Barclays Wealth Insights
Volume 7: The Entrepreneur in Adversity
In co-operation with the Economist Intelligence Unit
About Barclays Wealth
Barclays Wealth, the UK's leading wealth manager with total client assets of £133 billion globally (as of 31 December
2007), serves affluent, high net worth and intermediary clients worldwide. It provides private banking, fiduciary services,
investment management and brokerage. Thomas L. Kalaris, the Chief Executive of Barclays Wealth, joined the business
at the start of 2006.
Barclays Wealth is part of the Barclays Group, a major global financial services provider engaged in retail and
commercial banking, credit cards, investment banking, wealth management and investment management services
with an extensive international presence in Europe, the USA, Africa and Asia. It is one of the largest financial services
companies in the world by market capitalisation. With over 300 years of history and expertise in banking, Barclays
operates in over 50 countries and employs over 134,000 people. Barclays moves, lends, invests and protects money
for over 27 million customers and clients worldwide.
For further information about Barclays Wealth, please visit our website www.barclayswealth.com.
About this report
Written by the Economist Intelligence Unit on behalf of Barclays Wealth, this seventh volume of Barclays Wealth
Insights examines the characteristics and motivations of entrepreneurs in a challenging economic environment.
It is based on two main strands of research.
First, the Economist Intelligence Unit conducted a survey of 2,300 affluent and wealthy investors with investable
assets ranging from £500,000 to in excess of £30 million. Among these 2,300 respondents, 960 were entrepreneurs.
Respondents were spread across a number of key international markets, with the highest numbers of respondents
from the United States, India, United Kingdom, Singapore, Hong Kong, Canada, Switzerland, Spain, the United Arab
Emirates and Monaco. The survey took place between March and April 2008.
This was supplemented with a series of in depth interviews with experts on entrepreneurship. Our thanks are due
to the survey respondents and interviewees for their time and insight.
For information or permission to reprint, please contact Barclays Wealth at:
Barclays Wealth Insights, Barclays Wealth, 1 Churchill Place, London, E14 5HP
Tel. 0800 851 851 or dial internationally +44 (0)141 352 3952 or visit www.barclayswealth.com
1
Foreword
At Barclays Wealth, we are focused on providing our clients with the resources and knowledge to manage their
wealth effectively.
In this endeavour, we have partnered with the Economist Intelligence Unit to develop research that delves into
what it means to be wealthy in the 21st century.
In this volume of the Wealth Insights series, ‘The Entrepreneur in Adversity’, we build on the earlier findings of
Volume 1, which showed that wealth is increasingly generated from entrepreneurial endeavour, in order to
establish a deeper understanding of the entrepreneur.
We compare the conditions for entrepreneurship around the world, and explore the characteristics and motivations
that shape their behaviours. As the global economy remains turbulent, we reflect on how entrepreneurs will fare.
Our findings indicate that for many, a testing environment can be a time to create a winning business strategy.
As well as consulting with 2,300 wealthy individuals around the world, including almost 1000 entrepreneurs, the
Economist Intelligence Unit worked with a panel of experts, drawn from academia, industry and financial circles, to
provide additional insights and perspectives.
I hope you find this report an informative and entertaining read.
Thomas L. Kalaris
Chief Executive
Barclays Wealth
2
Our Insights Panel
Fouad Alaeddin, Managing Partner of Ernst & Young Middle East
Gerard Aquilina, Head of International Private Banking and Vice Chairman of Barclays Wealth
Fergal Byrne, Report Author
Tony Cohen, Head of Entrepreneurial Business at Deloitte
Charles Collier, Senior Philanthropic Adviser at Harvard University
Sherry Coutu, Serial Entrepreneur and Active Business Angel Investor
Didier von Daeniken, Chief Executive of Barclays Wealth Asia Pacific
Paul Graham, Partner at YCombinator.com
Susan Mackenzie, Director of Philanthropy UK
Tom McKaskill, Serial Entrepreneur and Author
Richard Moross, Founder of online printing company MOO
Sean Phelan, Founder of Multimap.com
Ramesh Prabhakar, Managing Partner of Rivoli Group
Professor Kenneth Preiss, Zayed University in Abu Dhabi
Danny Rimer, Partner at Index Ventures
Kanwaljit Singh, Co-Founder of Helion Venture Partners
Professor Rama Velamuri, Associate Professor at the China Europe International Business School
3
Introduction
Over the past decade, entrepreneurs have become
increasingly important – and visible – players in the global
economy. Ongoing programmes of liberalisation,
privatisation and economic reform in many countries
around the world have democratised entrepreneurship,
creating a fertile environment for the development of new
business ventures. Today, the world’s most successful,
and wealthiest, entrepreneurs are just as likely to originate
from India, China or the UAE as they are from the more
established markets of the US, UK or Japan.
