According to a study by the McGill Consulting Group , a venture backed entrepreneur has a 30% chance of success, a first time entrepreneurs has a 18% or lower chance of success (keeping in mind 90% of new products fail). These numbers may decrease keeping in mind cross-border investments. In 2014 Global M&A touched USD 3.5 trillion, Global Private Equity was USD 561.9 billion, Venture Capital was USD 87.75 billion while companies just raised USD 249 Billion in global IPOs. As a young global entrepreneur how can you ignore the global opportunity for financing and future success? More academic studies are finding a correlation of an entrepreneur’s success with an international orientation. But what are investors looking for in terms of a personal brand? While western investors prefer investing in similar contexts, there are more opportunities in emerging markets – what are they looking for? While for mature businesses, the Business Plan and Idea are a must, in many new ventures, it is the person behind the idea that is the key differentiator between success and failure.
This recent study of ours was initially funded by the Abraaj Group, and looked at what attracts AI or VC funding from a personal brand point of view. This was a collaborative study between the University of Wollongong in Dubai, Zayed University and Emirates Aviation and came from our love for the topic. Was there anyway that we, as academics could teach future entrepreneurs a better way to project their brand and hence get vital seed funding? We spend a lot of time teaching students how to write a strong business plan (there are enough books written on this) but what about other factors that may be intangible and hence harder to capture or teach?
In a study of investment criteria, Kollmann and Kuckertz (2009) find that experience and credence contribute to 80 percent of the weight age in the screening stage (except for investment fit which is 60 percent) and 50 percent at the evaluation stage (except for investment fit at 30 percent). Lot more than a business plan! In a Middle East context, many of our students are shy and won’t project their “strengths” – some cultural reticence here.
We studied 71 transcripts of stories by entrepreneurs and investors of sessions held at the Celebration of Entrepreneurship during the launch of wamda.me, which identified 12 qualities of the entrepreneur brand personality investors said they were looking for. We then followed this up with a survey which asked venture capitalists, angel investors and private investors listed on largest investor internet directories: Angel List, Crunch Base and VC Gate – how important they thought the quality was (see Figure 1).
Figure 1: Importance of the Criteria
The results for the top five qualities are presented in Table 2.
Table 2: Top Entrepreneur Brand Characteristics
Characteristic (Extremely Important: Very Important)
Integrity (80%: 19%)
Passion (55%: 38%)
A-Team (54%: 34%)
Willingness to Learn (48%: 42%)
Source: Balakrishnan, Michael and Murtaza (2015)
Various words were used to highlight this trait: “honesty”, “transparency”, “trustworthiness” and “governance–driven”. For an investor who commits a sizeable sum of money, integrity is a very important factor, especially as the risk increases with cross-border investments. One VC stated that the entrepreneur should have “…unyielding, unrelenting, unassailable, unquestionable and unequivocal integrity… They must have their focus on, yes, the business plan; but getting there, the planning process (being) right; …. there is no … compromise on integrity. No shortcuts. There is no capacity for …. you (to)… do things in a manner which not completely transparent and governance driven. You cannot avoid that focus even from the beginning.” Another senior member of government stated, “Creating a brand name for yourself… for me, is about integrity, it is about quality, it is about truthfulness, it is about who you are, what you deliver”.
This characteristic was highlighted as “a great way to spark the interest from a potential investor…” Another investor commented “If you make a better person out of yourself it’s because of you, it’s not because of the others, and it’s not at the expense of others…” Trust is found to be a significant factor for starting SMEs that pursue “Schumpeterian” opportunities (Troilo, 2010 ). How did investors realize this in their short pitch sessions and during their meetings with potential investment opportunities? They caught on this through minor discrepancies. One investor had said of a potential client that he had asked him how he calculated the market potential, which was obvious that he did not know. The issue was not that he did not know, that was OK, it was that he lied about a simple thing. The investor said this relationship was not going to work as he would not be able to trust him with his money even though he knew the opportunity for the project was huge. And even worse, the investor reiterated, the entrepreneur did not know on what his assumptions were based.
Many startups do fail when trust is lost between founders. But even worse, at later scale up stages – this “trust” needs to be translated into good governance and policy. Documentation prevents fraud and also helps monitor vial processes. In regions like the Middle East where crisis is a way of life, where multiculturalism and government fluidity means changing policies – this becomes more vital to win investor trust especially if they are from more western backgrounds. Keep an audit trail, be honest – everyone fails and while you can’t know everything you should know vital business stats required to succeed.
This was described “as faith in yourself [when there is no reference]”. Other common definitions were “stubbornness”, “mind fitness”, the “desire to get things done” or the ability when confronted with a roadblock to “figure a way” to proceed.
How do investors figure out you have willpower or you are committed to your cause? First answer is that they will be looking to see how much of your own money you have invested into your “idea”. Why would a stranger put money into something you will not invest in yourself? Your commitment is shown by how much you have invested as resources – time, money and effort into your “big idea”. Very few entrepreneurs can document this. Another reason you did want to document your investment is that it will decide how much capital you require and how many people you’d have to hire. Most entrepreneurs discount their time, which creates havoc for working capital management later on.
