investment, through 10 globally based offices from over 6,000 angel members. Par Equity, one of Scotland’s most active business angel syndicates, is an investment firm with a difference bringing a hands-on investment approach and extensive experience to opportunities that have the potential for significant returns. KILTR, The leading edge professional social network for everyone with a Scottish connection, was founded with the local-to-international Scottish diaspora at its centre. The social network has over 40,000 members. LINC Scotland is the national association for business angels in Scotland with a membership including individual investors and most of the main angel groups or syndicates. Since 1993, LINC has played a significant and active part in changing the business culture in Scotland. Thrive for Business is a membership-based networking organisation for business-to-business SME’s across Scotland bringing together likeminded individuals willing to share knowledge, ideas and contacts.

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Steel’s View P.8

CONTENTS FIRST WORD: WHATSAPP?

HNW MAGAZINE LTD, Geddes House, Kirkton North, Livingston EH54 6GU (t) 01506 419 774 (e) editorial@hnwscotland.co.uk

THE HNW HEAT PROGRAMME

EDITORIAL Ed Emerson, Editor in Chief

WEALTH: GLOBAL UNREST

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GROWTH FORECAST

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SOMEWHERE IN AMERICA

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STEALING TWITTTER

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CONTRIBUTORS Alan Steel, Mike Williams Guy Rigby, Rory O’Driscoll The Brunette, Jude Cook, Bruce Alexander, Bill Morrow Andrew Dickson, Neil Patel Evelyn Millachip, and Andrew Wordingham

THE STATE OF THE ENTREPRENEUR America, the seminal barometer of global horizons, is gaining economic steam but losing its innovative spirit…

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WHAT ANGELS WANT

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A FLAVOURLY INVESTMENT

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HEAT: HIGH GROWTH COMPANY LEADERS MAIN SPONSOR:

THE VC MARKET

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TRICKY FIRST MILLION

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SHAREIN: DENGUE FEVER

PRACTICAL BUSINESS Mike Williams P.4

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The views expressed in HNW Magazine are those of invited contributors and not necessarily those of HNW Magazine Ltd. HNW Magazine Ltd does not endorse any goods or services advertised or any claims or representations made in any advertisement in HNW Magazine, and accepts no liability to any person for loss or damage suffered as a consequence of their responding to, or reliance on, any claim or representation made in advertisements appearing in HNW Magazine. By responding or placing reliance, readers accept that they do so at their own risk.

©HNW Magazine Ltd. Reproduction in whole or part is forbidden without the written consent of the editor.

FIRST WORD

WhatsApp?

Huh? Ahhh…the non-revenue generating option. Very popular these days. You build a massive audience following, make it cool, just left of mainstream’s centre with lashing of rebelliousness and await the bellwether of corporate social media to crack the financial spine into reality. WhatsApp brings the youthful user numbers and “Never Say Facebook…again” contingent and Zuckerberg signs the checks. Or rather, Facebook’s investors post-IPO create WhatsApp’s pay day.

By Ed Emerson

Facebook’s fast moving Chief Executive Mark Zuckerberg is at it again. The man who famously closed a $1 billion deal to buy Instagram over the course of a weekend has, in just 10 days, agreed a $19 billion purchase of smartphone-based messaging startup company WhatsApp. The deal value, more than Facebook raised in its own IPO, has succeeded in setting investor and developer tongues wagging but equally begs the question: was Snapchat’s reluctance to close with Facebook at just $4 billion in hindsight an interesting and even courageous decision? Hard to reconcile that one….much less write it! But how high will the prices go for fairy tale startups like WhatsApp? Their meteoric growth reads like Hollywood’s next The Social Network; Ukranian immigrant and college dropout, Jan Koum, partners with Stanford Alumnus Brian Acton out in Silicon Valley (against all odds, of course) and builds a 450 million user base in five years.

The eleven scariest words in Add in a love triangle and some social discrimination and technology pointed you’ve got yourself a box office smash. today? “How But is it a financial success in the WhatsApp offers users a the service making? $1 per year cost option, deferred a year, alongside the free to use will pay for for stuff. And Zuckerberg has very publicly stated that the new acquiwill operate “independently itself is not sition and autonomously”, as he has no to advertise on the Whatyet clear!” plans sApp interface.

Now I know that all sounds terribly cynical, and the bear marketeers amongst you will likely espouse dot.com and ‘market bubble’ concerns, but that particular Armageddon is far less likely than most realise.

“Mark Zuckerberg sees these (Snapchat, WhatsApp) platforms as entrees to new users; the mounting teen brigade eschewing mainstream social, while adding communication to its content paradigm. He alone knows his own mind and the strategy to make real those objectives. Questioning his social media nonce is a bit like querying Warren Buffett’s investment style; short-sighted and spectacularly arrogant. So, for today the question remains this: How does WhatsApp make money for its new owner? Unfortunately, the answer just now is comprised of the 11 scariest words in tech: “How the service will pay for itself is not yet clear.” If that is the reality then this fairy tale needs a new ending.

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T EEL

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AN AGEMEN T

Alan Steel Asset Management Limited is authorised and regulated by the Financial Conduct Authority.

Are you fed up with earning little or no interest on your savings

If you’re looking for an income to safeguard your long term financial future then simply having all your eggs in a bank or building society deposit account basket

Email us today for your FREE copy of our new guide at: income@alansteel.com Or call us on 01506 842 365 and ask for Carol McNicol In the guide we explain and compare the risks and rewards in both a “saving for income” and an “investing for income” strategy. One of these alternative income strategies may now be right for you. It must also be remembered that the capital value of investments and the income

HNW HEAT

HNW’S HEAT High Growth Company Leaders A Good Reason

● Accountancy matters of funding, taxation and strategy

HNW Magazine’s HEAT 500: High Growth Co. Leaders programme launched in 2012 in response to a problem in the market. And that problem involves two audience groups.

● Wealth Management of personal finances and corporate earnings

The High Growth Entrepreneurs The first group comprises established high growth entrepreneurs, a highly valuable market segment facing the irony of its own success; once their businesses have succeeded through the startup stage, they find themselves suddenly isolated from the myriad incubators, accelerators, university networks and Government programmes that helped support their progression into a scalable revenue generating business. Additionally, as that bank of startup stage advisory support disappears these company leaders become wary of unfamiliar organisations offering commercial assistance, despite knowing their future growth may depend on upgrading the startup stage legal, accountancy, banking, personnel, funding, training and wealth management relationships they’ve since outgrown.

The Professional Advisers The second group comprises those businesses who offer these more sophisticated layers of assistance, including support on: ● Helping the business to Internationalise its product/service offering ● Legal advice on company struc ture, corporate activity, and intellectual property

● Marketing & Sales, an all too common Achilles heel in most businesses ● The dynamics of Leadership and personnel management, and how that delivers growth ● Staffing and Personnel, particularly for senior level positions, and ● Business and personal Banking options, and growth Funding.

But advisers often struggle to gain traction due to two barriers of their own: 1. They have difficulty in first identifying these newly disenfranchised high growth company leaders and their businesses, and 2. Once identified, they lack a strong route to introduction, one that develops immediate trust and creates the foundation for a relationship.

One – One = None Any business with experience in the innovation space will know both the value of building these connections, on both sides of the equation, and the inherent challenges in doing so. Gathering entrepreneurs together can be akin to herding cats, and finding the right advisors, equally so.

HEAT is HNW Magazine’s UK & Ireland-wide high growth company leaders programme for exceptional individuals running exceptional businesses. P.7

HNW HEAT

HNW’S HEAT High Growth Company Leaders HEAT The HEAT High Growth Co. Leaders programme brings these two audiences together. HEAT is a route to enhance the odds of high growth business survival from its current 55% failure rate – worse odds than flipping a coin, and that figure is for businesses who have already received angel funding.

