InterTradeIreland – Private Equity Conference – John Cavill – Growth Entrepreneurship
John Cavill, Chairman, Intermezzo Ventures
Setup a local area networking company (Logical Networks). What was good about our company? Why was it successful. 3i funded. Imported technology from US. Within three months 3i had invested in three other companies in the same space. One company had gone bankrupt, bought all support people BMW 5 series. Second company, founders fell out with each other. Third company struggled for first year, then developed some different software that was quite successful.
Finally there was our company. CAG 55%. What was the difference? Team builds success, lone entrepreneur is a myth.
Want to understand what makes a good team? Went to Henley to do doctoral research.
What research has been done around the world regarding what makes a successful team?
- The VC industry
- Entrepreneurial Capital
- New aspects of entrepreneurial research
The VC’s Dilemma
“The process of picking winners continue to challenge, baffle and mystify even the most experienced investors. Certain winners somehow fail; apparent losers sometimes win”. (Smilor 1997).
VCs have moved to investing larger sums of money in smaller numbers of businesses. Equity gap between bottom end VC investment (2m) and the emerging companies requiring less than that. Business Angels are starting to fill that gap.
15-20% will be blockbusters
23-35% will be winners
20-30% will break even
15-25% will fail (Laurie 2001).
Why do businesses fail?
Of every 100 businesses that fail, 92 will fail due to bad management, 8 will fail due to acts of God.
Management is the key driver of success? Failures: 69% failure of management, 17% external shocks, 14% flawed business model.
Lens Model: Entrepreneur/Team, Product Service, Market, Financial (business model, capital structure).
VC Human Capital Evaluation
Airline Captains – Systematic data collection/analysis
Art Critics – Snap judgement
Sponges – Soak up data non systematically
Infiltrators – Become quasi management
Prosecutors – Aggressively question management
Suitors – Woo management
Terminators – impossible to achieve – can’t measure
69% of types fall into first three.
IRR .8, .25, .20 for first three.
Usage rates : 13%, 30%, 26%
Attributes of Entrepreneurs
Entrepreneurs like pornography
creativity innovation vs general management skills, business know how, networks
Bottom left : Promoter, Bottom right: Manager administrator, Top right: Inventor, Top Left: Entrepreneur
Many different definitions of Entrepreneur.
Gazelles and Mice. Gazelles, consistent growth of 20% a year for 4 years. Mice, learnt to survive, work hard to feed themselves, remain stable in size and are comfortable with their status.
Only 3% of Entrepreneurial businesses are Gazelles. Drop off of Gazelle status is dramatic over the next three years.
Enterprising person – Create a small or micro business
Entrepreneur – Create a significant business
The growth entrepreneur – Create a sustained high growth business
Move from founder to leader.
New group : The Ultrapreneur, create a hypergrowth business, growth rates of 50% to 500% a year.
- Need for achievement
- Internal Locus of control – I control my destiny
- Risk taking
- Tolerance of ambiguity
- Need for autonomy
- Self Confidence
- High energy levels
Entrepreneurial Team Dynamics:
- Educational background
- Parent(s) entrepreneurs
- Prior work experience
- Prior joint work experience (worked together in mgmt team before)
- Prior startup experience
- Balance of operational skills
- Established networks
Largest number of variables are in the team and the lead entrepreneur.
Todays workforce is being judged by a new yardstick..not just by how smart we are, or by our training and expertise, but also how we handle ourselves with each other. (EQ)
Success profiles are dominated by High EQ individuals. Failing profiles are driven by low EQ.
Experience + EQ is the key determinant of success.
Left brain vs Right brain. Right brain individuals tend to be entrepreneurs.
Big list, all dyslexic. Jobs, Churchill, Rockefeller, Patton, Branson, Ford, Einstein, Newton.
During a hurricane even turkeys can fly.
DNA link to entrepreneur ship, identical twins study.
High testosterone, more likely to be entrepreneurial.
Business plan in one hand, urine sample in the other.