Who’s Driving Your Bus?

 

 

I have this saying “who’s driving your bus?” There are many people and things vying for our time which can not be redeemed. Are you true to yourself, your vision and your dreams? Stagnation creeps in, and you stop chasing dreams with moving parts and uncontrollable variables that push you out of your recliner into unknown risk. Every day that we decide to be present, whether in our homes, at work or in the marketplace we take risks. There are relationship risks (do they like me, am I funny enough, will they call me back). We take business risks (today I am going to stand for what is right and not for what is profitable). Alternatively, we ignore health risks (our internal alarm warning us of hidden dangers under our skin). Whoever or whatever gets the most attention is driving. Where are you going? Only time will tell. That is a lie for time cannot be recaptured. It just keeps slipping away.

Time is an “un-renewable currency.” Dr. Johnathan Welton, founder of the Welton Academy Supernatural Bible School, author and lecturer, believes, “All cultures and societies have currency, whether it is paper money or a barter/exchange system, at the root of it all is time. He calls it “Time-Wealth.” (2017, Welton) There are four stages of time-wealth that feed into entrepreneurship: selling your time, selling your knowledge, creating investments, and receiving inheritance.

Selling your time is working for an hourly wage. “When a sixteen-year-old wants to buy a $1000 car to get around town, typically he must get an hourly job …$10 a hour, the hours of his life are bought from him….” One hundred hours equal a hooptie. Selling your knowledge consists of gaining knowledge that “can be sold at a much higher rate than selling your time directly. For example, this would be a lawyer, author, doctor, mechanic, etc., essentially all specialized knowledge.” Creating investments, “…can provide a lot more time and freedom for the individual that is living in the knowledge level. By finding a way to create a system where paper money begets more paper money, this creates Time-Wealth because the money is making more of itself without time being used to create it.” Moreover, finally receiving an inheritance is generated from the creating investments. “[It] only comes because someone previous has gone through the first three levels, then they have passed the investments to the next generation without that generation having to go through the first three levels themselves” (Welton).

This time wealth model moves us from wage earner to entrepreneur for our children to imitate! We are teaching the next generation how to obtain wisdom to secure their future by our actions? We are providing a platform for leadership and business.

I found three character traits from Micha Kaufman’s article 10 Traits for Great Business Leaders (2014) that can help one get back in the driver’s seat and better manage time. Since we all can identify with our passion, the trait I will start with is a Singular Vision. Our many talents are not meant to be explored all at once. Kaufman says, “It all starts with an idea. Howard Schultz envisioned a single brand with coffeehouses across the globe. He turned that dream into a reality and founded Starbucks.” The next important driver trait would be Persistence. We have to keep it moving forward until that vision or dream is out of your head and in the homes of millions. “In the 1890s, Henry Ford came up with the Ford Quadricycle …it wasn’t a success. Ford later founded the Ford Motor F +0.00% Company [;] invented the Model T…, “and the rest is history. Finally and what I saw as most the most important trait, Can’t Get No Satisfaction. The sky is not the limit. There are countless galaxies beyond what we see. “Great business leaders are never satisfied and continually strive to take their business to the next level. As Ingvar Kamprad, the founder of IKEA, said, ‘The most dangerous poison is the feeling of achievement. The antidote is to every evening think what can be done better tomorrow'” (Kaufman). We were created to solve problems! We should be in relentless pursuit of problems to be solved.

The course of your life is in your hands. The decisions you make to take control of it and your time will change your life and others around you. Ultimately our perception and focus have to change. Our understanding gives us conviction, hope and determination to be doers. Our focus keeps us on track. One idea or invention can mean the difference between poverty or prosperity; mediocre or marvelous; and average or anomalous. Energy, money even our youth is renewable, but the one thing we cannot get back is time. Don‘t continue to let time and wealth fade into the distance.

Resources

Kaufman, M. (2014, September 08). 10 Traits Of Great Business Leaders. Retrieved June 22, 2017, from https://www.forbes.com/sites/michakaufman/2014/09/05/10-traits-of-great-business-leaders/#118279f12dc7.

Welton, J. (2017, May 25). The Four Levels of Time Wealth. Retrieved June 10, 2017, from https://weltonacademy.com/blogs/jonathanwelton.

 

Let’s Make a Deal

ENT640 – Winning Angels -Negotiating

Last Friday night I had the opportunity to watch some television. The remote is not the first thing I grab if I have some down town. Usually it’s closing my eyes. As I scrolled, I came across SHARK TANK (ABC). I call it the 20th century let’s make a deal. It is motivating to see how they all came from humble beginnings, yet with perseverance are now the shot callers to make dreams come true. They all have different personalities yet their commonality make each one a force to be reckoned with when it comes to negotiating.

