Eileen has held senior leadership roles at Yahoo!, Skype, PalmSource, Openwave, Sun Microsystems, Apple and Verizon Wireless. She is currently involved in establishing White Bear Yard in London for technology innovation and startups, Eileen is also an advisor to Ambient Sound Investments.

What made you decide to become a business angel?
After Skype I teamed up to work with the founding engineers again, who had set up a small early stage venture fund, Ambient Sound Investments (www.asi.ee), and through the course of evaluating potential investments for them I realised there were certain projects or teams that I wanted to personally support – even if ASI elected not to.  It’s a habit or tendency I’ve been trying to break ever since…!

What do you look for in a business you decide to invest in?
The most important facets of a business I would invest in are its founding team – and the people behind it, starting it and/or also supporting it.  I think life is too short – and there are too many interesting projects out there – to spend one’s time with people who don’t somehow enhance your working/general life and day to day interactions.

How important has your expertise in technology been in helping you choose the right businesses?
I believe that it’s been helpful, but you never do know what you don’t know, so I may actually not have as much expertise as I’d like to think!  I feel that it helps the most in being able to relate to technology founders and in assessing the challenges and decision points in building and growing an early-stage technology business.  By the same token, I try to only evaluate businesses in which I have some basic level of understanding, so for example I would stay away from robotics or artificial intelligence, genomes or an area in which I had no understanding.

Should anyone who hopes to invest in this area have the right technical knowledge to help them make the right decision?
I believe it helps, but with early-stage investment decisions, one’s gut and intuition is often what makes the final call.  So whatever data points will help to influence that are always helpful.  Perhaps sometimes the people (and existing support around those people/team) are enough.

What do you think will be the next big thing in Internet technology?
If I knew that I’d be strictly focused on that – and not investing in or working on anything else!  That said, I don’t know what I feel will bring the biggest change from a “technology point of view”, but I think a lot of opportunities lie in how the technology will be applied, consumed or impact on existing commercial models and products/services.

Is now a good time to start a business in the UK?
I think it’s always a good time to start a business, but particularly now as there is a talent pool established and some tastes of success to whet entrepreneurs, employees and investors’ appetites.

According to the British Business Angels Association only 5% of business angels in the UK are women, why do you think the numbers are so low?
I couldn’t really say and have wondered the same thing myself, but at the same time I feel it’s important to take this statistic into context with the larger business world.  So for example, as I understand it, only 3% of FTSE 100 companies are run by women.  If that’s the case, perhaps the fact that 5% of business angels are female is a positive sign.  Women’s participation/involvement in business (either as employees/team members, executive leaders, directors, advisors or investors) in general needs to be considered – and once that grows, so will the proportion of business angels I’m sure.

What advice would you give to other women looking to get involved in angel investing?
Please go ahead and get started, and feel free to contact me if you want any encouragement or suggestions on where or how!

http://www.linkedin.com/in/eileenburbidge, Twitter handle @eileentso

White Bear Yard website: http://whitebearyard.com

Warren Buffett on a visit to Kansas University Business School

Have you ever asked yourself what would Warren Buffett do if he were a Business Angel?
 
Well, it might be a bit hard to ask Mr Buffett along to attend our investments seminars, so instead we have attempted to summarise the rules Warren Buffett applies to his investments to see if we can apply that to business angel investing?

Yes, we can. With a few adaptations.

From Buffett’s many rules and ideas our take on his work is that it can be summarised very briefly as follows

• lose no money (nor shareholder value)
• buy franchise business (with pricing power)
• align incentives (between management and shareholders)

 

Lose no Money

means
Buy at fair price (neither too much nor too little). Too much and you’ll never make a return, too little and the sellers (who will probably remain in or retain an interest in the business) will resent your presence and are likely to undermine the financial outcome for everyone. What is a fair price? It has to be based on the likely throw-off of cash (net of capital reinvestment required to maintain the business, its assets and its brand) over the next 20 years. It is difficult to assess early stage business values, but that is no reason not to try and Buffett’s method is as good as any and provides a clear starting place.

There are two tricks when assessing future cashflow returns

1. Firstly, most start-up business plans predict steady growth over years one to three and then exponential profit growth. This just means that future costs are unknown, not that the business is likely to experience 80 or 90% profit margins. Nearly all businesses, especially if they wish to maintain growth, will revert to profit margins at or below 30% of revenue. Many mature businesses will have much lower profit margins but are much more stable and reliable. Therefore, use the industry standard profit margin for future returns and never above 30%.
2. Secondly, most businesses forget that they need to re-invest a given amount of cash into the business simply to maintain its value. A good example is brand advertising, which does not have a direct cash generative benefit, but without it the long term ability of the business to grow revenue will be harmed.

Lose no Money

also means
Don’t speculate - but place your money on sure bets at good prices. However, this is not the environment of the business angel investor – who is in early investment sector. The truth is that the early stage investment market is not a sector that Buffett works in. However, the principle can still be applied – albeit that you accept that you are in a speculative environment. iBusiness Angel has written before on how to reduce the chances of losing your money- and it is important to keep these ideas at the front of your mind before making any investment. So Business Angels need to consider reducing the risk of a loss whilst Buffett can focus on ‘Lose no Money’.

Lose no Money

also means
Invest in businesses that you understand. That means that if your knowledge is based on retail businesses, don’t invest in a tech start up, unless it has specific application to the sector that you know about. Buffett famously didn’t invest in Microsoft nor the tech boom. He made his money by sticking to what he knew well so that he could judge a good opportunity clearly and avoid the bad investment options.

Franchise business means
The business must be able to maintain its price position. Hence, it must be creating and delivering a product or service that is unique and protected by intellectual property rights or geography. Without this protection, whatever the business offers is vulnerable to´’cheap immitators’ or ‘me too’ competitors which might not put the firm out of business but will prevent the business maintaining its margin and therefore damaging shareholder value (see point 1 above).

Aligned incentives means
The incentives of the shareholders must be the same as the investors. This is often the case at the beginning of the start up, but if the management start paying themselves large salaries, then their incentive will no longer be to sell the shares but to hang onto the job. The control of future remuneration by shareholders – independent of the management – is critical for any start-up in its middle years. This control needs to be set up right (ie to ensure that shareholders can keep the incentives balanced or have an option to sellout) and it needs to be set up before the business angel invests.

Early Stage investors who can adapt Buffetts rules and principles and apply them to Business Angel Investing stand a far greater chance of success.

This approach does, of course, require a more systematic approach to investing – some might call it ‘professional’ – but the evidence is that this steady handed and cool headed approach is the most successful. And, for the epitome of a cool headed investor, we need look no further than Warren Buffett.

Ps. We’d strongly recommend you keep a copy of Mr Buffett’s thoughts and essays.

There are many books on Buffett, but there is nothing like going directly to the source yourself. The best of the bunch has to be The Essays of Warren Buffett: Lessons for Investors and Managers.