Dr Richard Hargreaves has written an exceptionally lucid and helpful manual not only for business angels but also entrepreneurs who seek to raise capital and build fast growing businesses.
This excellent book tackles a difficult topic that combines insight into human nature (investors and entrepreneurs under pressure is always a rich source of human interest stories) with a detailed but light touch expose on the legal, tax and investment basis that should form the bedrock of any business angel’s activity. The advice is clear, concise and eminently practical as it based on Richard’s varied investment experienced.
I have read a fair number of legal texts on terms and investment structures, but I have never felt I really understood them. In this book, I found the legal terms easy to comprehend as well as see how they can be applied. Best of all, Richard shares how seemingly innocent agreements or reasonable requests (debt for equity arrangement or extra shares for meeting profit targets) can lead to all manner of difficulties later on.
I found the explanation of why IRR (or internal rate of return) doesn’t really apply to early stage growth companies particularly useful as well as his criticism of overly complex share structures or unnecessary share options. I’ve always shared this view but struggled to express it quite as clearly as Richard does.
As an entrepreneur, I wouldn’t quite agree with Richard on all points – ie. if an entrepreneur accepts a below market rate salary – as expected – then in my book this ‘time investment’ is as valid a form of investment as a cash investment and needs to be accounted for. However, I do appreciate that Richard has clearly laid out an excellent basis for negotiation and agreement.
The book is littered with learning points – which makes it so much easier to find useful advice – and I especially enjoyed his point about controlling legal fees and that city lawyers and bankers are, in effect, an unwritten cartel. Hear, hear to that!
I recognise that the tax points are based on UK tax law, however, many of the principles set out in the book will apply in other jurisdictions too. So, from a US point of view, swap ‘the city’ for ‘wall street’ etc…
I do wholly agree with Richard that if the investors and entrepreneurs don’t trust each other then you should neither invest nor accept investment – and the benefit of Richard’s book is that a balanced agreement that works for all parties will be much easier to achieve if the parties heed his advice.
Conversely, if you use this book and fail to reach agreement, then you would be wise to walk away. Hence, I’d strongly recommend that investors and entrepreneurs agree to apply the principles in the book when negotiating investment.
This is not only a book to read and absorb, it is also a manual to get out each and every time you consider an investment or begin to seek it.
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