Dear Reader

As you know we are passionate about helping entrepreneurs and their backers to succeed. I am delighted with this issue of the AngelNewsletter Online which is another step towards fulfilling this desire. You will find a great article from Future Office on how they raised finance, which we thought was so good that it deserved publishing as well as a few recommendations that Gordon Brown might like to adopt in his budget later this month, if he is to prove himself as the most entrepreneurial Chancellor of his generation. And if he decides not to pay any attention, we hope it will give the claimants to his throne some food for thought. On the issue of tax, with the tax year about to end, we recommend you read this month’s WingTip from Vantis plc which explains some EIS and VCT tax issues of which you should be aware. To read it click here.

Last month, we promised to tell you who are the 10 to watch in Europe, which should assist industry observers and others in knowing who matters and who they must know in 2007. Do tell us if we have missed anyone, by the way.

As usual there are loads of new company profiles for this month. We now have made it to India as you will see from the sign up of Clientell Solutions Private Limited. With 100+ news stories from companies you will also see who’s doing what at the moment. Feel free to login to www.angelnews.co.uk to read the stories in full and to get contact details for the companies if you want to find out more. Remember if you want to be ahead of the game in terms of the news, sign up for our email alerts service for both companies and sectors while you are logged in.

We continue to increase the number of events. Mark your diaries now for:

• 20th March – our “Valuable Papers” seminar – already very full, but we have a few places left.
• 9th May – our “Partner, Predator or Prey” breakfast with speakers from Oracle and Merrill Lynch
• 6th June – our “Health Investors Forum” in association with Health Investor Magazine.
• 26th June – our very special event “For those who matter” at BT Tower.

Full details are further down the AngelNewsletter Online along with information on some other great events we think you might like to attend. If there is anything you would like us to organise, just email me: modwenna@angelnews.co.uk

The Interview of Steffan Williams makes fascinating reading, not least because of the unusual way he financed his start-up. You can read it by clicking here. Check out our Not so tricky: Financial PR Q&As as well.

And if you want a great guide to new business speak, don’t forget to read “Something to make you smile”.

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As promised, here is our list of the people to watch in the business angel world in Europe and an extra honourable mention for someone who looks west rather than east!

Next month we will list the “10 to watch” in continental Europe.

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1. What is financial PR?

In the broadest sense, FPR is the business of managing communication between an organisation and all of its financial audiences. Typically, FPR specialists use the media and other influential commentators, such as analysts, as a way to communicate with investors.

2. Why do I need to bother with it?

The reality is that almost any organisation that has a stake in how it is portrayed in the public arena should employ someone to manage its public profile. If this company is likely to require external finance or has a business that may benefit commercially from profile among financial audiences, then Financial PR specialists can be a crucial resource.

3. How do I go about selecting my financial PR advice?

Take recommendations and take your time. Ask a few agencies you have heard good things about to pitch formally. Give them an outline of what your objectives are and ask them to talk you through how they can support you in reaching, or even exceeding them. The best agencies will answer the brief and bring you good ideas as well as detailing how they work and what experience they will draw from.

4. How do I know my financial PR adviser is giving me good value?

Measurement is difficult, ultimately profile among financial audiences is about optimising the valuation your company achieve on float or trade sale. This profile is something which might build gradually, but is important to maintain.

5. Can I use my financial PR company in other ways?

While financial communications specialists are typically hired for a reason, good FPR advisers shouldn’t just think in narrow terms of a transaction, IPO or sale.

Companies that retain a financial agency well ahead of planned action and, therefore, have time to lay solid communications foundations often get better value.

They know the market and can help companies target investor audiences for commercial activities also.

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Today’s businesses have most of their asset value sitting in their office in filing cabinets. These assets take the form of contracts and other key documents and are worth as much as, if not more than, their physical assets.

You must understand how to optimise this value if you are going to grow or exit from your business or investment at a significant profit or maybe you need to start from scratch as don’t even have these documents in your filing cabinet.

If so, this is the seminar for you. Three of the most valuable types of papers a company owns are:

Patents and trade marks is that patent worth the paper it is written on …? maybe a trade mark will be the best brand builder and value creator you could have…? Huw Hallyborne and Anne Wong of Carpmaels & Ransford will be able to tell you the answers.

Commercial contracts do you actually have any contracts in place for your customers and your suppliers…? are you suffering because your contracts are balanced unnecessarily in favour of your. customers or your suppliers…? Dan Holland of Stephenson Harwood will be sharing his expertise on these issues with you.

Insurance documentation shouldn’t you have done something by now about your disaster recovery plan…? Robin Thomson, Layton Blackham will explain what you need to do.

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Do you need to get up to speed on modern business speak? Here are a few phrases that it might just be worth putting into your Word dictionary so you are not caught out next time a groovy entrepreneur wants to talk to you!

http://www.officeslang.com/

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We won’t have Gordon in a year’s time he will either be up or out, but it is pretty sure that in his place will be a true “son of Gordon” (Ed Balls looks promising by the way), who will remain just as in love with the populist policies for stimulating enterprise that Gordon has been so keen to promote. And if lovable “green Dave” Cameron has made it to Number 10 and installed George Osborne in Number 11, we remain relaxed because they should be just as keen on the policies, which are such clear money-spinners for the Treasury. Job creation does not just keep a country quiescent but delivers PAYE, NI and VAT by the wireload into Treasury coffers.