Amis and Stevenson believe, “How you think about negotiation is important not only because it impacts the terms, price, and overall structure of the deal, but also because it is a prelude to the highly interdependent relationship formed between the investor and the entrepreneur.” (2001, pg. 225) At the end of a deal, the investor gives the entrepreneurs a hug instead of just handshakes. Even though negotiations usually involve “structure (terms), price, amount of capital that will be invested and role,” the entering of personal space with an embrace points to a deeper relationship than just clicking a button to invest. (p. 225)

Amis and Stevenson tell us to consider “your preferred role, time availability, preferred relationship with the entrepreneur, whether you are the lead investor, and the amount of capital you tend to invest” for determining your negotiation strategy. (pg.225) Last night’s episode brought a few deals where young and eager entrepreneurs already had lead investors. I saw how a good deal was no longer attractive because of their secondary position. Of course at that point there was no relationship with the entrepreneur and the amount of capital was not a huge concern. The timing of when an investor receives the return-on-invest (ROI) is crucial to the deal. It’s a difference to wait and be first in line, but to wait and to be second is not an attractive view for the risk.

I watched as the interested investors negotiated the terms rather than the price and deals were at $100,000, which is change for a millionaire. “By giving the entrepreneur their own proposed terms, it should be hard for them to regret it later.” (pg. 226) Here again we are looking at relationship. But that relationship does not trump ROI. Of the four investors at least two “take a pass” leaving them to drill down until they strike water or pull out beforehand. The investors do exactly as Amis and Stevenson propose when taking a pass. They let them know with “positive feelings about the project (rejection is always a sensitive undertaking) along with whatever issues led [them] to [their] conclusion.” (pg. 227) And they do it with a smile; it’s not personal, just business.

Negotiating is like a work of art. The entrepreneur brings the canvas and the brush bidding the investor to provide the paint for their picture. But are the colors right to make this a masterpiece that they envisioned? Or will there be compromising to make this vision a tangible offering in the marketplace? Only the entrepreneur can decide.

Resources

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Burnett, M. (Producer). (2017, June 16). Shark Tank [Television series episode]. In Shark Tank. ABC.

 

Creating Win-Win Situations

ENT640 – Winning Angels – Structuring

“Structuring the deal is a key aspect of completing an angel round of financing. It is critical to ensuring that management, employees, past investors, current investors and future investors are all satisfied with the company under its new capital structure.” (2007, Koss)

How do I create win-win situations when structuring a deal? Amis and Stevenson tend to think that “both enlightened and so-called virgin angels think that structure doesn’t matter too much.” (2001, pg. 182) Trust is the anchor or they reserve to preserve the relationship instead being a hard-noise.

What does a win-win or “sensible deal” look like? Questions to ponder:

Is it simple? Think of the document like a resume-one or two pages is enough. “…complicated structures create more work and less flexibility down the road.” (pg. 206) The courtship will end if the exchange is too complicated. Is it fair? Structure can be used to limit the entrepreneurs exit and to ensure that they are on course. Is there a reflection of trust or verbiage? Here again we reflect on trust in the relationship which will show transparency instead of terminology that confuses and even deters the deal. Is it robust enough to weather a slight differentiation in the plan? Is there a perverse incentive section to cause all involved to behave badly? (pg. 182) Remember the relationship for the greater gain.Structuring is about equity ownership. A lesson in stock options… “Equity ownership structures commonly used are common stock, preferred stock, participating preferred stock, and convertible notes. Preferred stock is distinguished from common stock when the company goes bankrupt or undergoes liquidation. Then the preferred stock holders have priority in getting their invested capital back, along with any unpaid dividends (known as a preferred return), before the common stock holders receive any distributions. In contrast to preferred stockholders, participating preferred stockholders will be repaid their original investment plus any unpaid dividends upon liquidation, and then share in the remaining assets as if they held common stock. Thus, the participating preferred stockholders still earn a return, even if common stockholders realize little or no return. Convertible preferred shares are able to be converted to common shares at a predefined conversion rate. They perform like a note by providing downside protection for the investor because they have preferred status and the option to convert to common stock provides upside.” (Koss)

The key to structuring is equity departure on the part of the entrepreneur. How much equity you are willing to share will affect future aspects of your business.

Resources

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Koss, A. (2007, July). Best Practice Guidance for Angel Groups-Deal Structure and Negotiation. Retrieved June 18, 2017, from http://www.angelcapitalassociation.org/data/Documents/Resources/AngelCapitalEducation/ACEF_BEST_PRACTICES_Deal_Structuring.pdf

Preparing for the Dive

ENT640 – Winning Angels – Valuing

The five stages of early investing as proposed by Amis and Stevenson in Winning Angels are:

  1. Quick and Easy
  2. Academic/investment banker
  3. Professional venture capitalist
  4. Compensated advisor

As a novice angel investor, I want to dive into the quick and easy method, not just because of the name, but more so because of the description- “…to resolve the challenge of early stage investing: the lack of information, the high level of unpredictability, the need to move with relative speed, and the need to garner a significant share of the upside.” (2001, pg. 148) I want to consider venturing with the $5m limit and the rule of thirds method.

