Money Matters

Scouting investors for startups

By Richard Branson
Mon, 09, 18

Q: How does an entrepreneur preparing to launch a business go about choosing the right partners? — Allan Kahoya, Kenya

Q: How does an entrepreneur preparing to launch a business go about choosing the right partners?

— Allan Kahoya, Kenya

A: Entrepreneurs often have a tough time finding someone to fund their venture; many fail to do so but go ahead with the launch anyway, and then they run out of cash. Finding a reliable source of startup capital is likely to be fundamental to your business’s success. If you can fund it yourself, that’s terrific. If a partner is able to provide funding, then that can work, too.

At the start of my career, I made a conscious effort not to bring on any financial partners, as I wanted to hold all the equity in my businesses. My friends and I worked hard to keep our businesses going using only the cash they generated. For our first business, Student magazine, we did all we could to sell advertising to pay the bills. When we started Virgin Records, we handed out leaflets to promote our shops.

This meant that our expansion was slightly slower than we would have liked, but it also meant that I could reward my colleagues with equity in the company. I was free to steer the business in any direction I wanted. This gave me freedom to move on opportunities quickly and also to make tough decisions without delay or distraction.

The adventure of our early years attracted employees and partners who were drawn by our spirit and sense of fun. Reflecting on my choices for partners in the music business, I remember they were picked for very practical reasons. One had the biggest record collection I knew of; another could add and subtract better than me; another person always seemed to be able to answer my every question. Over the years, my partnerships and businesses have grown more sophisticated. Virgin has since joined with many different types of organisations, from large multinationals to professional investors to entrepreneurial management teams looking to wield the Virgin brand as they take on a market.

Our experience has shown that while your prospective partner’s ability to fund the venture is important, it is not the essential quality that will sustain the relationship and the business in the long term.

When you are evaluating a proposed partnership, do not focus only on the capital you need to kick-start your business. Ask: Will this person or group give us the space and time we need to build a great business? Bear in mind that a dictatorial financial partner can dim the spirit and enthusiasm of a new enterprise, muffling the spark that prompted you to launch the project — the spark that is most likely to make your venture different from your competitors’.

I have found that our partnerships at Virgin turn out best when we find an investor who takes a minority stake in a venture and provides capital and support, but leaves us to run the business and hire key employees.

We have created some great partnerships through Virgin’s mobile phone businesses. In most cases, we found a mobile telecom operator who wanted to tap into the Virgin brand’s strong appeal in order to reach a new section of the market. The telecom would provide the cellular network and, in some cases, some capital; we provided the expertise, branding and people needed to make the new business a reality.

When the situation has been reversed and Virgin has partnered with a small management team ready to take on a new market sector or territory, I like to think that we have held true to our principles, and given our partners the time, space and capital they needed to build their businesses.

Overall, you need to ensure that your people are inspired and have the freedom to be creative. After all, the success of your new business depends upon your most important partnership: the one with your staff.

If you get this partnership right, your chances of success are much higher. Just as you will need the freedom to build your company according to your vision, your employees will need the freedom to develop their own areas according to the requirements of your customers. Whether or not they will have this independence, which is integral to the business’s future success, depends upon your choice of financial partner.

So remember, a partner with money is very useful, but a partner who will also provide you and your team with the space, time and freedom needed to build the business is a true friend — and that friendship will stand the test of time.

© 2018 Richard Branson (Distributed by The New York Times Syndicate)