The news has been full of discussion around the sale of Instagram to Facebook for around $1billion. Good luck to them. Launched in October 2010 Instagram is of course a photo ap (application) for mobile devices and I am sure will fit in well with Facebook. Saves Facebook doing it themselves so why not buy a proven tool that works and has gathered a following? 

Actually, the last two phrases there are key... "it works" and... "it has a following" (clients). Whether the price is crazy or not isnt the issue for me its that Instagram has built a business that has value, or at least one company thinks it has (same thing). Emphasis there on the word "business" and "Value".

All too often I see developers with bright ideas who talk about a product and if I am lucky, users. What gets me interested is the business model and indeed do you understand what it takes to develop the business not the product. I kind of take the product as read and I think many investors do too.

The moral of the story is if you want early stage capital; dont forget to worry about developing the business, dont come to investors too early (other reasons for that... include value and price you pay for the money, a whole other subject in itself) and lastly get some scale going. Customers, users, clients, and preferably some who might pay something too.

If you dont then your just another ap in the sea that is Android Market or the Apple lot and I might as well back 32 red on the casino. So well done anyone who did back Instagram. Place your bets please everyone and founders note I dont play the lottery.

Setting up a company couldn’t be easier. Just register one or buy one of the many shell companies and a set of standard articles. There are also many advisors; some good value others expensive who can guide you through setup.

The most common bits new entrepreneurs forget about is the baggage that comes automatically and un-seen when you start the business. Too many don’t understand the duties of a Director and how hard it is to hire and fire staff. Actually, the first bit is almost too easy its getting them out again if you need to that can be tough.

Health and safety, equal opportunities, pensions, insurance, leases and agreements and don’t forget to ensure you have or have checked whether you need a “Bribery Policy”. Almost forgot the “Working Time Directive”… can you tell me you budding Entrepreneurs what it says? You will need to know!

I’m all for rights of employees and safety but it’s gone too far and it’s a nightmare few realise when they start out in business. True it only hurts when you get it wrong but ignorance of the law is no excuse (quite right) but one genuine mistake can bankrupt a business with fines or court and or legal costs.

Government talks about de-regulation and easing the load on the small business, Vince Cable mentioned it again last week. Problem is, now I have been in business for almost 30 years I can’t recall ANY regulations being abolished or red tape removed, can anyone put me right?

Tony Blair talked about it too, nothing seemed to happen. So less talk you politicians and get rid of one for me, please. Also if you are starting a business, don’t get caught out, learn the laws that govern you and when you do, it’s all part of being an entrepreneur!

The longer I work in and around venture capital the more I am amazed by how poor are the business plans presented when seeking cash. The traps are there and most fall into them. The largest and still most common mistakes made centre around spending too much time talking about the product and even the market without explaining how the business works.

Lets dig a bit more on that; what is an investor getting in return for his or her cash? Well a slice of your business. So why are so many people not explaining how the business works, how it makes money, how it gets money from customers, who and what it pays out to make and sell to the customer? The list is long but you get the idea. Of course I should add the investor wants a return too, yes, some forget that as well.

Just as important there seems to be a blind unstated assumption that if you put some figures in about the market that this explains why people will buy from you? From bitter experience that never works. The real world is wonderfully odd diverse and consumers and even businesses don't make rational decisions, well not often.

The clue in the above is, test don't assume. Test the concept, test the product, test on the consumer and test again. In short if you have to make assumptions on who and how people will buy a new idea or product at least back up any assumptions and test market when you can, do real market research when you cant. Then, when you cant or haven't researched yet say what you will do when you get round to it...

Other things in plans make me mad, but get at least these bits right and you will make an old VC very happy!

On the 21^st October 2011 Groupon filed a $540 million IPO (initial share issue) in the USA. Around, I think, 5% of the company. It values the company at about half the expected $25bn, around $11.4bn. Still not bad when you consider it’s about 3 years old.

Groupon made a slight mistake in reporting its revenues and cut the figure from $713m to $313m. Now if you or I made an error like that we would be in trouble but not them it seems. The economic climate might not have helped the valuation but loosing two Chief Operating Officers wasn’t good either.

This is against a background where Groupon is still lossmaking; so it’s business as usual, otherwise known as Jam tomorrow. Still, as the Times reported on Saturday its third quarter loss was only $10.6m down from $101.2m in the second quarter, right direction at least. The caution is despite revenue increases of 10% to $430m sales only rose 33%. Still, not bad?

Others are looking on and it will be interesting to see if this floatation re-starts the IPO market. We will have to see, the bubble goes on…

I might regret this. I have already put out a few "Tweets" on this subject and been accussed of being sexist as I think women make better entrepreneurs than men. Well here goes... my shot an explaining myself. Before I start a word to the women reading this; what you often lack, to start with anyway, is confidence. Sure some (same for men actually) are naturals when it comes to public speaking, networking and presenting the in your face side of getting noticed and communicating an idea.