“Over 500 company leaders based throughout the four regions of Scotland, London, North West and Ireland….” HNW’s HEAT programme helps by: ● Delivering a peer group support network for high growth entrepreneurs throughout the UK & Ireland ● Providing regional events in London, Ireland, North West and Scotland that focus specifically on the most common barriers to high growth ● Growth guidance, through editorial and communication channels unique to HNW, only for members and supporters of the HEAT programme, and

● Promotional and editorial support for all members of the HEAT High Growth Co. Leaders programme through the pages of HNW and via its significant digital and social media platforms. HEAT brings together the leaders of over 500 high growth scalable businesses based in London, the North West (Manchester), Ireland (Dublin), and Scotland with the types of speakers and commentators who can help these companies through the barriers on the road ahead and help improve the business survival rate across the UK & Ireland.

HEAT 2014 / 15 HNW will operate the HEAT programme event series in four areas in 2014: ● ● ● ●

Scotland (Edinburgh & Glasgow) The North West (Manchester) London & Surrounding (London city) Ireland (Dublin)

Events HNW will hold 4 events in each of the above 4 areas, a total of 16 events across the UK and Ireland, comprising HEAT programme members from each respective geography, with expected audiences sizes of between 10 and 30 attendees at each event. HNW will produce HEAT Scotland, HEAT London, HEAT North West, and HEAT Ireland publications and members-only website areas.

Contact editorial@hnwscotland.co.uk for further information

“HEAT is a route to enhance the odds of high growth business survival from the current 55% failure rate – worse odds than flipping a coin, and that figure is for businesses who have already received angel funding.” P.9

STEEL’S VIEW WEALTH not forget the PIIGS were to be the end of us, right? Do we know that as of DEC 31, the aggregate cash dividends to the Treasury (paid by Freddie Mac) is now $71.345B, exceeding the cash draws of $71.336B since the pit of the crisis?

GLOBAL WARMING RETURNS

And that financial revelation leaves out one little item of significance; the taxpayers still own $72.3B in preferred stock in Freddie Mac.

Taking Advantage of Global Unrest…

In other words, business in America is moving along just fine toward recovery and new horizons which we can currently not envision; Freddie Max has paid "us" back in full, and we still own another $72B in stock. In essence, we've "doubled our money" since the world was ending.

Anything Else?

By Mike Williams

The swoon we felt in January, and spent most of February recapturing, was first driven by the fear created over the "slowing manufacturing PMI reading" at the time.

This winter has certainly been surprising given all of the global warming research reports.

We wrote that: "…it was highly likely that the economic pipeline did not disappear, it merely was delayed."

The snow here on America's east coast has negatively impacted market events, while out west drought conditions have now given way to mudslides as the rain arrives.

And while the winter weather has caused further delays since, the latest PMI reading was: "…far better than expected" as it came in at 57.1% versus "an expected 56.6% reading".

The weather is about as crazy and shifting as the next area of "global unrest". Barron's view on Ukraine's presidential ousting from the weekend was: "Markets try to survive global upheaval." Huh? Sad though it is, how can Russia seizing a tiny, tiny spot on the globe, delivering almost nothing to global growth, be considered global "upheaval"? Surely we've come a long way from the pit of the 2008 crisis, right?

We Must Capture a New Perspective Investors are required to think beyond today. And history regularly reminds us of the error in over reacting to near-term events.

In other words, things are going just fine, better than expected, and the weather has still to change. What does that tell us about later? Well, we suspect it means surprises to the upside are in the offing as Spring arrives.

“Technology-driven productivity is driving prices lower. That's not dreadful at all. In fact, we can rest assured that it's ‘good’ deflation.”

Our market system permits us to fix errors, even as we often must endure the impact of previous mistakes. And we do fix things.

What About Ukraine?

Listen...we can choose to partici pate in the end of the world chat ter, to participate in the "crisis" mentality. We can react like many did in January, selling record amounts of ETF's, mutual funds and emerging market account equities by way of response. Or....we can do this:

By Example? Well we all know how terrible TARP was, right? We remember being told the world will never recover, right? And how Greece was going to take us all down, right? And let's

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We can recognize history for the series of lessons and roadmap that it is. For perspective take a lesson and read Warren's latest letter. He wants to buy things "forever". And he wants us to learn that in the short-term,

WEALTH

the markets are not there to trick you. They are a voting machine. In the long run, they are a weighing machine. The long run....wow, the term even sounds tough. Email, texts, online accounts, and selling everything in seconds with the push of a button has left many forgetting the impact of "the long run."

● The long run is wealth building ● The long run is meeting your goals ● The long run demands we withstand the storms in order to receive the bounty of the harvests ● The long run means we cannot be induced to assume that "news" tells us the right thing to do ● The long run is the only way to get to the next 10, 20 and 30 years. So Now What Are the Headlines? "Stocks Sink As Ukraine Crisis Escalates" Do we want to participate in the future or, do we want to participate in the Armageddon chatter that ambles onward from one crisis to the next?

The masses will eventually tire of being bearish and frightened over Ukraine violence, Greek austerity, Chinese hard landings, US income inequality, polar vortexes, economic soft patches, peaked profit margins, congressional impotence, global warming and even middle-age weight gain. And when they do they will slowly gain confidence. That confidence will drive future investment flows. Those flows will build new ideas...as well as new things to fear.

Email, texts, online accounts, and selling everything in seconds with the push of a button has left many forgetting the impact of "the long run." This new secular bull market will end with greed, massive greed, massive "bubble chatter", talk of new paradigms, massive increases in the US dollar and a yield curve showing short-term rates rising above long-term rates. But that is a long time away....perhaps thousands and thousands of points away. That is great news for all the borrowers who took advantage of the fear flooding the system over the last 5 years…..and terrible for all those lent. And who might that be? Those who were so terrified they flooded bond funds with $1.4 trillion new dollars…

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STEELâ&#x20AC;&#x2122;S VIEW WEALTH

Somewhere in America By Alan Steel Searching for some Winter sun as is our wont in the last few years, we made our way mid January to idyllic Anna Maria Island off Florida's Gulf Coast. Apart from its laid back atmosphere and white beaches it has the added attraction, much to Fran's annoyance, of being only an hour's drive from Joe Kalish, Ned Davis, Tim Hayes and their world class colleagues at Ned Davis Research, whose words of wisdom have helped us guide you safely through the last ten volatile years. On our trip there 2 years ago while sitting at the "Brain's Trust," having morning coffee sessions at Ginny's with a few retired worthies who wallow in Florida's low Sales Tax and zero State Income Tax, and who are gathered for a daily blether by Pete the charismatic Scots ex-pat while Val does all the work (she says), the sole topic of conversation and concern was how the US would manage to survive the predicted collapse of Greece. That was late January 2011. You may recall it was odds on that the "PIIGS," a quintet comprising Portugal, Italy, Ireland, Greece and Spain were in such soapy bubble, they would bring down the Euro and with it the World banking system .......again.

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To put things further into perspective, try comparing Countries with Cities in the US ..... Greece? .... The Seattle Metro area is bigger in economic terms ...Spain? New York's bigger!... At the time I suggested we would probably avoid the dreaded Double Dip Recession, given we all could get by without Hummus and Taramasalata, and explained that Florida's GDP was three times the size of Greece's. They were surprised by that, and 2 years later are still surprised Greece survived ... and more ... as to the 5 belittled "PIIGS" they've all done rather well given none of their economic houses burned down. Indeed according to the OECD (Office of Economic Cooperation and Development).... and this will surprise many and confound pessimists still dominating News Channels ..... no fewer than 4 of them are in the OECD's Composite Leading Indicator Top Ten for the last 12 months .... an indicator that points to future success. And they hardly scraped in by their molars! In order, Spain,

WEALTH Portugal AND Greece made up the Top Three, with supposedly rudderless Italy Seventh.

two leading articles in the Wall Street Journal, side by side, written would you believe by the same journalist.

Poor Ireland was just pipped for tenth spot by Poland (UK lay in eighth position .... but as the BBC would say .... it was a personal best).

