During troubled economic times the vulnerabilities and weaknesses within businesses are brought to sharply to the fore and only the strong will survive.
Having a solid bank of knowledge as well as financial backing from a pool of business leaders who have negotiated successful paths for their own businesses can be a lifeline for would-be entrepreneurs looking to start up or inject new life into their own companies. Business Editor Lindsey Turnbull speaks with a roundtable of representatives from the Cayman Angel Investor Network to see how they are playing a vital role in helping Cayman’s businesses become strong and resilient in this down-turned market.
In 2005 Dax Basdeo, then executive director of the Cayman Islands Investment Bureau (now chief officer in the Ministry of Finance, leading the Department of Investment and Commerce) saw the need for the pooling of resources by some of Cayman’s top entrepreneurs to create the Cayman Angel Investor Network. It was anticipated that this pooling of resources would provide would-be entrepreneurs with the technical knowledge and mentoring they needed to get their business successfully up and running as well as a capital injection to actually make it happen.
Fast forward to mid 2010, after a fluid succession of investors have come and gone, to a core of investors who have seen the programme benefit a small number of businesses who are operating successfully. There follows a discussion of how the network helps would-be Cayman entrepreneurs fly.
How did you hear about the CAIN?
Tom McCallum (investor): The idea was touted via various volunteer organisations, such as Rotary, which is how most of us heard about the network. As a business person living in Cayman for many years I liked the idea of giving back to the community in a way that best utilized my skills and experience. Getting enough members for CAIN (particularly women) has sometimes been a struggle, however, because although on paper we only require investors to give up an hour a month to attend a regular meeting, we are interacting with the businesses far more frequently and it is tough to give the commitment that is required. We are always on the look out for new investors to join CAIN.
How does the process work?
Charmaine Moss: Potential candidates are first assessed by the DCI to see if they have suitable business propositions for the CAIN investors. Once we have made this assessment we will then pass on the information to CAIN and they can interview the candidate and then make their decision as to whether they want to become involved or not.
We take a great deal of time with an entrepreneur to help structure their presentation and allow them to practice before the formal presentation. Many individuals have a fear of presenting and the practice helps to make them feel comfortable so that they can do their best in front of CAIN members. The practice is also an opportunity for us to guide them on the most salient points of the presentation so that they do not waste time at the CAIN meeting.
Given that we have a good understanding of CAIN’s needs, our role is to also ensure that they have prepared answers to the common questions they will receive.
At what stage in the cycle of a business do you normally become involved?
John Michael Foster (Investor): At the moment we have only completed investments in start-ups although we would be quite willing to assist established businesses expand as well.
How do you decide whether to invest or not?
Steve McIntosh (Investor): We look at each application on a case by case basis and decide who wants to be involved financially and for how much.
McCallum: Sometimes it takes a few meetings before we decide to become involved, over a period of a good few months. It is usually not a cut-and-dried yes or no answer.
What assistance to you actually provide the business person?
McCallum: We provide access to capital for that individual in return for a share in the business. Usually we do not provide loans and it is not the same as borrowing the funds from the bank. This is because we are looking for a return on our investment. We also provide mentoring to business owners to help guide them through the pitfalls of running your own business through to it becoming successful and sustainable.
McIntosh: a lot of the time the idea really is not sufficiently fully formed so we can assist with helping them consider issues such as the competitive environment within which they anticipate operating their business, the capital requirements they will have and the regulatory environment as well.
It sounds a bit like the BBC television Dragon’s Den whereby business people have to pitch their case to would be investors in an interview situation. Is the process similar?
McIntosh: The candidates are required to meet with us in an interview situation to pitch their case but we are much more friendly and our interaction usually takes place over a period of time during which we may meet several times to discuss their needs. Also, we are not in competition with each other to invest; we are all here to help.
What qualities are you looking for in the business proposition?
McIntosh: The most important thing is that they must come with a viable business idea, one where we can see them making a profit in two to three years time. We as investors do not want to be involved in the business much longer than that time frame.
Foster: This is a good point that Steve makes in that we are not interested in a long term investment with the business. We want to help them on the right path and then let them fly on their own.
McCallum: We write an exit option into the shareholder agreement which states the price at which the business owner can buy us out, which gives them the comfort of knowing how much this will cost, usually within two to three years of the CAIN investment. The price reflects the risks involved but it also reflects our altruistic aims – we do not want to be involved forever.
McIntosh: They must also show competent management skills. This does not necessarily mean that they have a management background but they must demonstrate an entrepreneurial spark and the willingness to work very hard for their business. This is extremely important.
When do you become involved financially?
McIntosh: Once we’ve helped the would-be entrepreneurs establish some kind of business plan they often feel they have had enough input from us and we don’t see them again. However there have been three businesses who have wanted to take the CAIN involvement to the next level and so we have been able to put in funds to help get their businesses off the ground.
What happens once financial input has been received?
McCallum: We usually nominate one individual as the business’s main point of contact at CAIN. We seek a minority share of the business which requires that investor to sit in on board meetings and regularly liaise with the business owner.
What are the barriers to success for would-be entrepreneurs?
McCallum: People frequently already have full-time jobs and see this business venture initially as something extra to this. We need all our entrepreneurs to be fully committed to the business, as we all have been to our own businesses in order to make them a success.
McIntosh: We have all been in the position of having to work 80 plus hours a week in order to make our businesses happen and it isn’t easy, particularly if you have a young family as well; however, starting up a new business does require a huge investment of time and individuals need to be prepared to work very hard.
Can you advise the businesses that you have been able to assist?
McCallum: Our first investment was in a communications company called Ktone, led by Neil de Vere. We have also helped fashion house Crown Atelier which is run by Tigerlily Hill, a Caymanian who is now based in Los Angeles, as well as Le Vejoxe Design and Arteccentrix, the new fine art gallery run by Nickola McCoy-Snell, based in Governor’s Square.
Are CAIN’s business interests limited by the size of a business? Are there businesses that are too small/large to be worthy of consideration?
McIntosh: We are pretty open-minded. That said, we have not considered an investment of less than $50,000. Typically it is up to around $200,000.
McCallum: We have certain corporate and high net worth interests on board with deep pockets and would certainly be interested in the $500,000 to $1 million range of investment, if the idea is the right one.
At the end of the day, the people and the business idea both have to be sound and the people involved need to be worthy of investment.