Simon Carr: The Kitchen Capitalist

Would you ask a total stranger for £300,000?
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The Independent Online

The story so far: the author has sold his house to finance a manufacturing project in the hope of making a small fortune to finance his old age...

I'm wondering whether to write a business plan. For reasons I can't quite fathom, I'm thinking of asking some strangers to put £300,000 into my business. The whole reason behind selling the house, remember, was so that I wouldn't have to do this undignified thing (we haven't even been introduced).

I've got more than enough to float the thing; maybe I'm just getting lonely. "Send us over your business plan," they say, and then add sometimes, "You have got a business plan, I suppose?"

"No, I damn well haven't," I want to reply.

They're very overrated, business plans. They produce a sense of false confidence.

Venture capitalists are always telling us to write a business plan. It's one of the things they say. But it's for their convenience rather than ours. They use it to drive down the price.

They look at your plan like a Chelsea housebuyer peering into your property (she makes it look like a hovel by flaring one of her nostrils). The VC smiles thinly at your projections and remarks, "I've never seen a cashflow projection that doesn't break even." Then he or she sighs and asks how much you're looking for and how much of your company you're offering in return. Whatever you say, the response is invariable.

"You want £300,000 for 25 per cent of your company? You realise you're valuing your company at £1.2m? Don't you think that's a lot for something that's never made a sale."

You should never carry concealed weapons into these meetings because the temptation to use them is very strong.

In the absence of a splatter-effect, multi-barrel rotation cannon, try this: "I'm not valuing my company at anything. Let me ask you in return: what do you think my company's worth? You ask how much I've spent so far. But what's that got to do with it? If I've spent £100,000, I might have done so foolishly or cleverly; I could have got what I've got for free or for half a million. Cash-out is no guide to value. For the sake of argument, let's agree my company is worth nothing. After all, it's never made a sale. It's an idea. It's a concept.

"So, when you put your £300,000 in it'll still be worth nothing. You think, because you've been as silly as I have, that somehow your cash (which pays the second-run of production before a single sale), is worth something. You've thrown money into the works - we can only wait till it comes out the other end to see whether we've got a wealth-creating machine or a wealth-destroying one.

"In the meantime, you can have 25 per cent of my nothing for £300,000. And I'm only offering it because I'm feeling lonely at the moment."

How's that? Does that fill the space under the heading Investment Opportunity?