Elizabeth Perry/White Bull:
You have been investing in companies at various stages for decades now. How have you survived the economic crisis and challenges over the past few years?
Sherry Coutu:
I think the economic crisis has meant that forming syndicates - fast growing companies in your portfolio that are doing well - is more difficult and therefore, instead of investing in lots of new businesses, and assuming that everything is going to go fine, we’re reserving more money for follow-on investments. Even the most amazing businesses have had syndicates fall apart which means two things: One, when my companies are fund raising I generally get involved and introduce them to people who can help. … And the second is that often you’ll get involved in more bridges.
WB:
In Barcelona, we’ll be discussing the Exit. What do you do to help prepare your companies for that stage of the game?
SC:
That’s really the responsibility of the board. You need to stay on top of it all and even initiate discussions with people who are likely to purchase you.
You also need to stay organized from day one. Taking the example of the company we recently exited, from the first day … from seed investment, we were making sure the paperwork was 100 percent sorted out. We made sure that there was a due diligence file. In other words, you need to be sure that your documentation is in order. In the end, if you can’t produce the information that your acquirer needs, they’ll get Cold Feet!
The other thing is not making businesses too complex. Some businesses we choose not to go into … financial services advisory, for instance. We chose not to enter into that business because we thought we would be acquired by large publishing company, and any large publishing company isn’t going to want to take on a regulated entity. Either they would just say no, or say that we needed to get rid of the advisory part before they came in. …. So we choose products and the way the businesses would expand so that they would fit neatly and tidily into another entity.
Then, I think understanding and knowing well the people and companies who are likely candidates for acquisition is really important. It’s good to continue to have conversations with them and network with a number of companies in any market you might go into. … In other words, there wouldn’t be just one Exit plan, because that doesn’t give you any options. If there’s only one path to Exit, then anything that gets in the way could upset that path.
You have to make sure that there’s a healthy competitive environment … that there are competing entities that would want to have you. And you have to time your conversations and make sure you know who you feel comfortable with, because when there are bids on the table, ideally you will want to take the one that has the best cultural fit.
The other thing you want to do is make sure your corporate structure is “clean” and provides you with the ability to Exit. … I know of one company for example who had taken an investment from a hedge fund. The hedge fund didn’t want this company to IPO because they didn’t want the transparency. … Essentially, one of their shareholders just vetoed it. So, this to say, make sure the path to Exit isn’t blocked by anything written in the shareholders’ agreement.
WB:
What are some of the characteristics of a strong candidate for investment? What do you look for?
SC:
Well, as you know, I’m Canadian, so here’s an analogy about hockey: As a hockey player, you go to where the puck is going to be. I look at potential investments that way. I look at where they’re going to be, and ask the question: Do I believe it is going to be big? … I have to believe that what they’re describing is actually going to unfold.
Also, does the team have what it takes? If not, can they create the team that can do what it takes? In the end, there has to be a team. It’s hugely important. How do they talk about filling the gaps? Can the team get the puck into the goal, so to speak? … Some people are programmed as individuals. Some are not. But I believe there is never just one star. Angel investors are generally pretty well networked. We can help fill the gaps on the teams as long as we know what they are. It is important for the entrepreneur to know that it’s the team that is going to make it work … not just one person’s will.
Another thing that comes to mind is the G-score. Chris Shipley and Mike Sigal at Guidewire Group have come up with a great standard … a way to measure/rank early stage companies. When I was studying at Harvard Business School, I put together a matrix that was quite complex. … I used it when I was teaching at London Business School. When Mike was telling me about their G/Score, I just said, well, it would have to compare to this handy-dandy-fantastic opportunity evaluation matrix that I’ve worked on for the last 15 years! Then, I giggled when I saw it because it was very similar, yet but much simpler and easier to understand. For me the tool is not just for investors, but a fabulous way to help entrepreneurs think about what they need to do to make themselves better candidates for investment, and to give themselves the power to navigate through tricky industry structure from beginning to end.