But while the broad trend around the world has been
towards a more conducive environment for
entrepreneurship over the past decade, recent turmoil in
the financial markets has altered the landscape for the
funding and development of successful ventures. Today,
entrepreneurs must contend with an ongoing contraction
of credit, declining consumer and business confidence
and a sluggish forecast for growth in OECD countries.
Even in fast-growing emerging markets, such as China
and India, economies are expected to cool as a result of
declining demand for exports. In combination, these
factors will undoubtedly create more difficult conditions
for many entrepreneurs over the next few years.
However, for some entrepreneurs, a challenging
economic environment is a time of opportunity. The
characteristics that we most associate with
entrepreneurs – risk-taking zeal, self-belief and the
ability to think differently from the herd – come into
their own at a time when more conservative businesses
are pulling back from investments and avoiding risk.
While success is far from guaranteed in these
conditions, entrepreneurs should recall that previous
downturns have been fertile breeding grounds for the
strongest ideas and enterprises.
The aim of this study, which is produced by the
Economist Intelligence Unit on behalf of Barclays
Wealth, is to examine the current environment for
entrepreneurship around the world, and to explore the
determinants of success for entrepreneurs in both good
times and bad. Based on a global survey of more than
2,300 high net worth individuals, including 960
entrepreneurs, the report also explores the impact of
recent financial turmoil on the world of entrepreneurship
and asks if the current environment should be seen as
one of opportunity, as well as just adversity.
4
Executive summary
Perseverance becomes an essential quality for
entrepreneurs in a challenging environment
…but in others there are concerns about certain
aspects of the business environment
Every start-up faces its share of barriers, obstacles and
naysayers, but in more challenging economic times, these
problems are all the more difficult to overcome. The most
traditionally recognised entrepreneurial traits – a
willingness to take risks and creativity – can help
entrepreneurs to steer round some of these challenges,
but a thick streak of tenacity is also required to succeed in
the current environment. As a result, survey respondents
rate perseverance as the single most important quality
required by today’s successful entrepreneurs.
The more mature markets of Western Europe and
North America remain highly attractive regions for
entrepreneurs, thanks to their strong institutions and
availability of capital. There are grumbles among some
entrepreneurs, however, that certain aspects of the
business environment are becoming more difficult.
Almost 40 per cent of respondents from North America
and Western Europe say that the regulatory
environment has deteriorated in their region over the
past decade, while a similar proportion have concerns
about the cost of doing business.
The ability to make money is not the main
factor motivating entrepreneurs
In the public imagination, entrepreneurship is often
linked with financial success. Our survey suggests,
however, that money does not play as important a role
in motivation as many would believe, with just under
one third of respondents saying that the possibility to
make large sums of money is an advantage of being an
entrepreneur. While there is no doubt that money is
vital for an entrepreneur to achieve his or her vision, our
research suggests that it is more an indicator of success
rather than the prime motivation.
The conditions for entrepreneurship are
improving in some regions…
Respondents cite the Middle East and North Africa as
being the region that has seen the biggest
improvement in the environment for entrepreneurship
over the past decade. Although conditions vary from
country to country, it is clear that ongoing economic
reform and political support for enterprise is leading to
widespread change, fuelling many new opportunities
for entrepreneurs both within the region and
internationally. Asia-Pacific also performs well on this
measure, no doubt reflecting the strong economic
development and liberalisation that is taking place in
the region’s powerhouses of India and China.