Entrepreneurs are all the rage. Dave and George want to love and understand entrepreneurs just as much as hoodies. For Tony it was the glitterati, but for Gordon/Ed and Dave/George, we bet it will be dynamic business people, marching into Downing Street for “networking” events.

So, by 2008 we believe there is little doubt that the pinkish tinges to enterprise policy, where government tinkers “a bit, but not a lot”, and assists others to assist the entrepreneurs, will continue to glow brightly. This is “pink enterprise” – the true third way of UK enterprise policy.

The good news for Gordon about the legacy he has created is that he has a strong chance of history according him the honour of “most entrepreneurial Chancellor” of his generation; but just as no business model is perfect, neither is government policy. Surely Gordon’s greatest worry must be that his heirs will leave him standing, whilst they develop better policies and grab the mantle instead?

So out of concern for Gordon, we have sought the views of our angels and entrepreneurs to find out what they see as the remaining imperfections in “pink enterprise” policy. Here is the list .. and, in the meantime, good luck with your last budget, Gordon. Maybe, just maybe you could use it to address some of these issues.

1. Enterprise Investment Scheme relief – end the ludicrous situation where angels lose their tax relief if a company breaches EIS restrictions – even if the angels are in no position to influence the behaviour of the company.
2. VCT relief – bring back 40% tax breaks for VCTs – the crash in amounts raised this year should make you sit up and listen. Compared with private equity houses, even the most risk averse VCT fund managers look like true venture capitalists in the old fashioned sense – why try to take them out of business?
3. Create a proper second hand market for VCT shares by making VCT tax relief transferable to secondary owners whilst still in the three year time limit.
4. Create a 60% tax break for VCTs that promise to invest in seed and start-up companies. The seed/start-up world is now largely bereft of investors and angels will not fill the gap satisfactorily.
5. Give small businesses a much larger break on business rates – 50% is not enough. We create nearly all the new employment in this country so reward us.
6. End Employers NI on net new jobs created and sustained through any one 12 month period.
7. Encourage the major banks to use some of their profits to fund an “Entrepreneur’s Bank” which specialises in lending to seed, start-up and early stage businesses.

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Raising investment, particularly angel stage investment, can be a daunting task and many pitfalls can await the unprepared. We have detailed here some of the opportunities and threats we encountered, and hope that it will encourage and help other start-up companies with their early funding requirements.

Offering/selling shares as part of a commercial sale
Firstly we offered key clients shares with sales of systems. So instead of just selling product to clients we made them an offer to purchase shares in our company and included the system in the deal. Each share holding investor who has invested and retains a share holding of 25,000 shares or more in The Future Office (currently at 10p per share) is entitled to a free license to use the LiveView system themselves.

This approach led to us gaining investment from some of our first clients and, as they were shareholders as well as customers, they helped us by offering advice and suggestions for enhancements or improvements that we could include in the product. Some of these suggestions were taken up as described, while others were modified for technical reasons. Whenever a new feature was added, that one or more of our investors had suggested, these investors felt an increased sense of involvement in the development of the system.

Get the channel involved and supporting you
Dealers, consultants and resellers can also be a good area to approach when looking for investment. These people may already have customers with requirements for your product, and are more likely to understand the benefits of your product compared to others outside the industry. The opportunity for these people to expand their businesses by linking to www.thefutureoffice.com, and own a share of the product they wish to sell, makes sense for both parties. We found that a dealer/introducer became dedicated to our product and, because they joined at an early stage were privy to investor type details, giving them advantage over other normal resellers.

Looking for suitable trade investors
Other routes included us contacting the managing directors or owners of ISPs with whom we could work. Our product needed to be hosted and we wanted to outsource this to a professional ISP. When we showed LiveView to one MD/Owner of a large business ISP, he immediately got the concept and decided to invest in it using his own money. We now host at that ISP and have benefited, not only from the investment we received, but also from their advice and skills.

It is important to understand that however clever you are in your own field, there are always others in associated fields that can add to the overall mix. Taking advantage of the skills brought to the business by angel investors, who work in sectors or areas close to ours, has been very helpful indeed, and has helped to keep us on track and avoid costly mistakes or time consuming learning experiences.

Working with a local business incubator
The Future Office is based at the Sussex Innovation Centre in Brighton and both the Centre and the Centre’s manager have been very helpful in introducing sources of funding. Open days have yielded investment on a number of occasions including one event where about 30 of the centre’s companies were exhibiting, and we were one of only 2 to receive an investment.

Friends and family
Friends and family have played a very small part in our fundraising efforts with regard to direct investments. That is not to say that the founders have not invested themselves, they have and to a much greater extent than the monies raised elsewhere. We have not included this in the monies put in by angel investors, we are the ones running the business, so it is only reasonable for an investor to be assured that we believe and are prepared to put monies in ourselves and we have.

