Christopher V. Flett

The term joint venture gets thrown around a lot, but most people are not really clear with it’s meaning or how it works.

In it’s truest form, a joint venture or JV is two or more companies coming together to build a business model and share in the profits. These companies bring together a diverse skill set, but remain autonomous from one another. Sometimes the JV is structured through an incorporated company (for liability issues) but more times than not, the companies simply form a relationship through a contract and get to work.

This can be a great model to look at if you have one side of a business model, but not the other. Maybe you have intellectual property, but not the market. Or you have the design, but not the manufacturing capability. Maybe you have anew business model, but lack the credibility because you are new. In this model each individual company covers their own costs and splits revenues accordingly.

JVs can be a great business model but require clear expectations from each participating party.

Now get at it!

The last couple of years, I’ve been building up a portfolio of companies that:

• Have a distinct offering within three niche markets
• Have the potential of being cash flow positive in a short amount of time
• Have little or no substantial debt
• Target professional women or do something to support women in the economy
• Are run by someone who understands their markets and has the horsepower to get the job done
• Can the overall idea, or any of the components, be licenced?

In exchange for an equity stake and preferred position on dividend payout, I leverage capital. Financial capital, intellectual capital, human capital, systems, networks, and know how. This type of business is often called Venture Capital. This is wrong. The work I do in this type of model is Angel Investment. People use the terms back and forth so I thought I’d lay it out once and for all. After completing 25+ of these deals, I thought that I would take a moment to illustrate the difference.

Venture Capital is someone like me using a pool of money owned by others, and leveraging an equity stake in a company. This is done to grow, flip, transform, or be amalgamated into something else. The money is almost always held in a ‘fund’ that investors put their financial resources into.  Think of it like a capitalist co-op.   There’s a lot more to it, but that is the simple definition.

.Angel investment is an individual like me using my own capital, knowledge, contacts, ideas, systems, etc. to take an equity stake in a company and co-pilot its development into a profitable model. Dragon’s Den makes itself out to be Venture Capital, but it is really Angel Investment. I found a great reference on WIkipedia that lays it out:

Angel investments bear extremely high risk and are usually subject to dilution from future investment rounds. As such, they require a very high return on investment. Because a large percentage of angel investments are lost completely when early stage companies fail, professional angel investors seek investments that have the potential to return at least 10 or more times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition. Current ‘best practices’ suggest that angels might do better setting their sights even higher, looking for companies that will have at least the potential to provide a 20x-30x return over a five- to seven-year holding period. After taking into account the need to cover failed investments and the multi-year holding time for even the successful ones, however, the actual effective internal rate of return for a typical successful portfolio of angel investments is, in reality, typically as ‘low’ as 20-30%

When an Angel investor gets into play, not only could they waste their time, money, and systems, but they risk damaging their reputation with too many failed companies. That’s why Angels consider the personality as much as anything else when determining fit within their portfolio. A good person that is bad at business can be fixed; a bad person that is good at business is cancer to an Angel Investor.

Due diligence is a part of business that Angels do to try to weed out the good ideas by bad people/bad ideas by good people.

For existing businesses, I look at:

• financial modeling
• exit opportunity analysis
• research of the industry
• validation of market size
• competitive analysis
• site visits, and etc
• As a rule, I don’t buy debt as an Angel unless the model is making positive cashflow

For new businesses, I look at:

• target market identification and size
• competitive analysis
• competencies of the people involved
• industry trends
• cost of penetration
• the personality of the person with the idea (Can they get it done? Can they survive while the company is growing? Are they committed? Are they an employee (mindset) pretending to be and entrepreneur? Will they listen to the advice you give them or are they going to fight without knowing?)

At the end of the day, it is a gut cheque (using your intuition). Does this company make sense at this time, with this person, in these markets, following this plan? If all lines up, I pull the trigger. If I’m not sure, I start to pump the brakes, and if something feels really off, I hit the kill switch.

South Beach, Florida is somewhere that feels right for me. I’ve written two books there and as soon as I get of the plane at MIA, it seems that I breath deeper, clarity increases, and I’m ready to create something. When I first started Think Tank Communications, I used to work seven days a week. After a year of that, I was running on empty. We took a week off and it was the best thing I could have done. I had time to clear my head, put things in perspective, and have a breather.

I normally take 1-3 months off each year for mini-vacations/time away to think. Last year, I didn’t really take time out and by the end of 2009, I was really needing some time off. With the Olympics coming, there is no better time to escape Vancouver. Long story short, I’m going to take 4-6 weeks off to hit Florida for some quick business meetings, and then on to Barbados. There is nothing like getting out of your regular environment and getting perspective. It’s likely I’m going to sneak back a bit early to do some work in Seattle with a new colleague, but still, time in a hammock does the body good.

I’m curious. Where do you go to take some time off?

C/

I have assigned a class that I’m teaching (CampusCEO) at UBC to watch Dragon’s Den (CBC) and Shark Tank (ABC) and report back on what they are seeing business owners do during funding pitches. These shows should be mandatory for ALL business professionals. There are some good lessons to be found in these programs.  Here is my commentary from this week’s Shark Tank.

Lipstick Woman: Awesome idea. Barbara got girly and started to pout when two of the sharks tried to muscle her out. Her good sense let her bypass the emotion and wiggle in on the deal. She had to have the infomercial shark in on this deal and if I were her, I would have given up 90% of the company, just to have 10% of a product that is selling on QVC. Remember that she had sales only of $6,000.00 and was doing valuation strictly on potential.

Captain Ice Cream was a captain twat. He makes not money, but wants to franchise. Goes to show that you don’t focus on the money, you’ll get ripped apart. The Sharks hated this guy and I did too.Plus, there’s something creepy about a middle aged man selling ice cream to kids.

Cafinator: I loved this guy, but he took a stupid deal. Dumb, dumb, dumb. He allowed them an option (that they didn’t pay for) on his idea. IF the company can sell, the dragon (Kevin) can buy into the company. It’s like letting someone drive your car without making payments, paying for gas, or insurance. This guy was a great presenter and I like the idea of playing the different sugar suppliers off each other. Good idea, but his novice experience showed through by allowing someone to have control of his company WITHOUT any money.

Coffee Lawyer: Obvious brain injury or something on the part of the husband. He’s giving legal advice but can’t remember what the hell he does or his presentation and needs her to prompt him. Wife is a bit off as well. They don’t know what the hell they are doing. This sucks.  Wife gets pissy because she feels like she is being criticized. The husband and wife are talking over each other. They keep on eroding their presentation. The sharks are ripping them apart. This is a car accident. The sharks have no intention of funding them.  They are just playing with them. For a franchise to work, it has to have the support system in place.

The only good deal was the first deal. A woman who has worked it, shows a gap she fills in the market, and is committed to making it happen. Worth the one hour.