The main article said ....... "investors swapped out of equity funds into bonds at the fastest clip on record in the week up to Wednesday, according to Lipper Inc, as they grasped for safety while the stockmarket swooned."

But .... I hear you ask, ..... what surely matters is, which countries were the fastest growing over that period? Sorry to disappoint our gloomy pundits out there, but Portugal was No 1 (helped by my Port consumption), Spain next (Rioja sales up no doubt), AND Greece, third again, with Italy just outside the medals in fifth place. Ireland being rather slow this time on the uptake. I find it bemusing so many intelligent folks, even in the US, have no idea of how big the US economy is, and how well it has done since the scary days of September 2008, when the World held its breath. Perspective may help a little if we redrafted the map of America, replacing States with Countries the same size in Economic GDP, Italy replaces California, Greece is Missouri if slightly smaller, Singapore replaces Tennessee, and Switzerland would be Pennsylvania .... though Glenn Miller Orchestra fans wouldn't like that I suppose. To put things further into perspective, try comparing Countries with Cities in the US ..... Greece? .... The Seattle Metro area is bigger in economic terms ...Spain? New York's bigger!... New Zealand? Steve Forbes visited San Diego recently and will attest to how small and compact it is compared to most other US cities, but its economy is still bigger than that of the Kiwis. Even bankrupt Detroit amazingly is the same size as Ireland. But what about the latest scary economic mess was reported in January about to shatter Stockmarket progress since 2009 ..... Argentina. As a State, little North Carolina gives it a run for its money, and Houston, Texas is roughly the same in economic output. We don't cry for them do we? But the reaction to Argentina's perennial economic woes still managed to pull the rug from World Stockmarket Indices while I was away. A few days earlier I explained to Ian Cowie, now at the Sunday Times, that Ned Davis Research felt, from stats back to 1900, a significant fall in Stockmarket Indices could be on the cards, given the normal corrections hadn't materialised for almost 2 years. When Ian wrote that in his weekend column it led to a flurry of emails to my colleagues and I giving us all something to do on a rainy miserable Sunday ... me included as waves of polar air brought fog and rain to Paradise. Sitting later in Newark Airport, Friday 7th Feb, I spotted

So investors panicked at record levels out of shares into Gilts, or Treasuries as they call them in America. Next article, much smaller read .... "the Dow Jones Industrial Average scored its biggest gain of 2014, following an upbeat reading from the Labor Market helped ease concerns about slowing economic growth. The Dow rose 1.2%...." and by the way it rose on that Friday another 1.2%. So what's happened since record sales of equity funds in the week to 5th Feb? The Dow's up 4.6%, and the Nasdaq Composite's up 6% .... while those rushing in record numbers to Cash and Bonds .... missed the rally, once again.

We don't cry for them do we? But the reaction to Argentina's perennial economic woes still managed to pull the rug from World Stockmarket Indices while I was away. Terry Smith of Fundsmith wrote a great piece in Saturday's Telegraph, explaining how costs, switching costs, and kneejerk investor emotions lead to them underperforming Index Averages by 7% per annum, according to studies in the US. (And the biggest loss is caused by kneejerk emotions). Meanwhile back at the asylum, Turkey is the next up to derail Stockmarkets. (Florida's roughly the same size of it too economically). But like the sun and warmth normally experienced in Florida .... not when we were there this time around ... it's a fair bet that things will revert soon to the mean. Chances are very high, according to Ned Davis Research, even if we do have a correction this year, it'll take a lot more than a sickly Argentina or Turkey to stop World growth, especially as China and India look in better shape again. As Eric Bogle (Scots born prolific Singer/Songwriter reminds us in his song "Somewhere in America") .... "the Road goes on and on and on ... the Road goes on and on….……………”

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FEATURE: MARKETING

How to Steal Your Competitor’s Twitter Followers… By Neil Patel

Analyze your competition through Twitonomy Have you ever used a free Twitter analytics tool called Twitonomy? All you have to do is type in your competitor’s Twitter handle, and the tool will tell you everything you need to know about the company you are researching. For example, I typed in Mixpanel, and here are some of the things I learned…

Once you’ve analyzed all of your competitor’s Twitter data, you are now ready to steal its followers.

How to steal your competitor’s followers The first thing you need to do is create a list on Twitter.

Within this list, you’ll want to follow the most active users that your competitor is engaging with. You can get a list of these users from Twitonomy.

As you can see, the Twitonomy shows you which users Mixpanel retweets, replies to and mentions the most. If you were trying to attract its followers, you would want to interact with these people. Just make sure to avoid the people who work for that company. You can also see the type of content that their followers enjoy the most as Twitonomy lists their most retweeted and favorited tweets.

Once you’ve created a list, make sure you monitor what those people are tweeting and provide a helping hand by answering their questions. Next, you’ll want to look at all of the lists that follow your competitor and engage with the users who created those lists.

(Cont. P.19)

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FEATURE: MARKETING How to Steal Your Competitor’s… (cont.) Typically, you’ll see hundreds of lists, so you should first engage with the users who have the biggest lists. By having your Twitter profile also being part of that list, you’ll instantly gain followers from your competition. The way you would convince someone to add you to their list is to first tweet a few times at them around topics that you feel will interest them. If you also see them asking questions on Twitter, make sure you respond with an answer. After a few weeks of engaging with them, kindly ask them if they would be open to adding your Twitter user name to their list. You’ll also want to make sure you are leveraging all of the information you have learned about your competition to your advantage. For example, if you are looking at their most used hashtags, you can then start using similar ones in your tweets to appeal to their followers.

“The reason my companies have done so well from a traffic generation perspective is because I’ve created a popular blog for each of my companies, but that’s not where we started our traffic acquisition. The first piece of social media real estate I create isn’t a blog, it’s a Twitter profile.”

You can also do this with timing. By knowing the days and hours they tweet, you can start tweeting during those times to also appeal to the same followers. When I first started to steal followers, I just followed everyone who followed my competition and roughly 30% of those users would automatically follow me back. But over time, this tactic started to become ineffective. Although the steps above require a bit more work, it’s a much more effective strategy to gain your competitors’ followers than my old strategy was.

“If you aren’t active on Twitter, I highly recommend that you fix that. It’s easier to maintain than a blog, and if you work on stealing your competitors’ followers, you’ll notice that Twitter can be a good revenue source for you.” P.19

STEELâ&#x20AC;&#x2122;S VIEW WHAT ENTREPRENEURS NEED

Angels & Alternative Investment By Evelyn Millachip - Angel Investment Network much larger challenge to convince a bank to offer a better rate. The key benefit of angel investors is that they understand the importance of keeping money in a business during the start-up months and they will not typically seek any remittance until the business is profitable.

Control versus Expertise Angel investors commonly fund high growth companies in exchange for an equity position. As there can be great risk involved, most investors are not satisfied with moderate success. In many cases, they want at least a twenty percent annual return. As an entrepreneur, it is important that you approach angel investors with a realistic mindset. It may be easier to get money out of a bank rather than an angel as most entrepreneurial businesses will not generate the level of returns desired by the investors without giving up significant equity. However, it is also important to understand that angel investors are also experts in their fields with extensive managerial experience which can provide tremendous value to entrepreneurs.

If you are an entrepreneur seeking funding for a new business, there are a number of funding sources available for consideration. However, not all funding options may be suitable for you. When determining which type of funding is most appropriate, it is important to determine how much control you are willing to give up and what sort of payment schedules are realistic for your new venture. Although many entrepreneurs are hesitant to give up partial control of their new business, angel investors are a smart way to raise capital quickly. Angels versus Banks Angel investors can offer on-going support, management expertise, and badly needed capital. However, it is important to acknowledge that these investors will inevitably want to control aspects of the company in exchange for their money. Itâ&#x20AC;&#x2122;s not necessarily a bad thing as these people are typically highly skilled in business with valuable advice to offer. As investors will be seeking a portion of the profits, they will need to protect their investment as well as yours.