However, on a straw pole of one (me) more women who have presented to me with my VC hat on lack some of that confidence and conviction when presenting. Now thats a shame as the drive and passion for the idea is still there and the women business people and scientists I have worked with are exceptional judges of character, highly analytical and consider problems from more angles and generally put more into the decisions and management of the business than the men. Told you I was going to be unpopular ! I guess its down to organisational skills and the grip they hold on the business. Many new male entrepreneurs aquire this but somehow the women just seem to get it early on and it can often make a key difference in the crucial make or break first 3 years of a new business.

Well before I dig an even deeper hole for myself with my own gender I will end with a recommendation to two of the best women entrepreneurs I have ever read about. Partly as I cant talk about ones I know through the day job and partly as, if you want to learn more, both have written good books worth a read whether your man or women. Anita Roddick ( the Book is "Body and Soul" Ebury Press/randon House Group 1991... it may be out of print but try Amazon) and Shara Hashemi and I admit that one is a joint effort with Bobby Hashemi ("anyone can do it" Capstone press 2002).

Oh, in case you dont know thats the "Body Shop" and "Coffee Republic" respectively. And I might be showing my age but I read a lot of this stuff in my work and these still stand out. So sisters please have the courage to just do it.

Of course it does but what are you going to to do about it? Doom Gloom and double dip...

Its not just a good time to start a business, with the right strategy and plan its a good time to expand. Key is spotting the opportunities, having the courage to go for them and ensuring you have the finance and talent around you to make it work. Risky yes, high streets are loosing businesses but I also see others steping in and increasing market share.

Also, some markets, oil and gas, energy infrastructure and most parts of the defence industry are keeping suppliers busy, some hitting all time highs. I do worry about the growth of new starts in IT, an incresing number with only incremental innovation, not good.But others with sound business models who are prepared to prove they can gain some market traction will attract investment.

So is it time to follow the old verse...when the going get tough the tough just do it... or something like that !

All too often, with my venture capital hat on, I see talent entrepreneurs presenting great ideas in poor business plans. Worse; they demonstrate such a lack of understanding of the basics of business that I have no choice but to reject them. A pity but investors don't have the remit or time to sort out an under-prepared or poorly communicated business idea.

The number of times I hear people saying, "...yes but its a great idea...". I may even agree but what am I supposed to do about it? Investors back the whole business not the idea. If you cant prove the business is there and well sorted people like me cant back it, no use getting cross about it.

In some quarters its fashionable to understate the importance of a good business plan saying the plan is out of date as soon as its done and means your " in-flexible" , the "market moves too fast these days" ...etc.

This maybe true; but all good vc types know you need to be flexible and that plans don't survive contact with the market. Its just you lot miss the point. A good plan shows us you know what your doing, that you have the knowledge in your team to make an idea work and it demonstrates you can handle change and risk and failures and make it work.

So if you are worried you haven't got a good plan or your new to this, don't waste your idea get some help, or the chances are you wont get investment. I like investing honest but you need to help me help you.

Strange times. The last few months have seen conflicting economic news, are we out of recession, poor US data, slowdown in consumer spending in the UK but Governments saying we are out of recession.

Me, well I'm only taking my own advice at the moment; keep your costs tight, your cusomers tighter and get on with winning new business.

That also applies to complete new starts and new entrepreneurs just setting up the business. The only difference is the clamour of well meaning advice some free some definitely not. The trick people is same as ever; if its advice on legal matters and finance, ask what experience they have that gives them the right to advise you.

Lastly, before I go back out into the rain, make sure you pay something for the advice. Money costs money, I have said it before but it is a buyers market just now and free advice/grants are disappearing. No great loss in some respects, as much of it wasnt that good. But if you have the courage to start and stick with it you will get good value from the advisors and investors too as they need you too you know... they are after all mostly small businesses themselves.

I am constantly amazed by people complaining that they dont know how much capital they want to raise or that they havent quite completed their plans so wont yet talk to an investor.

Talking to an investor is one of the best ways of firming up on what you might need and your strategy. Only problem might be finding an investor who will talk to you! Thats why it pays to research a little and find investors and funds that are used to small businesses, new starts and entrepreneurs.

Its also possibly a good guide to a vc; and whether you want to work with them, if they wont give you the tiime of day without a completed plan maybe they are not for you?

In any event whether you do decide to bug an investor early or find a good advisor or mentor do take the plunge as nothing ever reaches perfection. I know some who seem stuck on their plans for fear they are not quite right yet.

Sometimes good is good enough. You have to test a product sometime, same for your plans. So contact an investor, they are out there and the best ones will talk.

Yesterday an experienced entrepreneur/businessman friend of mine asked me to define what "corporate finance" actually means. We were discussing raising investment and in that context a "corporate finance" advisor should be someone who actually helps you identify investors suited to the financial needs and potential of your business and then takes you through the deal to securing the investment.

Why do you need one? As I have observed before, and speaking as a someone with two businesses as well as a venture capitalist, you need them as unless you have raised capital before you are probably ill prepared. Too many entrepreneurs present poor business plans that could have been sorted if someone was advising you who knew the venture capital proposition and what investors look for in a business. It a competitive world out there for capital.

That does not mean the business plan should be written by a corporate finance advisor. You have to write and own the strategy and plan but if you don't engage a suitable advisor early on your strategy, financial needs and potential returns may not meet venture capital style investment requirements and you are wasting your time, and mine!

