The Amaiz Podcast - UKBAA's Rod Beer talks Investment

We had a great chat with Rod Beer, MD of the UK Business Angels Association - the not-for-profit trade association that supports the early-stage investment community. It’s a fascinating and informative discussion that’s indispensable for any business thinking about investment this year. 

• What’s the difference between angel investors and venture capitalists? 
• Should businesses that are seeking investment factor in their exit strategy from the start? How has the pandemic affected the investment community?
• How should companies approach angel investors
• What’s more important: people, product, or the idea?

Rod answers these questions and more.  Stepping into Dragon’s Den doesn’t have to be scary, especially if you’ve caught this Amaiz podcast.

Transcript

SPEAKERS

Jake Shaw, Rod Beer

Summary

Rod Beer talks about how different types of investing works and when and how founders should approach angel investors.

Jake Shaw  00:01

Hello, and welcome to the Amaiz podcast where we talk to businesses large and small experts in subjects across a spectrum of business, entrepreneurial ism tech, innovation, investment and finance. I'm Jake Shaw, your host. If you'd like to learn more about amaze, please go to www.amaiz.com 

 Jake Shaw  00:23

Hello, everybody. I'm joined today by rod beer from the UK Business Angels Association. Good morning, Rod. 

Rod Beer  00:30

Morning, Jake. How are you? I'm very well, thank you very much. First things first, I've been round the website for the UK Business Angels Association. There's lots of resources there lots of reports and things like that. And there's some pretty impressive people involved.

 Jake Shaw  00:43

Can you tell me a bit about what the organisation does. 

Rod Beer  00:45

So the UKBAA we are a not for profit trade association, our role really is to help build and grow the early stage investment ecosystem. So that's the people investing directly into startup growth companies scale up companies in exchange for equity in their business. We work with that community. So that's angel investors, often known as dragons. But actually there are angels, Angel groups, lots of venture capitalists, family offices, really a wide range of those who are deploying capital early stages. But we also work as a result of that with a lot of the startup community as well. So we have accelerators, incubators, universities, government agencies, you know, a wide range really of, of that kind of early stage landscape in the UK. 

Jake Shaw  01:25

But what does it actually mean? What is investment?

Rod Beer  01:28

Other than it being buying shares in a business, that's pretty much what it is, you're putting cash in exchange for shares in with investment, there's no guarantee of it being paid back, I'm giving money in exchange for a portion of someone's company for their own business.

Jake Shaw  01:42

What is the difference between an angel investor and venture capitalist for instance? 

Rod Beer  01:47

Sure so an angel investor is a high net worth individuals, so they've got their wealthy, they're experienced often in business, you know, they've made money in their past, either by running, growing and then selling a company, or by being very successful in their career. And what they are doing effectively is they are putting their own money directly into a startup or early stage business, in exchange for shares in that company in the hope that business will grow, scale and do very well for themselves and give a good return to investors. A venture capitalist is an institutional investor. So what that is, they're a company, they're a business, they're an organisation in their own right, they've been given lots of money by pension funds by other high net worth investors, by family offices by all sorts of corporates etc. They've all given money to a team, a group of business effectively actually called general partners GP. And what they do is they invest into businesses in exchange for shares. But rather than it being an individual investing, getting shares, the institutional the company is investing in exchange for shares their full time job is to find and work with great founders and entrepreneurs, to invest into mutually good terms into a business. And then to help that business to scale and grow and hopefully achieve an exit.

Jake Shaw  02:58

At what point should somebody consider getting investment.

Rod Beer  03:02

businesses that are relevant for investment, there are different types of businesses, I mean, effectively, a company to attract investment has to be a really high growth business, it has to be a business that can grow 10 times in size, in seven to 10 years, there's going to be you know, growing at a significant rate. So you notice 20% month on month growth rate, and they're typically attributed to companies that can grow fast and create great returns. So we're looking at often a very popular type of investment is something along the lines of a software company, you know, a business to business software, as a service kind of thing is quite a common business to achieve investment. There's also a lot of companies with high technology to high IP. So you've got things like life sciences, manufacturing, engineering, you know, companies that have some really exciting technology that they know can disrupt a marketplace and attract a lot of a lot of customers and really build and grow a business on the back of in a relatively short space of time. That's a sort of company that can and potentially should attract investment from outside.