The mental value of investors found in their networks, experience, and expertise is equally as important as their financial investment. Angels will want to be involved in the business but that can work to your advantage as they are agents of the business that can bring in expertise, sales, and contacts. If you have the privilege of choosing among a variety of angels, it is most practical to select one with proven experience in the industry of your business. Everyone Needs a Realistic Return on Investment Angels are most often drawn to companies that can benefit from increased government spending. New companies in infrastructure, health care, energy, or technology often do well. By doing your homework and research in advance, entrepreneurs can determine if their business is suitable for angel investors. If an entrepreneur approaches an angel investor with an outrageous company valuation or unrealistic equity proposal, it will be a waste of time for all stakeholders.

Business loans are appropriate for those who do not want to give up any control of their business. However, you will need to begin paying back your loan much sooner than if you were partnered with an angel investor.

However, that doesnâ&#x20AC;&#x2122;t mean that an entrepreneur should give their business away just to attract an angel investor. It is equally important for the entrepreneur to get a full return on their investment as well.

Furthermore, there is much more flexibility with an angel investor to reach favourable terms where as it may be a

It is wise to value your company at a realistic level to prevent a prospective investor from jumping to conclusions

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WHAT ENTREPRENEURS NEED that they need to justify their investment with means beyond the equity stake. But investors don’t just evaluate the financial aspects or number crunching either.

Benefits of Equity Financing Funding your business through an equity financing model with an angel investor enables entrepreneurs to cut the bank out of the picture. Rather than spending badly needed cash on loan repayments, entrepreneurs can use the money to continue growing the business.

While angel investors may be hard to get, one key benefit is that if the business fails, you are not required to return their original investment which minimises risk to the entrepreneur and eliminates any burden of debt.

“Angel investors can offer ongoing support, management expertise, and badly needed capital. However, it is important to acknowledge that these investors will inevitably want to control aspects of the company in exchange for their money.” With banks, you are always required to pay back any loans regardless if the business succeeds or fails. Equity investment is a long-term partnership that involves the investment of not only cash but experience into a new business. It is always important to remember that in the challenging early days of your business, angel investors can offer valuable business advice and assistance that you may not be able to obtain from banks, friends, or family.

Striking the Right Deal with the Right Partner In certain cases, entrepreneurs may not be partnered with a single angel investor but rather an angel group that involves multiple investors. Angel investments are highly suitable for businesses that are already established beyond the risky start-up period but may need additional capital to expand. Always choose an investor that you believe can provide the right mentorship. When their money is on the line, they are equally motivated to ensure that the business succeeds. Angel groups are often easier to find while individual investors are most commonly found through networking. Angel investors like to see entrepreneurs who also invest some of their own capital in their business.

The angel financing industry is huge around the world. In the United Kingdom alone, it is estimated that approximately 18,000 angels invest nearly £850 million annually, according to the UK Business Angels Association. However, in the event that you fail to strike an equity deal with an angel investor, that doesn’t mean that you can’t strike any deal with them. In some cases, investors may not be willing to accept an equity proposition but they may be willing to offer a private business loan independent of any banks. These are beneficial as the terms can be much more flexible. As UK website money.co.uk reports, peer to peer business loans can often result in lower borrowing rates for entrepreneurs than those offered by banks and better access to credit is available than through traditional channels. Whether you work with a group of angel investors or a single investor, finding the right partner is critical to the success of your business. It is important to identify one with a vision that synergises with your own. And conflicting interests can be a disaster not only to your relationship but to the business as well. Never just jump at the first offer of cash.

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STEEL’S VIEW

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NO ACCIDENT The Brunette

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THE STATE OF THE ENTREPRENEUR

Suffering from…. …“Innovator’s Block”

By The Brunette

By Ed Emerson

Ian Hathaway, co-author of the recent Kauffman Foundation report “Declining Business Dynamism in the U.S. HighTechnology Sector” revealed America’s economic recovery – the seminal barometer of the global horizon – while gaining financial and industrial market steam, has allegedly lost it’s entrepreneurial spirit over the last decade. Ah, sweet lead balloons; and perilously close on the heels of our riches-to-rags-to-recovery global fortunes. According to Mr Hathaway the problem goes far beyond firm formation rates or an endemic tech-sector slowdown, though the US market has been identified by several measures as less entrepreneurial than in previous decades, and even prior to the 2008 recession. The problem appears to be ‘across the board’. And where has it gone? By comparison, the European Union via the KU LEUVEN VIVES report High-Technology Employment in the Euro

pean Union saw high-tech employment growth at twice the rate of total employment over the eleven year period from 2000 to 2011 (published December 2013). That’s 22 million high-tech workers representing 10% of total EU employment in 2011, note that spans the 2008 recessionary period that financially hobbled many of the Union’s member countries. The report states:

“High-tech employment grew at more than twice the rate of total employment during this elevenyear period, and spread throughout the continent—on average, increasing most in regions with previously lower concentrations of high-tech activity. “High-tech workers face more favourable labour market outcomes as evidenced by lower unemployment rates and a substantial wage premium—indicating the high demand for these workers and the economic value they generate. “We also find a sizable secondary local jobs multiplier, where the creation of one high-tech job in a region results in more than four additional non-high tech jobs in the same region.” P.23

STEEL’S VIEW THE STATE OF THE ENTREPRENEUR

UK plc has expanded its reach, speaking to consumers in all parts of the globe with 32% of GDP coming from export activities in 2011, up from 30% in 2010, and 25% six years prior in 2004. The rise in business angel funding for entrepreneurs, the alternative finance market bolstering the business birth and survival rates, is estimated at between £850m and £1bn in 2013, approximately three times higher than UK venture capital investment, according the the Deloitte Entrepreneurship UK 2013/14 report. Angel money, typically in the £50k to £1.5m range, alongside creative loan-and-

The Brunette

equity arrangements and crowdfunding options have helped the UK make strides in the alternative funding process, considered the norm in America for some 60 years. But what then does Ian Hathway mean by flagging business dynamism? The exponential growth of ‘fracking’ in the US energy sector alone, bolstered by the technology and services businesses sat alongside, is expected to help America regain its place as the world’s leading oil producer within the next three years…if not sooner. Mr Hathaway writes:

“The process of business and labour market churning is a messy one. But it’s also fundamental to modern economies. “Research has firmly established that this process of “creative destruction” fuels productivity growth, making it indispensable to our sustained economic prosperity. In other words, a more dynamic economy is a key to higher growth.” P.24

THE STATE OF THE ENTREPRENEUR

But business dynamism is breaking down. Forthcoming research from economists at the University of Maryland and the Census Bureau shows that business dynamism has been declining across a broad range of sectors during the last few decades–and the single biggest contributor is a declining rate of entrepreneurship. A host of indicators point to a workforce that has become more risk-averse, and therefore less likely to change jobs or start a new venture. I recently teamed up with two authors of the aforementioned research to produce the Kauffman report, John Haltiwanger of the University of Maryland, and Javier Miranda of the Census Bureau. We surveyed how these trends might apply to the hightech sector, looking at data through 2011 and using a broader definition for high-tech that stretches beyond software and Internet companies to include things like computer hardware, life sciences, aerospace, and scientific research. What we found surprised me. “Though the high-tech sector was particularly dynamic and entrepreneurial during the 1980s and 1990s–a period when the same was not true across the economy–all

that changed in the 2000s. The job creation rate (representing expanding firms) has been on a sharp decline since the beginning of the last decade, while the job destruction rate (representing contracting firms) has held about steady–squeezing net job growth in the process. By 2011, the rate of overall labuor market churning in high-tech had converged with the rate for the total private sector.” The concern appears to be on the business birth rate side of the entrepreneurial equation. There has been a striking decline in this area where Kauffman found startups (companies aged five years or less) comprised 60% of high-tech firms in 1982. By 2011, that figure had fallen to 38%, half of that decline took place after the dot.com bust. The 2008 recession also saw sharper falls in entrepreneurial activity than for the rest of the economy. With income, employment and productivity growth standing as the key drivers for the US, as well as the EU and UK & Ireland, we should take note. For as the entrepreneurial dynamism goes, so goes our economies.