5
The credit crisis has resulted in a less favourable
climate for business exits
Conditions for exits have become less favourable in
recent months as the impact of the credit crisis has
filtered through to the real economy. When looking to
exit their business, the most important factors for
entrepreneurs in the survey are the value of the business,
the point in the business cycle and the level of interest
from buyers. In the current climate, all three will have
deteriorated for most entrepreneurs, so it is likely that
any who were planning a sale will be putting plans on
hold. That said, only a minority of entrepreneurs create a
business with an exit in mind. For most, the motivation is
to build a successful business over the long-term.
The personality of the
entrepreneur
Although entrepreneurs vary considerably in their
motivations and aspirations, it is widely assumed that
the most successful share certain personality traits
and attributes. Distinctions are often made between
‘managers’ who work for someone else and
entrepreneurs who create and lead their own
businesses. As such, two characteristics that stand
out are the entrepreneur’s willingness to bear risk
and his or her ability to create and execute new ideas.
6
7
“You can always find people who tell
you that your idea or your business
won’t work, and who don’t believe
in your business. Tenacity is the key
to success.”
Sherry Coutu, Entrepreneur and Active Business Angel Investor
8
Defining entrepreneurship
More recent definitions have attempted to combine
these two strands, pointing out that
entrepreneurship depends both on opportunities that
can be converted into innovation, and the kind of
individual who is prepared to take on the uncertainty
involved. Yet despite this progress, a consensus on
definition remains elusive. Phenomena such as
‘intrapreneurship’ and the corporate entrepreneur –
the promotion of entrepreneurial tendencies in large
organisations – muddy the waters still further.
We may feel that we know an entrepreneur when we
see one, but entrepreneurship as a concept remains
elusive. Despite decades of academic research into
the subject, there is no clear consensus around the
qualities that make a successful entrepreneur and
debates continue to rage about how exactly an
entrepreneur should be defined.
Perhaps the two most influential voices in this
argument are the 20th century economists Joseph
Schumpeter and Frank Knight. In his 1911 book, The
Theory of Economic Development, Schumpeter
suggested that the key characteristic
of an entrepreneur was that he or she was an
innovator, who creates a new product or service, a
new method of production, or opens a new market
or source of supply. It is Schumpeter who coined the
term “creative destruction” to refer to the process
whereby an entrepreneur develops an idea that
renders an old way of doing things obsolete.
In our survey of 2,300 high net worth individuals,
roughly half considered themselves to be
entrepreneurs, and half did not. Yet not all the
individuals who classed themselves as entrepreneurs
could be described as such in the classic sense.
Among the 1,174 who said that they were
entrepreneurs, 16 per cent were company employees,
13 per cent were family members within a family
business and seven per cent were either retired or not
currently working. Self-selecting entrepreneurs, it
seems, are more widely distributed in the economy
than classical definitions would tell us.
For Frank Knight, it is the entrepreneur’s response to
uncertainty that is the defining characteristic. In Risk,
Uncertainty and Profit, his 1921 work, he argued that
the main function of an entrepreneur was to assume
the risk and profit from the uncertainty associated
with certain situations, such as a change in
customer demand.
For the purposes of this study, we have taken a more
narrow definition of entrepreneurship. When we refer
to entrepreneurs who took our survey, we refer to a
combination of owner/managers, company founders
and partners/owners in a company that the
individual has purchased.
What is your current work situation?
Graph 1 – Respondents who class themselves as ‘entrepreneurs’
I am an owner/manager
26%
I run/am a partner in a company of which I was a founder
18%
I do not own a business but am an employee
16%
I am a family member within a family business
13%
I run/am a partner in a subsidiary of a larger group
10%
I run/am a partner in a company that I purchased
8%
I am retired
4%
I am not currently working
3%
0
9
10
20
30
40
50
60
70
80
90
100
The importance of tenacity
In more testing economic circumstances, tenacity is an
especially valuable trait because the kind of obstacles
that stand in the way of a successful venture are more
prevalent and frequent. With funding more difficult to
come by, and with a decline in sales and revenue more
likely as consumer confidence dips, entrepreneurs require
real grit to stick with their idea and ride out the storm.
