Rapid growth forecast for Angel investing, but there are bottlenecks

Rapid growth limited only by the need to initiate angels into the field, by the Dragons’ Den type processes of selling investees to investors, and by shortage of syndicate leaders.  And in the longer term by the limited support that angel organisations offer to their investments. 

     Angel investing can sustain rapid growth limited only by its ability to attract and initiate new angels, and by its ability to find and develop syndicate leaders. The view of the current Chairman British Business Angels association (‘BBAA’) is that angel investing in the UK is growing fast and has a long way to go. The last decade has seen a clearer perception that this requires publicity and understanding, and that the gap left by venture capital funds is being filled by the growth of angel syndicates.

The Enterprise Investment Scheme already provides valuable financial incentives for investors in early-stage businesses; and the recently announced Seed Enterprise Investment Scheme targets nascent businesses – with provisions which have been described as ‘potentially one of the most extraordinary incentives ever created and…targeted at the weakest link in the economic chain’ (www.ft.com/businessspeak 17/18 March).

However, wealthy individuals do not necessarily understand how to get into and make use of acting as angels, and are often not acquainted with small businesses and their aches and pains. Leaders for angel syndicates are in short supply: few are available with the necessary time and experience, and growth in their number can only be achieved through their learning from one another. They tend to take the lead in such things as valuations, carrying out due diligence, the deal making, the legals, and acting as non-executive director.

Such is the attrition rate of small businesses that in terms of evaluation the spotlight inevitably falls upon the different types of risk and whether they have been perceived and addressed: ‘market size, potential for market penetration, ability to secure finance, adequate technology development and an assessment of barriers presented by competition’. (knowledge.wharton.edu/article.cfm?articleid=2946)

    (Among common mistakes by the finalists in last year’s Oxford Said Business School Venture Fund were:

·      not discovering and adapting to customer needs

·      not realising how long it takes to get a business up and running

·      not appreciating alternative routes to market

·      lack of realism, and in particular unrealistic valuations

And these are more likely the less has been the contact with mentors and other agents of external validation (‘you don’t know what you don’t know’.))

While seed investors tend to bet on the team, later stage investors evaluate the team through the specifics of their presentations – in the way they tell the story. And they are more interested in what you have achieved in the past as an indication of what you may be able to achieve in the future.(www.ft.com/businessspeak 24/25March)

Funders would like investees to be able to distinguish between higher risk projects – which may suit angels, from robust but perhaps less scaleable projects – which might suit Venture Capital Trusts or Enterprise Investment Scheme investors. Investees, they say, should research prospective investors so that they can pitch to meet their known investment criteria, and of course take references from previous investee companies. And one investor added: ‘walk away if a VC organisation does not respond promptly’!

There are some co-investment funds ready to invest alongside angel syndicates, as there are family investment funds; and although in the US venture capital has often teamed up with lead limited partners whose knowledge and facilities can help in the evaluation of candidates for investment, the same pattern is rarely found in this country.

Angels have not generally seen themselves as contributors to seed-investment, leaving that field to ‘family and friends’ and intermediaries – like investment clubs, regional development funds and the new ‘accelerators’, though some angels have invested in the latter alongside public funds. Angels see angel organisations (like Envestors and London Business Angels) as well able to attract (and sometimes search for) investable opportunities, and angel organisations tend to receive a large number of proposals of which they only pursue a small proportion.

The BBAA itself, previously a members’ club of angels is just now expanding its scope, to become more corporate and more comprehensive – to include super-angel groups, regional development funds and co-investment funds as well as individual angels. (It also of course has a role in influencing government policy and, especially just now, EEC policy and funding to enhance the growth of the venture capital sector in Europe.)

It may not be fanciful to consider the prospect of a unified trade body in the venturing field: the Science Parks Association, UK Business Incubator and the Business Angels Association all focus on different aspects of venture development, and they might usefully combine to create the Business Venture Development Association and thus be in a better position to offer a fuller range of services.

It seems likely that the future of angel organisations will lie in their becoming sector and stage specific, perhaps under larger umbrellas, even in closer collaboration with limited partners; and doing so, it is felt, without stakes being taken in them by institutions or external organisations. Their owners are of course all angels – in a unique position to invest in the best of their propositions! And it would be in their interest to make more contributions to the processes of developing the businesses in which their angels have invested – by providing a more sophisticated service of mentors and coaches, perhaps through more formal links with the likes of ‘Coaching for Business’. (More intervention will certainly be necessary for example if Venture Capital Trusts are to succeed in achieving the exits that their tax status requires.) 