“As the entrepreneurial dynamism goes, so goes our economies…” P.25

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CROWDFUNDING

Flavourly becomes one of the fastest ever businesses to reach its crowdfunding target Online food discovery business has become one of the fastest ever to be equity crowdfunded in the UK. Flavourly launched with a record number of angels interested in investing in the business and the innovative young startup reached its target in fewer than 24 hours. Founder Ryan O’Rorke was delighted with the news and we will now be introducing a stretch funding option since the project is so oversubscribed. Angels Den Founder and CEO, Bill Morrow, said “I had anticipated that Flavourly would do well with crowdfunding, it’s the perfect way to build a customer base as well as raise the capital the business needs to scale. The additional funds will be used to ramp up customer recruitment even more and reach the scale in numbers that we are projecting to achieve.”

Avoiding Crowdfunding Mistakes! Social Media There is little doubt that there is a close correlation bet ween crowdfunding success and social media promo tion. Yet the mistake that most entrepreneurs make is to post a few tweets or facebook messages and then sit back and wait for the cash to roll in. To be successful promote your pitch for the entire fund duration whether that’s 30, 60 or 90 days. Another great tip is to use re wards to make the offer as juicy as possible to inves tors. See how Beer52 offered investors free beer for life! Email Email your friends, family and wider network telling them about your pitch. If they’re not right for it they may know someone who is. Explain the business, link to your online pitch, and update everyone on funding mile stones achieved - potential investors sometimes bide their time until things get moving. Events

“To be the platform that hosts one of the fastest ever equity crowdfunded project in the UK makes us very proud – especially since we only launched this model at the end of last year.

Just because your pitch is online doesn’t mean you can’t promote it offline as well. The most successful pitches combine crowdfunding with pitching at one of our events.

The success, and speed, of our crowdfunding model is down to the strength and knowledge of our 6000 strong angel network. Their experience means they know what they like as soon as they see it, and they’re quick to show their support.”

PR Campaign Employing a PR team to help get you funded may seem daunting, but promoting your pitch and your business go hand-in-hand. Visibility equals new customers.

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STEELâ&#x20AC;&#x2122;S VIEW THE VENTURE CAPITAL MARKET

By Rory O'Driscoll, Partner, Scale Venture Partners

You can still find articles talking about the harder to write them without sounding silly. tal was supposedly dying, the ventureacquired in that decade achieved a com31, 2013. Even in the context of the overall During the decade from January 2004 to capital-backed exits, valued at $100 million public), or were valued upon acquisition, all exits was $1.23 trillion, and the trillion (all numbers as of Dec. 31,

death of venture capital, but it is becoming During the last 10 years, while venture capibacked companies that went public or got bined valuation of $1.25 trillion as of Dec. U.S. economy, this is real money. December 2013 there were a total of 824 ventureor above. Of this total, 145 are valued today (if at $1 billion dollars or above. The total value of value of just the top 145 was $1.01 2013). The 80/20 rule remains strong.

Of the 145 billion-dollar exits, 107, or 74 percent, were in information technology, 25 in health care, and 13 in all other categories from cleantech to retail. However, IT accounted for 86 percent of the value, as the average IT exit was larger. The Top 10 exits are shown in the table below.

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THE VENTURE CAPITAL MARKET

Within IT’s 107 billion-dollar exits, there were 29 companies focused on the consumer, primarily in the consumer Internet; 69 focused on selling to the enterprise; and nine semiconductor or component companies. However, those 29 consumer Internet companies created $637B of value, which was 73 percent of the total value created. There is a huge winner-takes-most phenomenon in the consumer Internet, and the combination of this, plus the overall size of the markets, has driven huge outcomes.

Software, Marc Andreessen tells us, is eating the world. In looking at the last decade, the part of the world that software has been munching on is clearly advertising. Ad-supported Internet businesses such as Google, Facebook, Twitter and LinkedIn have created $598B of value in the past decade. In a world where overall advertising spend is only growing at five percent, that value has to come out of someone’s hide, and it shows up in the death struggles in the newspaper business, the consolidation in the ad agency business, the struggles in radio, and even the slowdown in revenue growth for TV. Within the enterprise market, the exits divide pretty evenly between 34 companies focused on line-of-business applications, all but two of which were SaaS applications, and 35 companies focused on infrastructure IT, evenly divided between software & services companies and hardware providers. Outside of IT, health care saw 23 exits, and the “other” category saw 13, including some of the more interesting “huh, who would have guessed it” outcomes. Tesla is the obvious No. 1 company, but the list includes Under Armour, Ulta Salon and SolarCity. The fact that Elon Musk played a central role in two of these exits, and almost certainly will add SpaceX to the list, is one of those phenomena that cannot be predicted, merely marveled at. The big miss here, relative to the dollars invested, is cleantech or, more broadly, energy. Outside of the Internet, the other large value-creation event of the last decade has been shale gas, which has transformed the energy industry, but with almost no investments from, and hence no returns to, the venture industry.

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STEEL’S VIEW THE VENTURE CAPITAL MARKET

Much of the value is created after the IPO. The value of this same portfolio upon exit was $464 billion versus a value today of $1.23 trillion.

Sequoia Capital says on its website, “never sell before the IPO, never sell at the IPO, never sell just after the IPO.” While this is probably impractical as a rule, it is undoubtedly the value-maximizing option, as the few home runs swamp the many so so outcomes. There are also some really interesting “corner case” outcomes. Pharmasset was worth just $140M upon IPO, but sold 4.5 years later for $11B. Much of the value was created in the past year. A year ago, we calculated the value of the 2003 to 2012 exits at $752B. New exits in 2013 added $94B but the run-up in the stock market raised the value of the earlier exits to $1.13 trillion.

Venture capital is cyclical; the returns don’t come linearly over time, but like buses, returns tend to come all at once. As a result, you know nothing about anything in a business like this until you have lived through a cycle. Exits follow a power law. Intuitively, we know that there will be lots of small exits, a few medium-sized ones and, very rarely, a huge one. However, it is possible to be more precise than that. Like a surprisingly large number of economic and physical phenomena, the number of exits and the size of those exits conform to a (rough) power law. The best way to see that mathematically is a graph of the log of the number of exits to the log of the size of those exits. Here is the graph, and as predicted, it is a straight line, all the way down to 100M.

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THE VENTURE CAPITAL MARKET

Another way of describing a power law (again, simplifying somewhat) is the 80/20 rule, which clearly applies here at every level. Looking at overall exits, 82 percent of the value comes from the 18 percent of exits above $1 billion. Even within the $1B category, 80 percent of the total value of the 141 billion-dollar exits comes from the top 20 percent of those exits. Even more starkly, 30 percent of the value comes from Google alone. This is an absolutely predictable result, and one found across the board in economics. However, it is worth noting how disturbing the result is for someone working in the venture business. The second-best athlete in a race will probably lose by a split second, the second-best investment in the last 10 years is worth just a third of the best one, and the fifth-best investment (LinkedIn) was worth just a tenth of Google.

I have stared at these numbers for years, and this is probably my most personal important conclusion. Envy is a corrosive emotion, so don’t try and judge success as an investor as “being No. 1.” From a return perspective, No. 1 “whups” No. 2, who in turn leaves No. 3 in the dust. However, there have been hundreds of companies in the past 10 years that have made excellent returns for their investors, while making a difference in the wider world. Invest in teams whose mission you believe in, insist on excellence, and the returns will be just fine. I have blogged on other occasions about the returns to the venture industry as measured directly by benchmarks and IRRs. This is meant to be additive to but separate from that discussion. I agree that the creation of $1 trillion of value is not “proof” that venture returns can be compelling, though I would argue that it is a very strong hint. What it does show is that even in the past decade, innovation and value creation have continued, and about five percent of the value of the overall U.S. economy (the total market capitalization of U.S. companies is $20 billion) can be attributed directly to brand-new companies, recently funded by venture capital. Venture matters.