Among the 960 entrepreneurs surveyed for this report,
the most important characteristic required to create a
successful enterprise is believed to be perseverance.
“Tenacity is hugely important to succeed as an
entrepreneur,” says Sherry Coutu, a Canadian serial
entrepreneur and active business angel investor who
now lives in the UK.
Paul Graham, a Partner at YCombinator.com, an
innovative American start-up incubator, who has
worked with a large number of start-up businesses, has
discovered first hand the importance of perseverance.
“At first, we thought that intelligence would be the
biggest predictor of start-up success,” he says. “We
now think that determination and persistence are
actually more important. The will to keep going and not
give up is crucial – particularly when you feel like you
are doomed, which is something that happens to
practically every start-up.”
Which of the following characteristics do you think are most important to be a successful entrepreneur?
Graph 2 – Entrepreneurs only
Perseverance
44%
Willingness to take risks
35%
Creativity
33%
Comfort and skill in making decisions
25%
Ability to adapt to change
24%
Motivated by new challenges
23%
High degree of competitiveness
21%
Strong financial acumen
19%
Strong desire to make money
19%
Leadership skills
18%
Other, please specify
2%
0
10
20
30
40
50
60
70
80
90
100
10
Risk-taking
and creativity
The survey respondents saw willingness to take risks as
being the second most important characteristic of an
entrepreneur. Experts distinguish, however, between
taking risks and managing risks. “In my experience,
many entrepreneurs do enjoy risk,” says Tony Cohen,
Head of Entrepreneurial Business at Deloitte. “But they
plan for it and mitigate risk. Most entrepreneurs say
that they are not risk-takers, but they will take
calculated risks. They have done their research before
they make decisions.”
“Entrepreneurship is all about
solving problems that other people
can’t. Without creativity, new
businesses wouldn’t be able to
dislodge customers from big
behemoths.”
Respondents rated creativity as the third most important
quality. “Entrepreneurs tend by their very nature to be
creative,” says Didier von Daeniken, Chief Executive of
Barclays Wealth Asia Pacific. “Of course there are many
different ways to be creative. Entrepreneurial creativity is
not the same as artistic creativity. It’s more about using
creativity to solve problems. Entrepreneurs come up with
new questions that other people don’t see – and they
need ingenuity and creativity to solve these problems
and realise their ambitions.”
11
Ms Coutu believes that creativity is an often underrated
driver of entrepreneurship. “Entrepreneurship is all
about solving problems that other people can’t,” she
says. “Without creativity, new businesses wouldn’t be
able to dislodge customers from big behemoths.” She
adds that creativity can be defined in many different
ways. Some entrepreneurs may be creative in their use
of technology, some may be creative in terms of new
product development, while others may be creative in
terms of bringing teams together.
Money isn’t
everything
In the public imagination, entrepreneurship is often
linked with financial success, no doubt because the
rewards are very visible, especially at a time when
entrepreneurship has been so widely celebrated in the
media. Despite this link, the survey suggests that
money does not play as important a role in
entrepreneurial motivation as many would believe.
Only one in five respondents stated that a strong desire
to make money is a fundamental characteristic of being
an entrepreneur.
“You have to remember when you look at successful
entrepreneurs that there is what’s called a survivor
bias,” says Mr von Daeniken. “This means that for every
financially successful entrepreneur you see, there are
many others who have not been so successful. There is
no doubt that money is important to entrepreneurs – it
is necessary to build the business and realise their
vision, and also reflects how well they are doing their
job. So clearly, it can have a big impact on an
entrepreneur’s life but it’s rarely the thing that gives
them the most satisfaction.”
Several entrepreneurs interviewed for this report concur
with this view. “I do like making money,” says Ms Coutu,
“but for me it is an indicator that you have got it right. It
means that you have a lot of satisfied customers who
are buying your product.”
For Richard Moross, the founder of online printing
company MOO, money is not the reason why he is an
entrepreneur, but he adds that he does expect to be
rewarded for the long hours and hard work that he has
put into the business.
