The Money Train

David Pattison

Description

Essential reading for any start-up founder considering entering the shark-infested waters of funding and investment.

• An overview of the current market for start-ups and investors. The models and expectations on both sides.
• How to prepare yourself for negotiation or look for alternatives
• Understanding what investors really mean when they try to get you to ‘buy’ them.
• The things you absolutely must not ignore.

Introduction

This chapter introduces me and gives the authenticity and ‘permission’ to have a point of view on the market. There will also be a brief synopsis of the businesses I have worked with/in and the transactions I have been involved in and the roles I played.

The Market

In this chapter I will explain how the market works:

What is expected of millennials entering the workspace and how that differs from the past.

 What the investment ‘model’ is and the stages that businesses need to reach to get funding.

A brief description of the difference between an angel investor and seed capital. Why venture capital is different to private equity.

Why the model is broken and doesn’t really work for investors or investee.

Why trying to do that old-fashioned thing of making a profit and not needing funding is a good thing.

The effect that the current tax regime has on investment decisions. EIS, SEIS and Entrepreneurs Relief.

How investment companies measure success and how they are structured and measured.

The Ten Things

 1. Make sure the shareholders are aligned.

Most businesses have more than one founder or shareholder. It is really important that everybody has a shared vision for where they want the company to go. Is it a lifestyle business? Or is it about making money? If so how much? Do we want to change the world? If there are differences then these need to be planned for. Finding money to exit a significant shareholder is very difficult and usually expensive and distracting. If it needs planning for then do it early. communicate and keep talking . You can change your mind but you need to let people know. Investors almost demand that founders/shareholders are aligned. I have three example stories on this.

 2. Taking money from the wrong people

Work out what you need money for and what help you need. Do you want a ‘hands off’ investor or do you want a strategic investor who can help you build the business. The easiest money isn’t necessarily the best money. You don’t have to like the investor but it helps if you respect them. Be very clear what you want the money for. In early stage raising well meaning angel investors can be very distracting and over zealous. Three examples here.

 3. Don’t believe that investors ‘care’

All investors will claim to be different from the market. None of them are, with the exception of a few who have a little more patience and work over longer time spans. The bottom line is that they only care about one thing, their money. Making sure they don’t lose any and making sure they are first in line for the rewards of the hard earned success. This is the most important thing to remember. If it goes wrong it can be really horrible. Two examples here (including one catastrophe).

 4. Don’t leave it too late to raise money

It always, always, always takes longer than you think to raise money. Six months is usually the minimum. Investors will use words like ‘no brainer’, ‘a formality’, ‘right in our sweet spot’. But they still have to do due diligence and get through investment committee. In addition they normally have a raft of deals/potential deals on the go and getting to the top of that list and staying there is really tough. Keeping more than one player involved for as long as possible is imperative, but you will have to commit to one at some point. Don’t do it when the money is running out. Plan the deal at least twelve months in advance if you can. Two examples here

 5. Be ready for due diligence

 Due diligence is when the investor looks very hard at all aspects of the business. This is not just looking at the finances of the company, it may involve IP protections and psychometric testing of the management team. Its never ‘just a formality’ and there is no such thing as ‘soft’ due diligence. Be prepared for massive distractions and questions that you cant imagine are important to answer. Many aren’t but they tick boxes. From the start of the company, pre investment, impose good governance, have proper board meetings and minuted decisions. Starting with the right governance before you need it will stand you in good stead in the future. Three examples here

 6. Cash arriving is the start not the end

After all the work and distraction of the fund raise the money arrives. Phew, off we go. But it doesn’t work like that. This is the first day of your new company with new shareholders with new requirements. This is where the importance of the negotiation comes into play. You will have had to give up some things and agree to other compromises as part of the deal. You will have to behave differently and think hard about board meetings sand shareholder communications. Four examples here.

 7. Take targets seriously

There is only one thing that will guarantee that an investor comes looking hard after they have put the money in and that is a series of missed targets. It is very likely that you will have signed up to hit targets as part of the investment agreement. If you miss them consistently there will be penalties. I have known people lose their companies because of missed targets. Depending on the business the targets are usually an annual budget reported on a monthly basis. Miss one month and you will be ok, miss three in a row and that is when the spotlight will start to shine. It is the most important thing to achieve post investment. Keep hitting your targets and you will be left alone, they will focus on the businesses in their portfolio with problems. Two examples here

 8. Don’t expect understanding

For the investee the chances of renegotiating a deal after its signed are practically nil. The chances of re negotiating an investment agreement term are virtually nil. Unless there is something substantial in it for the investor. You will probably have witnessed how, in your eyes, unreasonable the investor is through the negotiation process and that isn’t going to change. You need to have fully understood the deal you are signing and what it really means. All investors fall into the ‘a deals a deal’ category with no exceptions. So make sure you know the deal and if there is a need for a change work out how you can do that within the provisions of the deal. Showing the investor you don’t understand the deal is not a good look. Two examples here.