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ENTREPRENEURS

The Tricky First £Million……

$500 million in VC debt versus a few hundred million dollars in sales revenue….. By Guy Rigby

By Guy Rigby

“Family and friends are a great source of funding for start ups and early stage businesses, but raising money from external investors or business angels is challenging. “Here are ten of the key issues that investors will be considering when they meet you or read your business plan.”

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1. First impressions

2. Demonstrable need

First impressions are critical. Most investors will decide not to proceed within the first 30 seconds of any discussion, or within a minute or two of picking up your business plan. Think about your approach, test it on your friends and practice it to perfection. Don’t fall at the first fence.

Where is the pain and what exactly is the need for your particular product or service? Most businesses offer ‘me too’ opportunities which are not obviously exciting to an investor. Make sure it’s clear how and why yours is different. Is it better, faster, cheaper or is there some other reason why you will succeed when many others fail?

ENTREPRENEURS

3. Existing revenues Raising money for a business with pre-existing revenues is far easier as demand for your product or service has already been partially proven. The fact that you have already established the beginnings of a customer base will carry huge weight in any discussions.

4. Strategy You may have a great idea, and you may have existing revenues, but what is the future for your business? Do you have a vision? If so, is it realistic or just ‘pie in the sky’? We have all seen those hockey-stick shaped graphs showing an embarrassment of riches only a year or two down the track. Don’t be tempted to over-promise and under-deliver. It’s normally transparent from the start.

5. Business plan The credibility of your proposal will be reflected in the quality of your business plan. A poorly presented, badly researched plan will kill your proposal before it has a chance. An idea may be good enough to gain the backing of family and friends, but it won’t cut the mustard with any serious investors.

6. Business model Your business model will determine how and where you make your profits and how you will build long term value in your business. A model that requires huge revenues to deliver small profits is inherently unattractive, whereas a business with good margins and high barriers to entry will be of interest to potential investors.

knowledge or experience. If this is limited, get the support of a mentor or partner. This will demonstrate maturity in the eyes of your investor.

8. Financials Businesses go bust because they run out of cash, so be sure to demonstrate a good understanding of your financials. Margins and overheads will be part of the discussion, as well as working capital and cash flow. Remember that small businesses are normally cash constrained and prone to overtrading, so the investor will need to understand how you will manage this.

9. Pricing Don’t be tempted to overvalue your business. We are a long way from the heady dotcom days when investors were persuaded to part with large amounts of cash based on little more than an idea. Nothing will put an investor off more quickly than an excessive or unsupportable valuation. The more you need, the more you will have to give away, so be realistic, cut your cloth and take in as little external funding as possible.

10. Exit It’s very easy for an investor to put money into your business, but how will he get it back? A vague idea that you would like to buy his shares back at some future date is unlikely to be attractive. Taking in external funds means that you need to ‘begin at the end’ in terms of thinking about exit, having a clear strategy and plan. This may change as the business grows, but you need that stake in the ground. These are just some of the issues an investor will be thinking about, often subconsciously, in the short time that he focuses on your business. If you’ve thought it all out beforehand and you can tick all the boxes, you will have a much stronger chance of success.

7. You Guy Rigby Are you credible in the eyes of the investor? What is your track record and what experience do you have of your business? Most successful entrepreneurs ‘stick to the knitting’, creating businesses based on their passion, personal

Head of Entrepreneurial Services Smith & Williamson

P.33

CROWDFUNDING: DENGUE FEVER

Dell & Vanderveldt Take Ireland

Xeroshield Chooses ShareIn to Crowdfund Cure for Dengue Fever â&#x20AC;Ś

By Bruce Alexander & Jude Cook About

most populous countries in the world, including India, Pakistan and Indonesia.

Dengue is a viral disease that in the past 30 years has spread from its original home in SE Asia to over 130 countries worldwide.

Although dengue is present from the US to Argentina, Brazil accounts for about 75% of all cases in the Western Hemisphere.

The mosquito that transmits it has adapted to living with man, thriving on human blood and breeding in all types of man-made containers. This species has benefitted from the explosive growth in human populations and their desire to seek better lives in tropical cities. The slums and shanty towns that surround these cities provide a plentiful supply of dengue-susceptible humans and container breeding sites, particularly the oil drums and water barrels used by poor households to store water and the discarded bottles and cans of neighbourhoods from which rubbish is never collected. Global warming has provided a further boost to the dengue mosquito by providing higher temperatures and plentiful rainfall to fill the receptacles and allow mosquito larvae to develop into adults more rapidly. Given that the dengue mosquito is active in daylight, mosquito nets offer no protection and control involves adding insecticide to the containers from which millions of people obtain their cooking, drinking and washing water. Brazil alone spending over $1bn to control dengue, the most important mosquito-borne problem in some of the

P.34

Despite spending over $1 billion annually on its dengue vector control programme, Brazil has the highest economic losses caused by this disease ($1.35 billion/year) Despite spending over $1 billion annually on its dengue vector control programme, Brazil has the highest economic losses caused by this disease ($1.35 billion/year) due to direct medical and nonmedical costs as well as indirect costs from loss of work. Cost-effective methods of vector control are badly needed to decrease the huge economic effects of this disease.

CROWDFUNDING: DENGUE FEVER Retailing for a few dollars per unit, there are no additional costs associated with transport, storage and handling. Although public health authorities would be involved in distributing the device to ensure blanket coverage (in the same way as they currently distribute temephos sachets door-to-door) they will not require training in WaterWaspTM use. The distinctive design of the device will ensure it is not appropriated for other purposes and will make it equally acceptable for use in any of the 130 dengue-endemic countries worldwide.

Current methods are failing and no-one should be forced to drink insecticide on a daily basis. Dengue is second only to malaria in terms of the number of human cases worldwide each year – 390 million, with 40% of the world’s population under constant threat. Given that mosquito nets are useless against a day-flying vector and repellents are too impractical and potentially unhealthy for daily use, people in dengue-endemic areas must rely on public health authorities to protect them. They can participate in control measures by maintaining their homes and immediate surroundings free of receptacles that can fill with rain and be used as breeding sites by the dengue mosquito but the most important of these sites are often the water barrels and oil drums used to store water in neighbourhoods where there is no regular supply for drinking, cooking or washing. Public health authorities in countries where dengue is a problem may employ space spraying with insecticides such as malathion – a highly visible but ineffective measure that is particularly unpleasant for asthmatics. However a more effective method is to add chemicals such as the temephos to storage containers, in sachets that gradually leach a lethal dose of the insecticide into the water over a period of six months, after which they are replaced.

We propose to seek licensing agreements with several manufacturers in countries where dengue is a problem, who would produce the device in bulk and pay royalties on every unit sold. These companies (already involved in healthcare) would be our main customers for WaterWaspTM. Because dengue control depends on blanket coverage of districts where transmission occurs, we see the ultimate users of the device as being public health authorities who would buy large numbers of units for distribution by their existing personnel, rather than the general public; members of any household that maintained its own environs free of mosquito breeding site could still be infected by insects that developed in the neglected yards of their less fastidious neighbours. Firms involved in large-scale construction projects and tourism would also provide markets for WaterWaspTM. Given that no pesticides are involved, its use could be implemented very rapidly; for the same reason resistance in mosquito populations will not be a problem, extending the foreseeable life of the product indefinitely. Even development of a vaccine would not resolve the biting nuisance represented by dengue mosquitoes or their role as vectors of other pathogens such as Chikungunya virus or yellow fever.

Rapid return on investment

There is currently no evidence that exposure to the “safe” doses involve produce health problems but long-term exposure to similar chemicals by other means has been linked to neurological conditions such as Parkinsonism and Alzheimer’s disease. In any case, no-one should be forced to drink insecticide on a daily basis.