“I do like making money but for me
it is an indicator that you have got it
right. It means that you have a lot of
satisfied customers who are buying
your product.”
The extent to which money is a motivating influence
does vary according to age. Our research suggests that
money is more of a driver among younger entrepreneurs
than older: 57 per cent of those under 50 say it is an
important motivation to create and protect wealth,
compared with 48 per cent of those over 50. As the
older respondents tend to be wealthier, it is likely that
they feel they have met their financial needs, whereas
the younger, less wealthy entrepreneurs are at an earlier
stage of their career when money matters more.
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Richard Moross, founder of MOO.com
Richard Moross is the 30-year-old founder and
Chief Executive of MOO.com, a venture-capital
backed on-demand printing company. Mr Moross
had the initial idea for MOO – personal business
cards – in 2003, when he was 25. A few months
later he came up with a unique process that uses
a proprietary digital printing technology to
mass-produce short-run, variable print jobs.
Today, MOO has 35 employees and has shipped
its products to more than 181 countries.
He also agrees with the respondents in their view of
the importance of determination and perseverance.
“Starting a business is like running a marathon,” he
says. “Actually, it’s more like running a marathon in
the dark, with no indication of where you’re going,
where your competitors are or how long the race
will take. It takes incredible determination, bloodymindedness some might say, to bring something like
this to life.”
Before setting up MOO, Mr Moross never thought of
himself as an entrepreneur. “I was driven by the
power of an idea,” he says. “As soon as I had fully
thought through the idea, I was compelled to set up
the business. I had no choice but to take my life in
this direction. It became an act of self-fulfillment.”
“The bigger the idea, the more
“Starting a business is like running
a marathon. Actually, it’s more like
running a marathon in the dark,
with no indication of where
you’re going.”
In common with the survey respondents, Mr Moross
believes that self-belief is critical to entrepreneurial
success. “Being an entrepreneur can be a lonely
business,” he explains. “To be genuinely innovative,
you have to take a new idea along wild tangents and
can wait months or years to demonstrate the real
value of it to people. The bigger the idea, the more
likely people are to say it’s crazy. Believing in yourself
is the only way you’ll get through the criticisms,
knock-backs and distractions that sharing an idea for
a business can generate.”
13
likely people are to say it’s crazy.”
Like many entrepreneurs, he considers the
independence of the role to be one of the key
benefits. “You get to be your own boss and impose
your vision of the world,” he says, “and that can be
very liberating. Of course, there are also the financial
rewards if your company is a success, but you also
have to love what you do. The end-game [an exit]
could be years away, and it’s no fun playing for
money if you don’t enjoy the game itself.”
With increasing sales and new products reaching
new markets, the company is at an exciting stage of
its development. “The proof of the pudding will be in
the exit,” says Mr Moross. “Ultimately we will see
how successful we have been and how much value
we have created when we sell the business.”
Believing
in yourself
Entrepreneurs require perseverance and tenacity to
overcome the obstacles that stand in the way of
success, but they also need to have confidence in their
own abilities. Serial entrepreneur Sherry Coutu sees
self-belief as the bedrock of entrepreneurship.
“Self-belief and self-confidence are crucial for an
entrepreneur,” she says. “If you don’t believe in yourself,
it’s hard to succeed.”
Again, there is a difference between younger and older
entrepreneurs, with those under 50 more likely than
those above that threshold to believe that their success
depends more on ability than luck. This could reflect the
fact that the experienced, older entrepreneurs have a
more realistic assessment of the relative importance of
luck and ability.
Most successful businesses depend on a combination
of skill and good fortune. It is clear, however, that the
majority of respondents to our survey see their success
as being achieved via their abilities, rather than through
luck. Two-thirds believe that their success is down to
their own skills and around one in five believe that their
success has been largely due to influences outside their
control. This finding is consistent with the perceived
importance of self-belief; entrepreneurs need to have
confidence in their abilities, even if this means
downplaying the role that good timing or fortune have
played in their success.
“Self-belief and self-confidence are
crucial for an entrepreneur. If you
don’t believe in yourself, it’s hard
to succeed.”