What is an angel investor
An angel investment for us is when an angel looks at our business plan and at the people working in the business, and wishes to be involved. They put monies not just into the business concept, but in effect they are backing the people behind the business. It is interesting that most of our investors have been very aware of, or are involved in, the IT market place and are therefore already aware of the market and potential for our product.

It should also be noted that we have not encouraged or actively pursued investment opportunities where we felt that, either the investor did not understand the risks involved or, that they were clearly unable to afford to invest at an angel stage. Integrity with regard to the welfare of those who invest in our business is key. Angel investment is a risky business and all too often projects do not succeed. In our case all is going well and we have now completed the software (in its current version) and made sales to clients, and that has certainly been because of the help of the angel investors who have backed us. We have now progressed to the point of full marketing launch. Many other companies in our sector have not been this successful!

Get a good business mentor
Since completing our round one funding we were fortunate enough to have a first class business mentor (from the Merlin Mentor Scheme), who decided at the end of his year with us to invest himself as part of our 2nd stage funding, to support the market launch of the product/service. If you can gain the help and guidance of an already highly successful business entrepreneur in a field close to your own (as was the case with our Mentor), then not only are their skills likely to be very helpful to your business, but it is likely that they will see the benefit from having a piece of the action themselves. In our case our business mentor and investor has also agreed to help with monthly reviews of progress to keep us on track, and has signalled his intention to hopefully place further tranches of investment with us.

Don’t be fooled or put off
When looking for investment it is important to understand that many angel investors are nothing of the sort. Too often they are looking for an opportunity to invest one week and take a massive guaranteed return the next. Wouldn’t that be nice! Do not be put off by lack of success at a single investment event. Understand that, in an audience of 50 supposed investors, you may well have 20 people who work for the government sector in helping to gain investment and 20 people who are trying to sell their services re helping you get to angel investors. Furthermore, of the 10 supposed remaining angel investors, 8 of them may never have invested in anything to date! So in that audience of 50 people, you may only be showing your product to 2 serious investors. This happened to us at one event, where in fact we believe there were only 2 genuine investors in a room containing 50 ”investors”. Of those 2, one had already invested in our company, and the other did not like computers and had indeed retired to avoid them! Needless to say, on that occasion we were not successful in raising further funds.

Watch out for wolves in sheep’s clothing
On another occasion we met with a specialist IT sector investment consultant. Anyway, after the presentation and discussion, he suggested that he rewrite our business plan and carry out work to facilitate the raising of funds from his special group of angel investors. This would be possible for a mere £10,000.00 payable to him with an additional 5% payable in commission on any monies raised. We were not to keen on this, and when we asked about other successful fundraising he had completed, the details were mainly focused on financing for medium sized businesses. We asked him whether it was usual for him to be involved with angel investment at our stage, and he rather ignored the question. We then asked him if he would have recommended companies like Microsoft, Google or even Freeserve, to his ‘angels’ at an early stage. He proudly told us that he would not have recommended any of them, as they were not the sorts of businesses his investors were looking for. We didn’t say it, but thought that investment in one of these at a very early stage would probably have been exactly what most investors would be looking for, and we politely declined his offer to help us with our business plan.

Remember - it is not just your interests that some advisers have at heart. Many are running businesses of their own and need to raise funds or, in the case of government funded organisations, need to justify the funding they are given. Do not be put off or diverted from your course by those who have not succeeded in your field themselves. It is important to note that many of the angels who have been very successful themselves have either invested with us, or at the very least offered encouragement and suggestions for improvements (some now adopted). Virtually none of those who have had to work and struggle to earn their own success have put us down or dismissed our product in any way. Look for these successful people, as they are drivers and nearly always supporters and helpful to those who are working and trying to find success themselves. Perhaps it is their optimism and drive that has made them successful? Let it rub off on you.

What are angels looking for and why this gets them the best returns
On one occasion early in our stage 1 fundraising we received investment from a very well respected and wealthy angel investor. This gentleman had no IT skills at all. He was just looking at the people involved and their passion to succeed. Business plans are great, but it is the people that are key, and the best angels know this. Better to back a good team with a poor plan, than a poor team with a good plan. Remember a bad plan can be improved, and it is the team you are backing and investing in.

Keep going and never give up
The world needs its entrepreneurs and those who try to make changes for the better. Without these people the world be far less rich in more ways than just financial. Remember the best angels will nearly always try to help you. So, just make sure you avoid the negative people, and if you believe you have the right product, ignore the jibes of friends and family who say things like “Still doing that? Why don’t you get yourself a proper job?” If you believe in your product, then others will see and feel your confidence.

This write up was prepared by Malcolm McPherson and Philip Lush of The Future Office Worldwide Limited operating from The Sussex Innovation Centre Brighton BN1 9SB. If any start-up entrepreneur or angel would like to contact them for a chat please ring 0845 070 0192. or see more information at www.thefutureoffice.com.

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We know you all want to meet each other, get more out of us and our partners and generally make angelnews work for. So we have decided to up the ante on the number of events we would like to invite you too. Here is a list of them. We do hope you will be able to make it to one soon.

To come.

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