Besides their safety and environmentally friendly credentials, our technologies have a number of advantages to investors seeking a relatively rapid return on their investments. Unlike pesticides, drugs or genetically modified organisms (GMOs) neither of the two products detailed above requires lengthy development costs or times.

Our Solution

Given adequate funding, they could both be on the market within 2-3 years. We would seek licensing deals in the order of at least 5-10% of the sale price per unit, i.e., up to 50c per WaterWaspTM sold.

Our WaterWaspTM device is a small, robust and autonomously powered device that can be added to water containers to kill any mosquito larvae already present and prevent others from developing, without releasing any chemicals into the water. It requires no maintenance, switches on and off automatically and remains effective for a period of six months, after which it is replaced by another device.

Earnings from royalties would be used in part to develop other products, all under the same philosophy of providing safe, environmentally friendly technologies that could be introduced onto the market rapidly in as many areas as possible.

P.35

Business angels More than just money Millions of ÂŁs, Thousands of jobs, Hundreds of deals, One Network...

LINC Scotland is the national association and representative body for the business angel community in Scotland, and was a founder member of the European Business Angels Network (EBAN). Since our establishment in 1993 our members have made investments in hundreds of companies.

EUROPE & SCOTLAND European Regional Development Fund Investing in your Future

of millions of their own risk capital, on average levering three times more from other sources. Just as importantly they have invested their own skills and experience in the next generation of SMEs. The companies supported have created thousands of high quality jobs in the Scottish economy.

www.lincscot.co.uk

PRACTICAL BUSINESS HNW Magazine’s Practical Business section looks at key areas of business needs across legal, accountancy, marketing, finance, leadership, strategy, research and other areas of support.

FAMILY SUCCESSION Andrew Wordingham, Haines Watts

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WSLF FUNDS GAS SENSING SOLUTIONS Andrew Dickson, West of Scotland Loan Fund

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RETIREMENT’S “FORGET ME NOT” Alan Steel, ASAM

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BECOMING A BUSINESS ANGEL Bill Morrow, Angels Den

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A FEW GOOD REASONS TO BE OPTIMISTIC Alan Steel, ASAM

P.44

BULL & BEAR MARKET MILESTONES Ed Emerson

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SUCCESSION

Keeping It In The Family…. By Andrew Wordingham

Family succession can be a hit-and-miss affair. For some businesses it’s a cause of strife, for others a source of strength. Careful thought and advance planning should help you to avoid the worst pitfalls – provided your successor is happy to give it 100%. Timing is everything Your expertise is crucial but you won’t always be around to run the show. Know when it’s time to go. And make sure you put plans in place early enough to step down when you want to. Don’t leave it until you’re unwell or unable to carry on to think about succession planning. The same goes for your successor – no matter how young they are. If your potential successor is already in the business, you can nurture, support and mentor them from day one. Then, when the time comes, set a suitable timeframe for the handover. Long enough to help them get established, but not so long that you outstay your welcome. Your successor must be given every confidence to forge ahead. Choose wisely “Too many cooks spoil the broth.” Whether you’re in the restaurant business or otherwise, it’s worth bearing in mind when selecting your successor. A single committed individual has the scope to steer the business in a purposeful direction. With several family members at the helm, the business may be pulled every which way but forward.

Ability is as crucial as ambition. Intelligence, experience and a can-do attitude are all essential to running a business. Your bottom line can benefit enormously from know-how your successor has acquired elsewhere. And someone who can quickly prove themselves in the role will soon see off any cries of nepotism.

Keep an open mind Your successor won’t do everything your way – but that’s not necessarily a bad thing. Passing on your firm to the next generation can inject new life into the business. New blood brings with it fresh thinking, innovative ideas and the potential for vigorous growth. Access to your industry knowledge combined with your successor’s fresh perspective can be just what’s needed. Have a backup plan Going into business isn’t for everyone. You might have always dreamed of passing on the family firm to your son or daughter, niece or nephew; but it may be that you have no takers ready, willing and able to step up. If this is your situation, you’ll need to look outside the family for your next move. Selling the business might not have been part of the plan. But your hard work will pay off in the financial security it gives family members.

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PRACTICAL BUSINESS

West of Scotland Loan Fund (WSLF) Gas Sensing Solutions

By Andrew Dickson

Gas Sensing Solutions Limited was co-founded in 2006 by Director, Alan Henderson, to develop a cutting-edge range of CO2 gas sensors which are becoming a vital weapon in the fight to reduce energy use in commercial buildings throughout the world. The business was initially funded with a mix of capital including investment by the Scottish Investment Bank and business angels, TRI Cap. As development proceeded more funds were needed and in 2013 WSLF came in with a matched funding loan of £65,000. In the period up to 2010 initial prototype product was developed culminating with the launch of the COZIR ambient sensor. Since then over 43,000 units have been produced and the company is actively selling through its global partners in energy efficiency solutions.

What is so special about the COZIR sensor? “It is the world’s first ultra-low power consumption CO2 sensor using 3,000 times lower power per measurement and being able to run for 10 years on a single AA battery. “Currently GSS has 119 repeat customers and over 100 customers testing the sensor. Turnover is now £1m per annum and the business has 18 highly qualified staff.”

So why did Alan and Chairman Des Gibson speak to WSLF? “We had taken the initial idea through its development, were moving into volume production and needed gap funding to help us achieve our targets.

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“During the company’s growth we have established our own sub wafer production facility at the West of Scotland Science Park in addition to the main production facility at Cumbernauld and have several hi-tech partners in Scotland helping to grow not only Gas Sensing Solutions but the Scottish economy.”

Could Gas Sensing Solutions have got where they are without gap funding from WSLF? “Possibly, but WSLF have supported us twice in our journey and helped provide Gas Sensing Solutions with a very strong private/public investment partnership.”

PRACTICAL BUSINESS

“Looks like the average Brit has about £31,000 or so stashed away when it comes time to retire. Sounds like a lot of ‘Golden Years’ will be more ‘breadline’ than basking in the sun, after having worked for forty or fifty of them to get there.” By Alan Steel

Retirement’s……. “Forget Me Not” Norman Wisdom said: “As you get older three things happen. The first is your memory goes….and I can’t remember the other two.” Funny that, how most folks become suddenly forgetful (read ‘disinterested’) in a retirement that always seems so very far away. But arrive it does, and for many could be a very rude financial awakening. Consider a 2013 survey from the Independent on Sunday that found the following:

"To buy an income equivalent to the national minimum wage – just £12,115 per year – Britons have to save up a pension pot of £220,776. However that is more than seven times the current average pension pot that Britons manage to scrimp together prior to retirement." So what are the maths on that one? Looks like the average Brit has about £31,000 or so stashed away when it comes time to retire - sounds like a lot of ‘Golden Years’ will be more ‘breadline’ than basking in the sun, after having worked for forty or fifty of them to get there.

Why does this happen? Simple, people start to late and save too little. Couple that with the youthful perspective (read ‘veneer of invincibility’) and you’ve got a big problem. Not insurmountable, but big. For most folks the epiphany of retirement and mortality arrives in our mid to late forties when you realise you either; haven’t really done much planning for old age, or have no idea how that ‘pension thingy’ you took out years ago will feed you in your 70’s, 80’s, 90’s and beyond. And that’s no exaggeration. With increasing longevity the average 25-year-old is likely to live until at least 90! We live in an instant gratification society, often spending more time planning a holiday than for retirement. Those are the words of Wade Slome who reveals the grass is definitely not greener in America in his editorial Retirement Epidemic: Poison Now or Later? Interestingly, research in the US found a key factor for successful people - including investors and folks with real wealth in retirement - is called “Impulse Control”; being prepared to put off gratification now in order to benefit later. This is crucial, and explains the distinction between those who bounce back from tragedy, as well as avoiding fads, and those who do not….the latter group are probably too busy checking their mobile phones every five minutes!!