Jake Shaw  04:00

It's interesting, you said earlier about people planning for an exit, is that a key thing to you know, very clearly articulate what an exit will be from the business for the founders,

Rod Beer  04:11

you know, exits can take 10 years plus. So from a startup perspective, it's very hard to know what an exit might look like. But fundamentally, an investor is looking for return on their investment. And that return will come from, you know, the business being sold really, or there are actually investor shares being bought back at a much higher price than the investor bought them for in the first place. And that's normally through an exit. And so what they're looking for is a business that has the potential to drive and grow and get into an exit. They don't want founders who want to grow slowly, who want to grow organically, who are happy to get the business to a certain size and then just kind of relax and a nice salary and have a good living. They want companies that can really grow and dominate on a global scale. That's what they're after some really exciting new technologies, exciting IPS, and incredibly driven and ideally experienced management teams behind that. IP as well. So it's hard to see a company or find a company early stages to have a really strong, clear route to exit. But they certainly need to have it on their radar and to be really thinking about, you know, who's it going to buy them? Why would they be bought out in the future? What problem?  Are they solving to an extent where it just makes sense for corporate to come and buy them? 

Rod Beer  05:16

In your experience which is more important? Is it numbers? Is it ideas? Or is it people?

Rod Beer  05:21

 People, always people. First, You know, the most common reason businesses succeed is the back of a very good management team. And the most common reason businesses fail is because of a poor management team. And that's not from just experienced, but through hard research across the angel and venture ecosystem, where we're kind of pulling, you know, what is it that created your positive outcomes, your good returns on investment, and it's all down to a good management team. So it's always people first, and then a good product and a bit of luck along the way,

Jake Shaw  05:45

given everything you've said, What basic mistakes are companies and founders making when they're going through investment,

Rod Beer  05:52

you cannot raise investment on the back of an idea, it needs to be proven out in the field. In reality, you need to get your business up to what's called an MVP, a minimum viable product. So just an idea is never going to raise investment, it's very challenging to do that often is the case is that you're kind of first round of funding is actually called the friends and family round, whereby you go out to friends, you got a family, you raised a bit of money to help you get your product to a stage where you can actually show it, show it to potential customers and start to kind of gauge some interest and build a bit of traction and a bit of bit of engagement around what it is that you're doing.

 Jake Shaw  06:23

So what do you think is going to happen in 2021?

 Rod Beer  06:26

I personally felt that early stage investing the angel investing piece, which is a really important part of our economy, would drop significantly during COVID. In fact, it hasn't, it's roughly stay the same as last year. But one thing that we have seen is that investors have invested an awful lot in their existing portfolios, companies I've already invested in, I'm going to give them more money to give them a bit more headway a bit more cash to get them through these uncertain times.

 Jake Shaw  06:48

Could you tell me a little bit about what the organisation does and why and who should join,

 Rod Beer  06:54

but any good trade body we're there to help grow an ecosystem. And we were going to 70 events a year or something, we do a lot of work on education's, we do a lot of training on investors about how to access good deal flow, how to invest into great businesses, and how to manage a portfolio. And we do a lot of work around research too. I guess from a from a founder perspective, our members are all kind of the investor side. But on our on our website, there's a list of our investors, members and founders can access. There's also some really good resource guides out there.

 Jake Shaw  07:19

Do you think the genesis of Dragon's Den has slightly given people an odd picture of what investment is actually like when people are going for investment, they should consider that these people are interested because they're interested to grow things.

 Rod Beer  07:33

They're not hard nosed horrible dragons who are going to take half your business in exchange for 40 quid angel investors will only take typically 20% of a business, not half of it, you know, there'll be also wanting to help support and grow and scale that business as well. They fundamentally want the founder to do really well, and to retain a good stake in their own company, because it's them they're doing the work. You know, you mentioned it is a bit you know, it's not philanthropic, but it's certainly altruistic. And that is a big thing. When you look at angel investing at why'd you Angel invest? Obviously, financial returns are really important. But also it's about giving back. Because, you know, you're giving back in a number of ways. First of all, you can invest in great impact businesses, Life Sciences, health technology, educational technology, financial inclusion technology, there's loads of way green tech is massive as well, you know, you can invest in a company that has technology or a service that is changing the world for the better. So that's a great thing. You're also putting money into a business, which we'll employ which will grow which will hopefully succeed. So that gives back to the community. And also often investors will invest reasonably locally to them as well. So they can actually give back to companies that are going to hire locally and scale their business locally and, and kind of give back through that way. So it is actually quite an altruistic thing. You know, we all have that kind of will and that once if I've been a successful person in my career, then very well, I've gained a lot of experience and expertise. I'm starting to wind down a little bit, I've got some money saved to the side, that money is earning me nothing and deposits and getting nothing on the stock market. You know, I can actually put some of that money into our business, help them support them grow them, which is really rewarding in its own right. hopefully get some good returns and also actually get some pretty good tax back off it as well.

 Jake Shaw  09:06

If you would like to go and see the information that's there it is UKBAA.org.uk Is that correct? Run. spot on, Rod. Thank you very much indeed. Thanks, Jake. Thank you for listening. If you'd like to hear more podcasts like this, please go to www.amaizcom and don't forget to like and share this podcast.