Someone to watch over you

15 June 2007

You've got a great idea, a good team and you're on course for securing investment. But what about independent, practical advice about growing your business? Should you be seeking out a mentor?

It's a common theme among VCs that they don't just invest in ideas, they invest in people. They want to know all about your senior management team and your key players - get a feel for what drives you, how ambitious you are, how you've learned from good and bad past experiences. And they want to know whether you're benefiting from the wisdom of people who can really help drive your business forward.

That's where mentors come in. They provide advice and support to fill the gaps where entrepreneurs just don't have sufficient experience - anything from producing a business plan or presentation that does justice to your technology concept, to advising on the intricacies of licensing. Often found through a local Business Link or angel network, it's also quite common for investors to put entrepreneurs in touch with mentors themselves.

Dr Melanie Goward is investment director at NESTA Investments, which combines investment with non-financial support to help companies commercialise innovative ideas. NESTA has a pool of 60-70 mentors, described by Goward as tried and tested in a number of different roles. They can provide general business advice to help start-ups and early stage companies avoid common pitfalls. And they're also available to provide expert advice in areas such as licensing, sales and marketing, or in a particular industry sector.

NESTA-supported companies are assigned a mentor, and the organisation typically helps pay for one to three days of the mentor's time per month. Because the mentors are contracted to NESTA rather than the companies they advise, Goward argues they can give an unbiased opinion. 'They can tell a few home truths knowing they'll still get paid at the end of the day,' she says.

Mike Bowman, investment executive at E-Synergy, believes the experience mentors can provide in terms of how to build up a business is especially valuable. For example, a mentor might suggest that instead of trying to raise a large amount of capital to develop and manufacture a product, it would be better to seek less funds, develop a working product and licence it to someone else. 'It may be a better business model because it's less risky and requires less capital to get going,' he argues.

He believes many mentors are being paid to do a good job and want to be seen to be doing so - they do it for a level of enjoyment and probably do more than they're asked to do. Most have spotted the opportunity, realised the issues or problems that need fixing, and got stuck in. Generally, E-Synergy becomes involved with early stage companies on a mentoring basis when they attend g2i's Investment Readiness Workshops. Bowman says mentoring can be a good way to build a relationship and get to understand the company - and it also helps with due diligence. 'If you've learnt a bit about the team during the mentoring, it's a more solid basis for the future. It's like being engaged before you get married,' he says.

Goward at NESTA makes a similar point - but from the other side of the fence. 'Mentoring is quite a good way of trying out potential directors,' she says. If you don't like the person, it's easier to replace them if something goes wrong because you're not tied to contracts and share options. The flipside, however, is that if a company doesn't take advice from mentors on board, 'it tells us something about the management of that company'.

But as with any business relationship, there are caveats. To begin with, learning from someone else's experience is always useful, but it can also be damaging - the last thing you want is people coming in with preconceived ideas that don't work for your specific business.

Secondly, you need to bear in mind that the relationship can change. Where mentors do join the board - often as part of an investment round - the relationship changes dramatically. 'If the mentor becomes a non-executive director to represent a group of shareholders, it's a totally different role,' says Bowman. 'The training bit is very friendly, but with the investment part you want to make sure everything is done properly. You may have to make some hard decisions or even change the management to protect the investors' money.'

Finally, while it's not uncommon for mentors to take on non-executive roles, there are some who suggest they should remain separate from the business. Mick Waite is project manager at Dormen (Dorset Business Mentoring), where mentors work on a purely voluntary basis and give a totally objective view of the business. 'They're not looking to earn a fee and they have no other agenda,' he argues. 'We want the business owner to retain ownership of the business, we don't want to be seen to be going in and taking over the business.'

And Philip Tellwright, network director at the South West Angel and Investor Network (SWAIN), says a distinction should be drawn between mentoring and investing. 'A mentor should be someone who is either paid or unpaid but has no other formal relationship with the company,' he argues. Mentoring is 'an added value to members' but it's not core to the network. Besides, he argues, 'the giving of support and advice always happens in an angel environment, often with the person wearing a director's hat'.

By Billy MacInnes, Webster Buchanan Research