You may have $2,000 – $2,000,000 to invest, but one thing should be established…what is your threshold to invest and stick with it. The bottom line will focus your investments. The amount is irrelevant because “…the end value of the company determines your return as a multiplier of the amount invested.” (pg. 149) The upside, a one out of ten ratio will allow you to recoup your initial investment. The downside is determining how much is too much to invest.

With this method you don’t waste time. My mind goes back to vacation time share presentations. You sit through this hour and a half spill even though you either are not going to buy into the great escape, or you know how much you are willing to invest. I have been to enough of them to know that after all the packages, they go speak to someone with authority and power to make that $5000-$7000 deal with deferred maintenance fees every other year. Bingo! Now it’s attractive and affordable. But it took almost three hours of your life to make the deal; time wasted. The quick and easy approach doesn’t even let you step in the building or give an ear to what is over your risk tolerance point.

How much time do you have for a due diligence recliner? “‘Angels don’t have as much leeway to do due diligence that would get them comfortable with high valuation.’ ” (pg. 150) The rule of thirds method gives you a reasonable gain measure and yet it is still not time consuming. You don’t want to get lost in the numbers unless you like crunching them or have someone on your team with the skillset. The upside, fewer moving parts. The split is between founders, investors and management. The downside, “the line between founders and management is not always so clear and founders often have high personal value perceptions.” (pg.150)  The perceptions skew the reality of the truth-this is not worth what you think it is; there is clearly a plank in your eye.

Your approach fit will depend on your risk tolerance, which can change with your upside experiences. The most important factor is to begin. Learn to swim in the angel investment waters then try diving then flipping. Your experience will increase your depth and return on investment.

Resources

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

A “High Potential Opportunity” in the Making

ENT640 Winning Angels – Evaluating

Amis and Stevenson (2001) hold to four elements that create a perfect opportunity as offered by William Sahlman and Howard called the Harvard framework. One missing link and failure looms from all your efforts. “The investment opportunity [is] an interconnected combination of four elements: people, context, business opportunity, deal.” (pg. 75-77)

People are made up of key players: the entrepreneur, management team and stakeholders. From the outset the creator “has more freedom to mess up, save it, bring it to boil, or take it onwards, than [he or] she will ever have again.” (pg. 81) This is their baby, and if they are not a veteran parent, there will be casualties of parenting along the way. As a start-up entrepreneur, these same casualties will be opportunities to mold experiences that will bring the project into maturity and success. They are hands on everything in the beginning so the angel investor banks on the entrepreneur. They will pay particular attention to “their goals, their knowledge and their capabilities.” (pg. 81)

Key questions for the investor (pg. 83-84):

  1. What are the underlying goals and are they relevant?
  2. Do they know this business and are they respected by their peers?
  3. Can they do it and get others to do it?

The management team is the vehicle aimed at forward movement. When a management team is in place, you can assign another degree of confidence in the investment. Expertise by these members should translate into “relevant skill set[s].” (pg.87)

“Stakeholders (angel investors, advisors, board members, venture capitalist, customers and suppliers) are important because they can have a major impact on value creation and perception.” (pg.89) Do you see what I see through a lens of worth and growth? A trusted name supporting an endeavor will create trust in the market.

The context is joined at the hip with the opportunity. It includes: “economy, technology development, regulation, and stage of industry.” (pg. 99) And don’t forget the competitors. You can marry an opportunity when “you understand the fundamental business and that all of the big questions have been answered.” (pg. 91)

Key questions for the investor (pg. 92-97):

  1. Does the business model show how you obtain, keep and serve customers for profit?
  2. Where are the customers, ready and eager to obtain the product or service?
  3. Is the timing right for purchase?
  4. What is the return-on-investment in direct relation to the size of the company?

Now we are ready to deal – price and structure. Putting price on the table first is “one of the easiest methods to eliminate the deal.” Structure can make or break the deal as well. It includes investment terms, board control, or management team limitations “…directly impacts the likelihood and the size of the harvest events.” (pg. 104)

From the seed (people) to planting and growth (context), to maturity (the opportunity) and finally the offering (the deal), an investor must balance the investment of time as well as money. The evaluating stage is the courtship that can be like speed dating when you lay your cards on the table of what your intentions for investing are or it can be a slow dance to access risk. Either scenario can yield a profitable harvest.

 Resources

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.