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PRACTICAL BUSINESS

By Bill Morrow

Why Would Anyone Want To Be A Business Angel? Investing in the success of small businesses is no longer an activity dominated by faceless corporations and venture capital firms. In recent years things have changed drastically in favour of the business angel, which means that anyone with the spare cash, business acumen and adventurous spirit can get involved in the rollercoaster ride of angel investing. But why would anyone want to be a business angel?

For the profits – Imagine the excitement of being there at the launch of a global success story like Apple, Facebook, YouTube or Google. They were all start-ups at some point, business ideas thought up by young entrepreneurs with very little money. Now imagine if you had been given the opportunity to invest in their business right at the beginning: think of the return your investment would have seen over the years. When they were launched the main routes to business finance were friends, family or the bank, but today the success stories of the future often look to business angels for essential funding to launch or grow their businesses. Of course investing in businesses has varying degrees of risk, and many businesses will fail, but becoming a business angel gives you an opportunity to seek out the best of the best – and if you’re successful the financial rewards can be massive.

To give a little back – Business angels come in all shapes and sizes, from those with minimal business experience to retired CEOs looking to put their years of expertise running an organisation to good use by helping a fledgling company to fly in the right direction. Some entrepreneurs who are looking for funding may also be interested in more than just your money. Many angel investors relish the chance to get ‘hands on’ in the business they have invested in and use their experience and skills to strengthen the chances of that business succeeding.

What else is there to invest in? – Today there really is very little choice available to you if you are looking to invest your hard-earned savings. Many high net worth individuals are finding that they would prefer to use their own business acumen as a business angel to fund small ventures, reclaiming some control over their financial success, than leave their money with brokers who have been consistently losing them money. For the kudos – Because of the success of TV Series’ such as Dragon’s Den and Shark Tank everyone knows what a business angel is and the role has taken on something of a celebrity status. Go from armchair investor to someone who has the opportunity to contribute to the success of a new venture in one swift move, and if your investment pays off, all the better.

The spirit of adventure – However good you are at picking the people and businesses that you feel will be successful, you are still taking a chance with your money. It requires more than just funds and acumen to be a business angel: it requires a strong belief in the possibility of success and a determination to back this belief with your own hard-earned cash. The spirit of adventure means having the confidence to forge new paths even when the way ahead is unclear.

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PRACTICAL BUSINESS By Alan Steel

markedly amongst those firms surveyed. And these high growth rates are expected to continue over the coming 12 months as only 9% of Scottish businesses reported demand has become a greater challenge, down from 48% a year ago. Employment is also on the rise as headcounts have grown by 3.4% and salaries by 3% during the course of the year, alongside willingness to invest in growth. This follows the Bank of Scotland’s labour market reports in January and February that showed the jobs market is at pre-recession levels, as vacancies for permanent jobs in Scotland have risen at their fastest rate in eight years.

A FEW GOOD REASONS TO BE OPTIMISTIC Business confidence in Scotland is at a record high according to a new report from industry body ICAEW, a professional membership organisation for chartered accountants. The confidence monitor (BCM) recorded an index score amongst Scots firms of +38, that’s up slightly on the UK average of +37.2 (also a record high), and almost 10 points higher than it was in the final three months of 2013. Of the key financial performance indicators, gross profits,turnover and customer demand have increased

Image Courtesy Mark J Perry, Carpe Diem on American Enterprise

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In February the Bank’s Purchasing Managers’ Index (PMI) revealed a marked increase in the manufacturing and service sectors, and pointed to a then 16th straight month of growth for the private sector. After all the fear caused by an 8 day downturn at the end of January, it’s easy to forget sometimes how far we’ve come in five years. The S&P 500 closed at an all-time high last week, the Dow Jones closed at 16,321.71, and and the benchmark stock indexes in all 24 developed nations advanced in February that includes former negative headline leaders Greece, Ireland and Portugal who all rallied at least 10 percent. And the above chart tells it all; the MSCI World Stock Markets Index has returned to its pre-recession level high.

PRACTICAL BUSINESS

Images Courtesy Doug Short, Advisor Perspectives

The blue lines above show secular (long term trends for the S&P 500 market index) Bulls, which lead to new all-time market highs. The red lines in between are secular bear markets.

Doug Short writes: "Since that first trough in 1877 to the March 2009 low: ● Secular bull gains totaled 2075% for an average of 415%. ● Secular bear losses totaled -329% for an average of -65%. ● Secular bull years total 80 versus 52 for the bears, a 60:40 ratio.

And where have the returns come from? The chart below posted on The Reformed Broker courtesy of Ben Carlson @awealthofcs shows us the money:

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DIATRIBE

Flappy Bird: Nguyen’s Frankenstein Monster

By Ed Emerson

per day through its in-game advertising and being downloaded over 15 million times per week.

Dong Nguyen’s monster stole 23 minutes of my life, comprising:

But criticism mounted, and the techie developer revealed he has soul. In an exclusive interview with Forbes, Nguyen blamed the game’s addictive nature for its cancellation, rather than any rumoured legal or other issues. Nguyen claims he lost a lot of sleep before making his next move on February 8th at 11am UTC when he issued the following statement:

> 41 attempts; > 2 successfully navigated sets of pipes; > A sudden and overwhelming epiphany of Flappy addict ion – and yet, despite that realisation; > A final (albeit unsuccessful) push to get through a 3rd set of pipes, then; > 7 minutes of personal struggle (while playing) through denial, anger, bargaining, depression and eventual ac ceptance, followed by; > Radical action – the partial asphyxiation of the console once known as ‘phone’), by covering the front screen, leading to; > The gentle ‘shoogling’ extraction of the mobile from my ‘ game hand’, tweezered out like a Brazilian botfly…deleting the Flappy Bird download….copious weeping….then, staring numbly into the refrigerator… Thereafter, the real questions started. Developer Dong Nguyen’s two-dimensional Frankenstein was released on 24th May to an unsuspecting world adrift in the rigours of PS4, XBox1, Snapchat, Vine and the now mainstream Twitter, LinkedIn and Facebook (et al); all the social media necessities that have driven a fundamental shift in modern communication. So why then on 10th February 2014 – a ‘Kennedy assassination’ moment for the Millenial generation – was Flappy pulled from Apple’s App Store and Google Play by its creator? Surely the small independent Vietnam-based game developer .GEARS Studio wept at Flappy’s passing? Was it truly an altruistic gesture on the part of Nguyen to end the winged abomination before the heavily addicted townsfolk arrived at his laboratory with torches and pitchforks? The game – touted as the new Angry Birds - had topped the US, UK and Chinese App store charts in January 2014, earning a reported $50,000

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“I am sorry Flappy Bird users, 22 hours from now, I will take Flappy Bird down. I cannot take this anymore.” Of course, the vultures and copycats soon appeared. In fact, they were on the scene while Flappy was still in meteoric rise mode. Just search on the word “flappy” in the Google Play store and you’ll still get in excess of 200 results ranging from every pet, wild animal and fantasy extension of Flappy imaginable: Pigs, Fish, Trolls, Cats….even Bieber. Nguyen, however, is a long way from finished. He has other games - Super Ball Juggling and Shuriken Block, ranked in the Top 10 of late at the iOS store. But the bellwether is dead. Long live the bellwether. And while the stories of merchants shifting phones that had the app pre-installed for $Thousands, the listings have been removed for violating eBay’s rule that smartphones must be restored to factory setting prior to sale. If there’s a lesson in the technology it’s that the creator lost control of his creation. Nguyen tapped into a nicotine-cum-heroin style high grade App “fix” that delivered a potent distraction in an era of media and measures mania. But these are forgiveable “highs”, right? The only rot is time…and perhaps a few brain cells. There’s no long-term damage. No real harm done…. No continuing addiction, impact, vulnerability… OK, so I lied. I still have it. I’m tapping while I write this. Damn you 3rd set of pipes…

Aye Cloud

New Technologies New Economy New Scotland

To find out more visit nvtgroup.co.uk Tel. (+44) 08453-893-300 NVT Group