The preoccupations of angel investment funds will be in finding and developing leaders for syndicates, in finding and bring on new angels, and in developing their own expertise, understanding and support capabilities in their special areas of knowledge.

 

Chairman of IBM sees need for a major shift in government capabilities

Many mature economies suffer from seriously antiquated infrastructures, in which they need to invest, acting more collaboratively with business and civil society. But many of the capabilities and skills needed are engrained in those mature economies, and may serve them well in the drive for growth that besets developing and mature economies alike.  Economies that succeed will have clarity about the economic and societal innovation they do uniquely well; but governments are in desperate need of modern subject-matter expertise; and they need to be more pragmatic and less ideological: a rising tide of data exists that can help design infrastructures that can revolutionise the delivery of future growth. (See: http://www.heraldtribune.com/article/20111103/ ZNYT05/111033015)

 

      It is intriguing to read an alternative perspective on economic growth – from the viewpoint of a leading industrialist – Sam Palmisano is Chairman of IBM. He started his article (in the Herald Tribune, 23.2.12) by observing that there are at this moment many countries seeking to climb from low-income to middle-income status alongside the leading economies that are in a high state of competition for their own future growth.

He avers that this actually presents exciting opportunities for the developed world. Many of the capabilities and skills sought by an innovation-based global economy are deeply engrained in Europe, Japan and the United States, he says.

But in addition to global integration, the world’s mature economies have been piling up massive deficits – not just financial, but deficits of competitiveness: ageing populations, rusting infrastructures, out-of-date education systems and antiquated regulations. And these are needing to be addressed just when those more mature economies are faced with a financial crisis. The world will not wait while we do that, so how do we do it, he asks; and suggests three broad steps.

Firstly we need to invest in the future: in areas like infrastructure, education and deep research, along with greater flexibility through smarter labour and trade regulations. We cannot simply cost-cut our way to competitiveness. We need both balanced fiscal policies and far deeper collaboration among government, business and all of civil society.

Second, every player in this game needs to deliver unique value. If you want to be competitive, you have to be really good at something people value; and the economies that succeed will have clarity on the kind of economic and societal innovation they do uniquely well – what makes them stand out in the global competitive market place.

Finally, government must become smarter: government is in desperate need of modern subject-matter expertise. Take public safety: we used to measure crime-fighting by the size of our police forces and the state of the art of their equipment, but more and more police forces are fighting crime with data – that is why New York City is now one of the safest large cities in the world. The same applies to traffic management, water systems, energy grids and more. The systems by which our world runs are being transformed before our eyes. Government has to be at the forefront of those changes.

The good news is that a new generation of leaders gets it, and they are eager to get going. They embrace technology; they think in terms of large-scale, sustainable systems. And they’re highly pragmatic, rather than ideological. You find them in the emerging global cities of the world. Here Europe has a powerful trump card, with cities that are rich in intellectual life and knowledge resources.

Without question, the issues we face to-day are challenging, but they are solvable. He is optimistic, he says, because we now have at our disposal an enormous new natural resource, a rising tide of data that enables us to see and understand our world as never before. ‘What the discovery of the Western hemisphere was to the 15th century, the discovery of steam power to the 18th century and the discovery of electricity to the 19th century, the explosion of data will be to the 21st. Its economic and societal value is almost incalculable. If we seize upon this new resource, I believe future historians will look back on this moment not as a shift to lower expectations and growing gaps between haves and have-nots, but as the dawn of a new golden age of innovation, a time of widely shared economic growth and of global citizenship.’ 

Can 'Accelerators' work for big companies whose innovation times are inherently long?

Can ‘Accelerators’ work for big companies where innovation times are inherently long?

Where ‘Accelerators’ (intensive hothouses designed to generate rapid development) focus on innovation-to-market, do they have anything to offer in those sectors of the economy whose innovation times are inherently longer?