Of course Finance Tree provides "corporate finance" so I would say that wouldn't I; well yes but that is one reason I created Finance Tree in the first place, to help provide appropriate advice for people seeking investment. It also makes it easier for an investor of course but the whole investment business has to be win-win as investors (unlike banks) enter into a high risk partnership with you and so become key to your success as you are to theirs.

The other problem here is you are going to have to pay for the advice, some up front perhaps but at least a success fee when securing the investment. Don't complain, its a fact of life money costs money and advisors need to earn a living. Also these days the public grants for business advice are on the decline so do plan to spend time and money on raising money.

Also remember, you get what you pay for so shop around and ask what experience and track record your potential advisor has on actually raising money; I'm not talking consultants who write business plans here I mean professional, qualified corporate finance people. Having said that also watch for firms charging too much especially when raising your first few hundred thousand.

Maybe becasue its a Sunday and I have been reading the papers and catching up on the week but I have a growing unease about business. Actually its about business plans and "investment readiness", whatever that means?

Confession first; I have created and managed "investment readiness" programmes more than once. However, what we put into these is stuff that looks at what investors want and what you have to consider when starting and growing a business. My unease stems from the growingpopulation of consultants offering to write business plans that are "investor ready". Two points: one, the only person that can tell you if your plan is investor ready and that is an investor pleading to invest in you; two, its not the business plan that needs to be investor ready its the business.

My point is investors are well used to seeing beneath the best written most comprehensive business plan to the raw business underneath. Thats what you should concentrate on getting right not the plan or you are wasting your time (and mine). That doesnt mean I like over wordy, badly presented or shoddy plans and I see enough of these. It just means that even in bad plans you can spot a terrific idea and sometimes see the start of a great management team. What I do want is to see that you wrote the plan yourself and that you can carry it out a long time after the consultant has retired to the beach with your cash. Which reminds me, the best advisors are ones who stay with you afterwards and become part of the team.

Sound like I am doing my team at Finance Tree out of a job? Hope not as the last one to raise capital for a company is still with them as their finance director type and in any case he didnt write the plan the company did; he just made sure it met investors expectations.

An article in the Times newspaper today caught my eye, "banks reproached by eBay entrepreneurs". Basically eBay asked 160,000 ebay entrepreneurs who trade using the all encompassing auction website about their current experiences with their banks. Specifically their experiences related to arranging loans. The conclusions were not good news for the banks. A large number of small businesses using eBay reported they were unable to access loans and had to rely on expensive overdrafts, almost 40% were unable to access finance.

As you might expect the British Bankers Assocaition "repudiated the findings" of the survey; they claim Banks approve 85 % of credit applications. Well I have a feeling both are right. Why I hear you ask? Well I suspect that the majority of the sorts of businesses using eBay to trade (not all but most) would not be able to meet the lending criteria of banks even in better times.

However, if you look at it the other way lets assume a good number of ebay merchant/entrepreneurs are businesses of some scale and would meet the lending criteria. I suspect many are put off actually applying for a loan at present when the banks inform them of the criteria and guarantees (personal) that are required in many cases. So they dont progress all the way to actual loan applications so the banks may well be approving 85% that get that far, its just they are putting off many from even trying.

Conclusion? Well I think all this points to is we still have a problem getting capital into small entrepreneurial businesses, and I am not sure I blame the banks these days. Banks dont take and should not take serious risks, leave that to venture capital. What we need is more early stage venture capital aimed at very small businesses, not more bank loans.

It seems all the rage on some blogs, especially in the USA at the moment to criticise venture capital. Of course its a big industry and covers a wide range of players. However what I dont understand is early stage venture capital being criticised as greedy or to be avoided at all costs.

I'm the first to point out that venture capital is an expensive form of finance and if you can set-up and grow a business without it great. Some internet and web entrepreneurs would indeed be well advised to "bootstrap" and get going without vc or Angel finance, at least till they can prove a following, a business model or just show traction in a market.

Such advice ia however  hard for some technology starts that need investment of some sort as they are going to need to patent devices or processes, build and test prototypes. Through all this they may not have anything to sell, often for some years. For them, short of the increasingly rare grants they might attract, venture capital is what they need or almost all there is out there.

Further, people forget or never look at, the risk in venture investing, which of course balances out the high returns a vc might get on some of its investments. Most venture capital, despite clever use these days of legal agreements and loan and other instruments in the deal, is still un-secured lending. Or put it another way if you go bust we loose most if not all our investment.

There are also, sadly, too few venture capital funds focussed on real early stage (sub £1m or $2m investments). The main reason for this is the even higher risk of new-start and spin-outs and poor track record of some funds due to the additional risk in the very early stage stuff. Some reports and blogs are critical of such funds saying they are not "commecial" and dont make real-world returns. Well the fact is these funds are often set up with a double bottom-line or dual objective. Simply, they have to help economic development and fill a gap in the market as well as hit a financial return.

So please next time you hear someone complain about venture capital, especially early stage send them to me and lets have an informed debate.