 9. Be ready to switch strategies

Having committed to a strategy to achieve the targets it doesn’t mean that you need to stick to it. Markets evolve, products change, opportunities come from left field, threats present themselves. Talking investors through a strategy change is fine as long as you can convince them that you will end up in the same place ie hitting the valuation they want for the business and them getting the financial returns they have planned for. You will need to present an evidence based proposition that can be challenged and still be credible. Two examples here.

10. Get the right advice and help

You will have noticed that there isn’t a chapter here that talks about negotiating the deal. That’s partly because no two deals are the same and most investment deals are pretty complicated. You don’t just need to be a good negotiator you also need to understand the complexities of legalese and the levers of deals. If you don’t understand what a preference share is and the affect they have then no matter how good a negotiator you are you will get turned over, with no escape clause, unless you are really fortunate. The best preparation is to get the best advice and legal help that you can afford. I always say that the person negotiating the deal shouldn’t be the person who will, after the raise, work day to day with the investor. It always gets spikey and irritable. Its time consuming and distracting. Most businesses going through a fund raise suffer a drop in revenue at some point in the process. Ideally a good non-exec/advisor/Chairman should lead the negotiation with support from the CEO/Finance guy. A good lawyer will take a lot of the pain away, although they do have a tendency to extend the process by aiming off for unlikely events.  All of this is pricey but good advice at this point will save/make a lot of money in the long run. Preparation and understanding are the two keys here. If you don’t know then find someone you trust who does. Preferably someone who has done it before.

What investors need to know about founders/business owners

To help investors invest without destroying value, it's helpful to understand what you are dealing with. The emotional ties to a business cannot be underestimated. Whereas the business of investing is almost completely transactional, having your own business is an emotional rollercoaster.. It is their baby, it’s the most brilliant business of all time, its not quite doing the revenue it should because the ‘market doesn’t understand’. Any type of criticism is seen as a direct attack, even if they know there are flaws within the business. Rather like telling people their children are badly behaved, they know they are but will defend them to the end. From personal experience I can describe the way to approach founders and make them feel positive about inputs and ideas. Not just subjectively. What nobody needs is a continual fight between the investors and the existing shareholders. Its exhausting and ultimately the business will suffer. This chapter will, hopefully smooth some of the negotiation. Four examples here.

Sujets

• Entrepreneuriat
• entrepreneur
• Emprendedor
• Venture Capital
• Corporate Finance
• Economie gestion
• Entrepreneurship
• Funding
• Growth
• Investment
• Economics
• Business
• Money
• The Ventures
• Profit

Informations

• Publié par: Practical Inspiration Publishing
• Date de parution: 25 janvier 2021
• Nombre de lectures: 1
• EAN13: 9781788601931
• Langue: English
• Poids de l'ouvrage: 2 Mo

Extrait

The Money Train is the roadmap to a goldmine; David Pattison spills the secrets that are normally kept to exclusive networks or charged for six-figure fees. Set to be the essential guide for entrepreneurs who want to take their business to the next level.
Bruce Daisley - author of the No.1 Sunday Times Business Bestseller 30 Ways to Fix Your Work Culture and Fall in Love with Your Job Again
This is a brilliantly practical, well-structured book written by someone who has the experience and wisdom to share his knowledge. It doesn t preach or lecture but has golden insights into the pitfalls and opportunities young businesses face from someone who has witnessed first-hand huge highs and some lows. Every young business and entrepreneur should make this their handbook.
Dame Carolyn McCall - CEO, ITV plc
Spending time with David is always time well spent and this book is no exception. What I appreciate the most about David is his razor-sharp questions and practical insights. Reading this book was the same as every conversation I ve had with David, he s supportive but there s no sugar-coating, and for any business considering investment this is a must-read .
Sarah Ellis - author of the No.1 Sunday Times Business Bestseller The Squiggly Career and Co-Founder, Amazing If
I have been a business founder and an investor. I have built businesses from scratch and inherited large organizations. I have worked alone and in partnerships. I have used my own capital as well as having investors both private and institutional.
This book takes me back to the early days of being a founder. It made me smile at the memories of some of the situations David describes. His insights and advice are spot on and will help any young business founder to navigate the shark-infested waters of the investment world. He charts the positives and pitfalls of taking outside investment. Either way, The Money Train is essential reading for any young entrepreneur.
Steve Parish - Chairman, Crystal Palace Football Club, business founder and investor
Forget theory, this is entrepreneurship told as real-world life experience - one that every entrepreneur, myself included, can instantly recognize. With this book, David has mapped your uncharted territory for you. Take it on your journey.
Mark Eaves - Founder, Gravity Road
An excellent read, with an easy layout and flow. This book is refreshingly honest and practical for an up and coming entrepreneur or someone raising money. I wish it had been around when we first started our fund-raising processes! David s experience is clearly demonstrated throughout, highlighting so many of the potential wins and pitfalls, needle moving details and levers that are critical in making a fundraise a success. Highly recommend.
Dominic Joseph - Founder, Captify
The Money Train is not only a great read, but also a fantastic reference book for founders when it comes to fundraising. It provides reassurance on the things you re doing right, as well as guidance on areas that need improvement. I can say this first-hand, as it s exactly how I use it.
Paul Grundy - Founder, Baggl
Be prepared, you will have David Pattison s voice permanently in your head when you start reading this book. He has managed to read your thoughts, capture your questions, your fears, your hopes, compiled them and answered them comprehensively and compassionately. (He never makes you feel stupid for not knowing what you don t know.) Your Money Train will feel and run more smoothly because this book exists.
Muna Nageh - Founder, The Circle of Style
The Money Train is an incredibly insightful yet easy read which I d recommend to anyone going through or thinking about raising investment. The tone is spot on. There are points in the book which I could relate to my short journey so far, but it also highlighted aspects I had not yet considered and could potentially trip me up in the future. The structure of the book makes it simple to read up on quick, actionable advice, whilst the chapter segmentation is perfect for revisiting, which I will undoubtedly do during any future raise. The Money Train is effectively your own investment advisor in a book.
Tom Jelliffe - Founder, Tzuka
I know I will come back to this book time and again for reference in the future, and I expect other founders to use it in the same way. The Money Train is a great analogy because that s exactly what it feels like.
Sam Peters - Founder, Octaive
I ve been hugely fortunate to have had David as my mentor and chairman, and in that time his knowledge and guidance have been invaluable with regards to fundraising and investor relations. This book is the next best thing if you re not so fortunate and will provide you with plenty of good actionable advice that you will and should keep going back to.
Prash Naidu - Founder, Rezonence
A great idea will never succeed without proper finance. But where to start? The Money Train is an expert guide to raising capital. A brilliantly written book by someone who s lived every high and low of building businesses. David knows exactly what he s talking about and after reading his book, so will you.
David Mansfield - author of The Monday Revolution
I really enjoyed the read. Lots of good advice in there brought to life with useful anecdotes, quotes and real-world examples.
Hugh Campbell - Partner, GP Bullhound