Pharma has its own special reasons for wanting to accelerate the generation and marketing of new drugs, among them expiring patents, declining pipelines, increasing costs of development and harsher regulatory regimes; and its development times for new drugs are enormously long. GSK introduced its new approach to drug development three years ago – for that is the length of their new stage-gate cycles, with smaller multi-disciplinary teams, each focused more clearly on ‘discovery performance’, ‘with scientists back at the centre of the process’; and these new drug development teams have just faced their first confrontation with a senior management Dragons Dens-like meeting to assess progress and continuation of funding.

Clearly this new approach requires managers who are less operators of big company systems and more focused on specific outcomes; its multi-disciplinary teams will make for more effective team-working; and it exerts strong pressure on the teams and the development process; but there is the danger that within the company, competition will erode the potential value of collaboration; and the single three-year stage-gate cycle is probably not appropriate for all such teams. And while this draws on recognisable models of development, has GSK recognised that good research can probably be found in quite different kinds of places? Time will tell! 

 

GSK’s new structure and stage-gating focuses more clearly on leadership, involvement and output, but raises questions about scientific collaboration and project evaluation; and it both helps and hinders morale

GSK is changing the way it looks for new medicines to give it ‘the focus of a biotech within the resources of a large company’, said the head of Medicines Discovery and Development. It has broken up research into competitive teams and ‘put scientists back at the centre of the process’. But researchers who do not adapt must go, says an article in Bloomberg, (though admittedly some have already been poached by rival drug makers).

GSK’s CEO who took over in 2008 divided the six disease-focused research centres into 38 smaller units, to be known as Discovery Performance Units, (and an invitation to make suggestions for new DPUs received more than 50 responses good enough to be considered); and these DPUs were to compete for funding every three years.

GSK’s Head of Research and Development says that under the old system, talent was buried in the ocean. Some scientists have gone from working on ten projects to just managing one or two (one scientist went from a position of overseeing 120 employees to just 35). Most ‘grew up as leaders in a remarkable way, while some struggled’, said the Head of R&D; and scientists now live or die with their project.

One challenge of the new regime is to get the right balance between competition and collaboration. ‘We need cross-pollination’ said one team leader; ‘38 silos would be a disaster’ commented the Head of Medicines Discovery and Development. ‘One way would be to give credit for inventing a molecule that gets picked up by another of the company’s 38 DPUs’ And another way is by co-ordinating the use of human tissue.

Instead of a centralised, command-and-control organisation, which is what big pharmas were – the more senior you were in your job title, the more people you controlled – we’ve tried to return to something that says the unit that discovers the drug is the important thing, One Head of a DPU commented that the old GSK was arrogant; it had the biggest machine and the biggest hammer and it thought it could just grind out success.

 Insiders say that some things have clearly changed: with less time and fewer resources at hand, research teams have cut the time between when a drug candidate is picked and the first clinical tests. They also rely less on animal studies, opting to use human tissue wherever possible to avoid the surprises that sometimes come with differing species.  ‘The new system gives me a much better handle on exactly why we are bothering to do a lot of the work we are doing’, said one investigator scientist. What he likes best of his new life is the fact that he knows everybody by name and needs ‘no help desk’ to get in touch with other GSK researchers about his project. Two other indicators are mentioned: people seem to be making tough decisions – about terminating projects – earlier in the process, and an internal survey shows a drop in the number of researchers seeking jobs elsewhere.

In November 2011 GSK completed the first appraisal of its new model: DPU team leaders faced a panel to which they had to defend their achievements, and then at a second round, set targets for which they sought future funding. And the company’s senior research managers are now deciding which teams deserve more funding and which ones do not; and its conclusions are just due. ‘But,’ said one commentator, ‘you are worried; you own it more, so you are worried about the future of your science.’

Opponents say, given that new drugs take about ten years to develop, that researchers deserve to be evaluated when their product reaches a strategic milestone, rather than at arbitrary times. The CSO of a big competitor says that R&D doesn’t work this way; you have to make long-haul choices on products and strategy, not abrupt decisions on how to allocate funds.

‘Individual intellects can really make a difference, instead of just the big engine cranking out stuff,’ said another commentator.  

We are researching into what makes for outstanding mentoring

Mentoring is often helpful, but what makes for really outstanding mentoring?

Mentoring is fashionable but elusive: for every outstanding example there are probably many faltering relationships.