I think the most important question for any startup, though, is “Is what they’re aiming for going to change the world somehow? Is it going to make it a better place?”
WB:
Speaking of making a difference, you are involved in some charitable organizations as well. How do they fit in?
SC:
I’m on the board of Cancer Research UK, where, as an entrepreneur, I can help them behave more entrepreneurially. “My Projects” took inspiration from Kiva, an organization that bands together bunches of people who give loans to entrepreneurs in Africa and other countries. It was set up by a fascinating guy who used to work with Pay Pal and he just thought there are people who need micro loans – like two to four thousand pounds and who would be able to pay it off in a short period of time. So he set up a web site to match people who wanted loans with people with money. And they’ve now raised something like 150 Million dollars in three or four years and they made it really easy to see the impact of your loan. So instead of giving money to an organization and not having an idea what the money would do, you could actually see the individual who would receive your money, and you could familiarize yourself with that company. Then, after loan got repaid, the investor had the choice to either roll it over into another project, or take it out.
And, something like 80 to 90 percent of money is paid back and reinvested.
What My Projects does is similar. It provides platform for their oncologists to say what research they are doing and how it’s going to make the world a better place. And, at the same time, a consumer can come along and say, I live in Cambridge and I want to support a lung cancer research person and I’d like to have it impact in my local area… so you can see what your money is doing. As it turns out, you could really end up supporting an individual for a period of time on your own. Now that’s cool. By increasing the transparency and accountability of contributions, they’re improving their chances of success.
I also work with NSPCC and a program to help disadvantaged teenagers … and with NESTA, who makes investments in science-based companies. With a fund of about 50 Million, they invest in early stage companies. They also have a fund to help support innovation in public services.
And finally, I sit on the board of Cambridge University, where I also help them think more entrepreneurially, which can be challenging for an 800-year-old organization. The objective is to make sure they remain on top, as they compete with other well-known schools for the “best and brightest.” … It’s not a million miles away from what we do as entrepreneurs. You’re either seeking to disrupt something, or as a dominant market player, you’re seeking to retain your position. You know, you have to ask yourself, “Where’s the puck going to be in 25 years?”
WB:
What are the challenges /advantages to being a woman in your business?
SC:
I’ve never been a man, so the differences I don’t know so well … but I’ve never felt disadvantaged. Sure, there are challenges. I was five months pregnant when I did my first IPO. That was tricky. … But one thing that comes to mind is that I think women tend to be a bit more conservative. … Or I should say they tend to be more worried about the risks, and therefore about overcoming the risks. So, if you go back to that matrix that I was talking about and you look at all the risks involved, you’re going to work harder at eradicating them.
The other thing is, being a part of a community and part of an ecosystem, I’ve never had a problem asking for help, or networking. You know, you may have a goal, but not necessarily all the resources to get to that goal. I’m happy to accept that I don’t have all the answers. I’m not entirely sure if men find that so easy. … Really, though, I don’t buy in to the gender thing. If you have energy and drive you can make it happen!
WB:
You have 35 portfolio companies, sit on the board of various charitable and educational organizations, and you are a mother to three young children. That sounds like a lot! What’s next?
SC:
So, as an entrepreneur, you usually give one of two responses. Either it’s “I’m waiting for my next gig as a CEO because I’m bored with this,” or “I’m pretty happy where I am and seeking to continue it for a while.” Where I stand, I’m very happy as an investor and advisor and involved with a mix of large and small companies that I believe will make a difference. And I want to keep at least one day a week free for philanthropic work. All of that is totally compatible with spending more time with my kids at this point. Maybe when they’re grown up and at university, I may choose something else, but for now, the life I lead gives me balance and amazing flexibility. I can spend time working on projects that I am excited about!
And, it’s a great industry that we’re a part of … being able to peer into the future and to invest in things that are likely to change our world. … It’s a huge privilege.
WB:
Thanks, Sherry. We’re very lucky to have you on board!