Dan Somers: What I wish I'd known when I started

Securing venture capital isn’t easy
I wasn’t always entrepreneurial and started life as a management consultant – always the bridesmaid and never the bride. Raising funds from a venture capitalist (VC) looked easy from where I was sitting but when it came my turn to do it for my own business it was a pain. Writing a basic business plan is easy, but making it persuasive means you really have to put yourself in the mind of the guy sitting on the other side of the table.
In 2001 we were trying to raise money but nobody wanted to know. So I got our product technology sorted using some private money, then I went back to the VC saying this had serious business potential. They won’t listen unless you show them that someone is already paying for it. Eventually, I had to go out and get customers myself with just a beta version of the technology in order to then get VC cash. In the early days my advice is to go to potential customers and do what you need to just to get them on your books.

Get good advice, don’t go it alone
VCs want to see worthwhile returns on their investment, but you don’t want to give away the crown jewels, so you need to present a win-win formula. We had an option agreement, a way of bridging the ‘value gap’ between our two valuations of the business’ worth. They agreed on a few triggers – for example, reaching a certain level of profits or revenue – that meant management would be incentivised. But I made the agreement up myself and I should really have got good advice at that stage.
You have to think long-term and be creative when trying to find an agreeable solution for both parties. In hindsight, I wish I’d had good structural advice on the contract from lawyers with good commercial acumen and an experienced chairman. I had poor lawyers and no chairman; it was just me in a bedroom.

Be sensitive to investment politics
Dealing with investors is an unusual scenario – you negotiate hard for weeks and then you have to work with them for five years. It can create quite a complex ‘political’ situation.
Investors are obviously important to the business and it’s vital to keep them happy. Business angels bring a lot of personality to the role, as they’re on your board and are not distanced investors like a fund. But this also means they have their own business to run or other pressures. You have to be sensitive to issues other than those directly relating to your business.
Having said that, you can’t just give in to their demands and roll over. It’s a balance, so if you get to know your investors personally it’s more power to you, particularly from a political point of view. I think it prevents a lot of rows. If your angel asks you to jump you might instantly think ‘No!’, but if you appreciate that they need to show the people they represent that they’re doing something, you might reconsider.

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