  Jon Bradford, one of the early architects of Accelerators in this country, runs the first few weeks of his Accelerators as a sort of Pecha Kucha style encounter with a seemingly endless series of mentors (he claims to have over a hundred): first the entrepreneurs meet fresh mentors in staccato style encounters; then in a second round,  they meet those whom they have chosen to meet a second time or those who have chosen to meet them a second time – a gentle progression, you might say, towards a mutually valuable relationship – which is certainly the essence of such roles. These discussions, he says, are essentially about feed-back, advice and contacts – in this case around developing ideas for new IT businesses.

     Mentoring is of course about endlessly changing issues, topics and styles; and it often moves on at a later stage to help with the evolution of the business; and in longer term relationships into personal help and support. But, having been involved in early-stage venture capital myself and in mentoring, I believe that there are four questions that are always at the back of the mind of successful mentors:

·      Is what I am hearing real – from my experience and my perspective?

·      Is what is proposed now the right thing to be concentrating on?

·      Are the chances of this succeeding good – or what should be done about it?

·      What external help would be valuable at this moment; and who else that I know can best provide that help?

     There are so many initiatives at present whose aim is to foster mentoring, not least those of The Princes Trust, the British Bankers Association, Nesta, BIS, and many in the field of youth unemployment; and so much general advice (must have had relevant experience; be a good listener; not be prescriptive etc), yet so little that helps us in the selection, matching and development of good mentors. Understanding what makes for successful mentoring is an elusive problem.

     With these objectives in mind, I am currently talking to a number of mentors who have been suggested to me as outstanding in their role; and asking them about their contributions to turning-points in the businesses of those with whom they have been working; and then seeking to ask the same questions of some of those whom they have mentored. And I am keen to work with groups of mentors, to provide opportunities for them to draw on each other’s experience as mentors – about their more successful contributions.  

Joint EU academic report – neatly targeted, but ignored by the Press

Finance, innovation and growth: a joint academic, EU Report whose recommendations are precisely targeted – virtually ignored

             Astonishingly, the recently published Finnov Report – about finance, innovation and economic growth in Europe – has been virtually ignored by the UK press, and given only a modest formal welcome by politicians. It needs to be given a much wider airing and be much more deeply discussed. Above all else it sets a value on ‘business experimentation’.

            It opines that “the long-term economic performance of Europe depends not only on its ability to generate new knowledge and inventions, but crucially in translating invention into innovation and innovation into economic growth. Business experimentation is central to these processes, and fostering this ability must be a central plank of industrial policy in an enlarged European Union. It is in relation to their role in the exploration, manufacturing and commercial-isation of novelty that the analysis of credit and financial markets is of the first importance.”

            FINNOV (http://www.finnov-fp7.eu) is an EU funded research collaboration between seven European institutions, among which are the Open University, Cambridge University and Sussex University; and its work is aimed at understanding the relationship between changing financial markets, innovation dynamics, and economic performance.

         Many of its recommendations (below) though they sound dry, are fundamental and quite specific:

 · Companies’ investments in human capital, productivity enhancing technologies, and innovation commitments should be [a priority of] private-sector banks – through incentives for and indicators about lending of these kinds.

 · Government support for SMEs should be sector specific and directed to the small percentage (6-7%) of high growth firms which have an impact on the economy in terms of jobs and/or new products.

 · Ban or limit share buy-backs: they are a manipulation of the market, boosting companies’ share prices (and executives’ options and other ‘performance pay’) at the expense of R&D. 

 · Change tax rules towards innovators who create lasting value, and away from those extracting short-term value and speculative capital gains.

 · Remove emphasis on privatising all publicly-funded research. Increase investment in research and lessen the emphasis on university spin-outs.

 · Adopt credit scoring criteria so that they take account of ‘industrial’ indicators such as productivity and investment in R&D, helping credit markets to create value tools that reward the most efficient firms. 

 · Lift vision beyond incremental innovations: we need more investment in radical new products at an early stage, with regulatory interventions to facilitate access to credit for high-potential firms.

 · Public financing of innovation should be reformed (to function as venture capital) so that the public benefits from successful publicly-funded innovation.

 · We need an entrepreneurial state able to identify areas for growth and invest strategically in early stage innovation. Government input should be recognised as investment – generating assets with a return, and not just debt.  

 

Accelerators spreading like wildfire: in Applied Creativity March 2012

Accelerators – spreading like wildfire – the essential fuel for innovation in the economy?