First published in Great Britain by Practical Inspiration Publishing, 2021
David Pattison, 2021
The moral rights of the author have been asserted
ISBN 978-1-78860-194-8 (print)
978-1-78860-193-1 (epub)
978-1-78860-192-4 (mobi)
All rights reserved. This book, or any portion thereof, may not be reproduced without the express written permission of the author.
Every effort has been made to trace copyright holders and to obtain their permission for the use of copyright material. The publisher apologizes for any errors or omissions and would be grateful if notified of any corrections that should be incorporated in future reprints or editions of this book.
Cover credit: Photo by Sawyer Bengtson on Unsplash
Contents
Foreword
Introduction
Part I: Three questions
Why is there a need for this book?
What does the investment market look like?
Are you ready to start the investment journey?
Part II: The ten things
1. Is everyone headed in the same direction at the same speed?
2. Taking money from the right people
3. Investors only care about one thing
4. Raising money at the right time at the right price
5. Raising money at the wrong time at the wrong price
6. Be ready for due diligence
7. Cash arriving is the start, not the finish
8. Take targets seriously
9. A deal s a deal
10. Be ready to switch strategies
Summary of the ten things young businesses need to know about investors
Part III: Information
What help and advice do you need, and where do you find it?
Abbreviations, information, resources and jargon
About the author
Foreword
We need to accept that we won t always make the right decisions, that we ll screw up royally sometimes - understanding that failure is not the opposite of success, it s part of success. Arianna Huffington
In this quote, Arianna captures the reality facing any entrepreneur on their journey through life. Founding a business is easy. Making a success of it is extremely hard and cannot be done without the help and support of many people. And time. And money.
My long, yet exciting, journey with Blue Prism was successful by pretty much any measure. A British software company that became a 15 year, overnight global success story, with a highly successful IPO in 2016 and fabled unicorn status. Starting with two people and a great idea, we were able to execute with the help of many people: directors, employees, customers, business partners and, of course, investors.
The one area that you don t want to be learning from a mistake is in the fundraising arena. In this practical guide to navigating the scary world of corporate finance for entrepreneurs, David Pattison uses personal experience and many anecdotes from extensive real-world research to illustrate the opportunities and potential pitfalls of engaging with different types of investor. From making sure there is alignment around the board table before raising money, finding the right management team and how you can expect investors to react in various circumstances, through to the importance of building trust with your investors by delivering your promises, this is a wealth of advice that I wish had been available to me in our early days.
An essential read for any business founder or early stage CEO.
Alastair Bathgate
Founder, Blue Prism
Introduction
When things go well, they go really well. There is nothing intrinsically good about owner-managed businesses and nothing intrinsically bad about investors.
The quote above is from a lawyer. Lawyers see the whole range of investors and investment options and the variety of owner-managed businesses looking for investment.
Raising money: You don t know what you are getting into. There is only one way to go: Fast growth and losing control. It gives you a five- to ten-year window.
This second quote is from the founder of a very successful business who has raised money on four occasions.
People looking for money have no real understanding of the difference between investor types.
The third quote is from an adviser who works with young businesses.
Innocence is culpable.
The final quote is from the same lawyer as the first quote.
In a nutshell, t