Second answer – willpower is the ability to overcome adversity. Many investors had faced times where they thought they failed and what kept them going was mind over circumstance. An investor needs to know you have what it takes to succeed; you wont give up at the first sign of a roadblock and declare bankruptcy! Strangely at the early start-up stage it is the perseverance that counts – how did you pursue the investor to get an appointment, how do you follow up, the stories from your past that show you are not a quitter. Yes your degree, your pedigree (who you know), and your idea all help. But the investor is betting on you – the person.
This was the most fascinating word for me because as one investor and successful entrepreneur of a global company said – “But at the end of the day what do we as investors back? It’s the look in the persons eye, you know, the passion in their heart, their ability to see right from wrong, their ability to focus on hard work, their commitment to make it happen.” Most investors who were themselves entrepreneurs felt strongly that this was an embedded quality of a person. “You can’t teach this…you either have it or you don’t,” one exclaimed. But another offered a proxy for passion – “Excitement”.
The look in a person’s eyes? How do we teach this? Is it internal motivation? Over a decade of teaching and mentoring young salesmen – this is something that grabs you. It is not the gift of gab, it is the look that radiates from you – that shows someone’s soul is burning with the idea. That he will not rest till he succeeds, that he loves what he does and this is personal (the stories you tell back this statement up). This is why many entrepreneurs have a challenge letting go when their firms grow too big. But this is another quality altogether. Passion is contagious – it comes across as your love and belief in what you do and when this excitement rubs on your investor – you have a shared cause! Of course – you can translate what you want to do into value for your investor too. This means researching what is important for your investor. There has to be alignment – or (go back to quality 1), you will fail or be very miserable in a relationship where there is no commonality.
A person with passion will take risks that normal sane people will not. He will put his ego on the backburner and approach those who he considers are the right investor again and again, because he believes they have the right fit. He knows his business and he knows his investor. He knows his impact. You need all three. And you know he is passionate by the team he inspires to follow his idea. Which brings me to the next point.
Too often we tend to hire like-minded people or subservient people because it is simpler. Simpler yes – but it can lead to group think and failure. When an experienced investor (you’d rather have investor experience on your side) invests his money in your idea, he wants to reduce the risk of failure . A strong team ensures success since (1) there will be days everything goes wrong – and they a team member can help pick up the pieces (2) you cannot be an expert in all business disciplines so it frees your time to do what you love most and (3) the opportunities to scale will increase proportionately and time to market is often critical in success – so every hand is helpful.
One Silicon Valley VC who we interviewed eloquently justified this, “You’d rather have an A-team with a B-idea than a B-team with an A-idea. Cause the B-team will screw it up. It’s great if you have an A-team in an A- market, and A-product and A-plan. Never happens. So what are you going to sacrifice? The team that is creative and adaptable, innovative, they will figure it out …Getting to plan B”.
An A-team can increase adaptive capability, leveraging off the strengths of each member. Additionally, each person has its own network, which makes the cumulative social network much larger than a single individual. A study by Hauser et al., (2012) finds that new ventures with productive matched teams overcomes barriers to internationalisation more easily than single person start-ups. Another important point in this is that a VC rarely funds a full project, which means the larger the combined network, the more access to capital. One of the respondents emphasized this aspect in his comment: “What I have learned after reviewing 19000 startups, meeting over 4000 companies and over 100 investments there is no formula for investment at the seed stage because there are no numbers and tractions for us to look at but the team is everything. If you can measure what they are speaking about and express it in numbers then they are up to something.”
Willingness to Learn
Investors are mentors. They bring a lot of experience to new ventures having often learnt through the school of hard knocks. They often have a huge resource of networks and that may mean specialized knowledge and opportunities to open new doors. They want to know the entrepreneur is “teachable” – and this would also translate into being able to adapt when things go wrong, not repeating same mistakes and seizing new opportunities when present. One investor said “If you think of investors as a source of cash, you are missing the point. It’s very rare that all start-up needs (are) cash. And if that is true, that is great. But they tend to be in some other form, of networking, guidance, mentorship expertise, and that where it’s harder to find a match.” Another said, “For me it creates more of a personal bond, vulnerability and openness because there is a little bit of coaching involved in the entrepreneur, mentor-angel relationship. And the question is that is this person coachable? ‘
Many investors will begin a relationship with tight control and as the entrepreneur proves teachable and gains their trust, will reduce the frequency of the meetings and updates. I think it is important to realize, especially in a Middle East context, you don’t lose face when you don’t know how to deal with a situation. More importantly – you need to find the balance. Most investors are extremely busy and perhaps don’t want to be flooded with silly problems that you can solve through your own research. Make use of the investor contacts to find support networks and make sure you acknowledge that this was a valuable resource from your investor. Often the second and third round funding can come from these networks and you want a great reference and reputation going forwards.