The growth of Accelerators in the US is now being matched by Europe and elsewhere (see Nesta’s hot-off-the press report about the 19 schemes now up and running at http://startupfactories.eu/). Moreover as corporates turn increasingly to open sourcing for their innovations, the new businesses emerging from Accelerators are providing the fuel for their increasing appetites for innovation. It is not a matter of whether big organisations or small are the better sources of growth in our economy; they both form part

of the larger innovation eco-system. 

 

 Applied Creativity

                                                   An E-/Bulletin from

                                  The Centre for Leadership in Creativity

                                              in association with Nesta

                                             Edited by John Whatmore                        

                              March 2012

 

*         A plethora of opportunities for new businesses – fuelled by IT and telecoms

 

*         Daresbury Science and Innovation Campus – a Phoenix and a

          new model

 

*         BT’s R&D uses Hothousing in a big way

*       Accelerator Learning Programmes – for very early-stage

    venturers

 

*         Pressure cookers for business: where have accelerators come from

         and, crucially, where are they going

 

*         A Miscellany:

     – Nesta to meet incubator leaders to discuss the ‘accelerator’ model

          – Other European countries more methodical in their approaches

            to innovation: PRIZM – the latest evolution from TRIZ

– Express yourself in the new Dance your PhD contest!  Or just

            draw your work.

 

 

                                    *                                    *                                    *

 

A plethora of opportunities for new businesses –

fuelled by IT and telecoms.

Among highlights for 2012: apps for people on the move’s Smartphones; advanced ‘analytics’, enabling organisations to make even more use of search engines for selling; and businesses made possible by the ability of mobile devices to enable people to share and exchange things; but existing Angel organisations are not yet proactive in their support.  (http://goo.gl/aV9Os)

 

Daresbury Science and Innovation Campus –

a Phoenix and a new model

Mix together different disciplines and technologies, theory goes, and the sparks of creativity and innovation will fly; but many science parks (like incubators) have been more like property companies than crucibles of alchemy.

The Daresbury Science and Innovation Campus (http://goo.gl/g92x8) has risen over the last seven years like the Phoenix out of a laboratory whose heart had been ripped out by the loss of a contract for the big new Synchrotron Radiation facility (evidence for another theory: that there is no opportunity like a crisis!).

             It is a new centre of innovation and enterprise with an interesting model

( – centres of excellence in three fields of science: accelerator science, computational science and sensor/detector technology) beside a large number of hi-tech small businesses, all glued together by an ethos of openness and collaboration).

It can show excellent metrics of success, and just now is about to enter a more challenging but potentially yet more rewarding phase (ie attracting the interest of large corporates).

 

BT’s R&D uses Hothousing in a big way                                                                       BT has for some time had special spaces designed to support small problem-solving conferences, used for ‘problems to fix’ and ‘[new] concepts to market’, but also for reviewing and developing strategy. They are now being used as the precursor for all relevant R&D team projects, where projects are divided into 13-week stages, and are  prefaced by a Hothouse – an intensive workshop designed to search out new approaches for the ensuing stage of the project. (http://goo.gl/jjWfG)

Accelerator Learning Programmes – for very early-stage venturers are emerging, designed to develop their capabilities to the point where their propositions are of investable quality. The formats of their learning element are very similar; but the mentoring element and their sources of funding differ – according to how commercial they are likely to be. (See http://goo.gl/44KKq and links to examples.)

 

Pressure Cookers for business – what next

From their origins in the 1940s to their latest embodiment as Accelerators in 2011, ‘Pressure Cookers’ in business have been getting longer and longer; but there are some that are even longer than these 13-week Accelerator programmes, like Springboard at Cambridge, which I recently caught a glimpse of. So what will happen to the concept of the Pressure Cooker? How will it change and develop?

I suggest here that some will be longer and some shorter; they will become specialised to different fields; longer ones will be split up into smaller bites; learning will be personal and on-the-job; and mentoring will become a team effort. (http://goo.gl/HJL6S)

 

The Centre for Leadership in Creativity (a ‘virus for creativity’) carries out research and providesconsult-ancy and peer-to-peer learning for organisations where creativity and innovation are vital.

 

Copyrigh 2012

The Centre for Leadership in Creativity              138 Iffley Road,London W6 OPE           

Tel/fax: 020 8748 2553                                              E-mail:  john.whatmore@btinternet.com