Written by Christine Kaine for The Age IT December 1, 1998
Everybody wants a silent partner but silence is not on the partner's mind. They often want to get their mitts on your business.
At the same time private companies are admitting that they need another pair of hands, as business is complex, sophisticated and often tiring.
A further element in the picture is corporate rightsizing, early retirement, fit and active retirees. The pattern is clear. Some people have time, knowledge and money; others need money. Is it just venture capital or is it venture skills, or both?
Then, almost strangely, the technological advances that make modern business complex require a higher level of investment to develop. Many IT companies are not commercially wise. It is as if there are more cogs turning increasingly faster.
So is there another way to put this picture together? Bill Gates was heard to express his frustration at the progress of technology earlier this year. "We should be talking to our computer by now - these mechanisms (voice activation) don't work very well and the tone in your voice doesn't help".
Investment in new technology has never been so imperative. The Corporate world extolled their own expertise at the e-commerce summit in Canberra this year. Their websites are not evidence of the Internet leadership we expect. Clandestine corporate strategies diametrically oppose the Internet, which is a free and perfect market.
Shouldn't we heed the words of Nicholas Negreponte that the
economy is now about bytes of information not atoms? Yet virtually
every "business angel" profile on my database wants to invest in
atoms. I believe that the business angel process could hold the key
to the way forward. It is a new, involved and evolving process. We
cannot apply old business models. We are so used to applying for
finance - preparation, assessment and yes or no. It is impersonal
and banks are rapidly implementing a procedure-manual mentality.
Business angels investing private capital is a personal process. Very few have the experience to participate or even facilitate. As many private companies come to the process through their suburban accountant it would seem to be essential that those professionals become knowledgeable about all the facets of a business angel investment
IT advances mean that compliance will no longer keep them busy, yet many think they have done their job if they prepare a two-inch thick business plan and advise the business not to sell more than forty-nine percent of their equity. One IT company recently had proposed that the investor buy 25 percent of the equity for $150,000, that the money would be repaid within 12 months, but the investor would retain the equity. In my observation the private capital process struggles because the participants don't understand how to play the game. Many come to this new process as a last resort. An accountant called recently saying: "I don't s'pose you can help my client find an investor by next week. I guess you will say we should have come 3-6 months ago?"
Too many financial advisors, accountants and solicitors don't have sufficient understanding of the process to advise their clients when and how to consider an equity finance option. Investor caution about new technology may be exacerbated by a lack of infrastructure.
The Business Angel process is all about the whole being better than the sum of the parts. The synchronicity of the parts will be the measure of success. This process would thrive with the involvement of people with human resources skills; business coaches, mentors, facilitators and recruitment specialists.
To companies, the investor is a stranger and there is always a fear about someone that you haven't met yet. So a company will seek to protect its sweat, its soul, and come to the deal hoping to sell a minor equity position for as much money (and as little interference) as possible. Equally, an investor will decry risk and try to buy as much equity as possible for as little as possible.
The true success of the private investment process will be realised when the parties come to the table with an equitable disposition, realising that the responsibility for success sits on everyone's shoulders and that venture skills are as important as venture capital.
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