Chris Clegg Interview
Brian Perry
01-Nov-06
Chris Clegg was one of the original advisors with Beer & Partners and the founder of Equity Entrepreneur. As an experienced Angel Investment advisor, Chris shares some of his key insights on Angel Investing with Brian Perry.
Chris, you have been involved with the UK Angel Investment consultancy of Beer and Partners for a long time now, are you seeing an increase in angel investment activity?
Certainly – excepting around 9/11 and so forth, over the last several years there has been a noticeable increase in the number of opportunities coming forward. But with that goes a drop in standard – as word gets about, I suppose, there are also more hopefuls that want to raise funds without enough preparation. That’s where having a decent filtering operation can really help.
From your experience, what sort of industries appear to be the most exciting for angel investors at the moment?
Revolutionary technologies – in any sector. Of course they’re also the most high-risk, which inevitably goes with the enormous potential rewards they promise.
Regarding Due Diligence on Entrepreneurs, what is your method? How long does it normally take?
At the Business Angel (BA) level of funding, DD isn’t really practical for intermediaries. But we do owe a duty of care to both investors and entrepreneurs. So we do carry out essential basic checks on both parties, and ensure that the opportunities we promote are genuine, honest, not misleading and verifiable.
You previously mentioned the importance of Intellectual Property, what are your thoughts on how to protect this with a new venture?
NDAs. Going for full Patent Protections will be essential in due course, but often inventors are persuaded to protect product and project that are very unlikely to be commercial within the lifetime of the Patent. They’d be better off doing a patent search, and initial prototype and market testing – under NDA of course – to gauge commerciality.
What are the key factors that you like best in a Management Team?
Vision, experience, character, knowledge, capability and motivation. Doesn’t all have to be in the initial team, but does have to be acquired to go forward.
What would you say is the ideal exit strategy for any UK angel investor investing in an early-stage or seed start-up?
Any that involves a profit – the most common exit is liquidation! But for typical early stage businesses, exit for the initial investor will be through future rounds of funding or maybe a trade sale. IPOs are for the vast majority just a dream. The most sensible strategy for both investor and entrepreneur is to position the business to be attractive for Private Equity – and then engineer an auction between them and potential trade buyers, If possible!
What do you think about investing in an area outside of an Angel’s specific expertise?
The only way to get a reasonable spread in one’s portfolio is to invest widely. That inevitably will mean investing outside areas of full competence – which means that you’ll need to tag along with others who do have expertise in other areas. But that’s good: you’ll be able to help them diversify to!
You have recently created Equity Entrepreneur, what was your motivation behind this initiative?
To succeed as a BA you need knowledge, skill and experience. Equity Entrepreneur aims to fast track the experience without anyone having to risk £250,000 to get it.
Over the 15 or so years I’ve been involved in BA activity, there are two main observations that finally hit home to me.
The first is that there is a large majority of investors who never actually invest at all, or who just lose money, certainly once, maybe twice, and never repeat. There seems to be a widespread assumption that because a businessman is successful, intelligent and rich he knows what he is doing; this is often not the case.
And secondly, finding out about Private Investment is difficult – there are very few sources. Further the traditional sources of advice and expertise for these businessmen, their professional advisers, are in general, equally ignorant of a sector of activity that is below their profit horizon, and in which consequently they are also inexperienced. There is, however, often a gap between this observation and the Professional’s acknowledgement of it!