It is also important to note that, while self-belief is
clearly important, there is a limit to the amount that is
rational. In the context of entrepreneurship, too much
confidence is just as damaging as a lack of self-belief,
as the owners of many failed businesses have found to
their cost.
14
15
The environment for
entrepreneurship
Most entrepreneurs understand that the quality of the
business environment in which they operate can make
the difference between success and failure. If a robust
political, economic, financial and regulatory framework is
in place that supports innovation, then entrepreneurship
will thrive, but if there are deficiencies in the business
environment, then even the strongest entrepreneurs with
the best ideas will founder.
Early-stage entrepreneurs are particularly susceptible to
shortcomings in the external environment. Unlike larger
corporates, they lack the safety net of resources to deal
with complex or inconsistent bureaucracy, and they
may be more dependent on the support and advice of
external intermediaries. And without the foundation
stone of a thriving investment community made
up of business angels, venture capital firms and
well-resourced banks, entrepreneurs simply cannot
get their ideas off the ground.
16
Entrepreneurship
and the economy
There is a growing body of research that links levels of
entrepreneurship with economic development. The
Global Entrepreneurship Monitor, a research consortium
led by the London Business School and Babson College
in the US, describes how, in countries with low per
capita GDP, the economy is characterised by large
numbers of small, entrepreneurial businesses.
In order to reinforce economic development through
entrepreneurship, it is key that the business environment
must support not just early-stage entrepreneurial
activity, but the ability for those businesses to be
nurtured and grow to the stage where they can
generate wealth more widely. One of the main factors in
facilitating this transition is government support.
As income increases, the process of industrialisation
and economies of scale allow the development of larger
businesses, which can employ a higher number of
people. This causes the quantity of early-stage
entrepreneurial businesses to fall. Then, as income
increases further, levels of entrepreneurship rise again as
a more developed economy and robust set of
institutions enable more opportunities for the
population. Thus, in relation to economic development,
levels of entrepreneurship follow a U-shape of high initial
levels of entrepreneurial activity, followed by a drop, and
finally a subsequent increase as an economy matures.
To create the foundations for successful
entrepreneurship, governments must perform a range of
functions, including the development of infrastructure,
the removal of obstacles, the elimination of bureaucracy
and investment in education. The benefits of this
approach can be seen in countries around the world,
such as Singapore, the US and, more recently, the
United Arab Emirates, which owe part of their
development to a sustained focus on these factors.
To create the foundations for successful entrepreneurship,
governments must perform a range of functions, including the
development of infrastructure, the removal of obstacles, the
elimination of bureaucracy and investment in education.
17
The role of government
and society
the extent to which society regards the pursuit of
opportunity as socially legitimate will impact the level of
entrepreneurial activity. A set of social and cultural values
that encourages new enterprise is a prerequisite of
entrepreneurial activity and a defining feature of an
entrepreneurial society.”
Researchers have found that US policies, in particular,
have provided strong support for entrepreneurship. For
example, the government has enabled the creation of
financial markets to fund growth companies, such as
NASDAQ, the provision of protection for research and
development and intellectual property, federal and other
stimulation of high-tech research, and the opening of
new markets through deregulation. The government has
also made the process of incorporating a business
relatively straightforward.
The media has an important role to play in the
development of these social and cultural values. In recent
years, there has been increased coverage of
entrepreneurship in many parts of the world, not only in
the financial press, but on television and other popular
media channels. Increasingly, entrepreneurship is
something that is celebrated and seen as an aspiration,
while successful entrepreneurs have become media
celebrities in their own right.
Societal values can also enhance, or deter, the
development of entrepreneurial activity, as Michael
Camp, a GEM Project Director and Head of Research at
the Kauffman Center for Entrepreneurial Leadership,
recently pointed out at the launch of a recent GEM study.
“No matter how rich a country is in opportunity and how
well endowed it is with capacity for business start-ups,
Compared with 10 years ago, what change has there been to the following aspects of entrepreneurship?
Graph 3 – Entrepreneurs only
Scope for developing original ideas
Options for raising finance
17%
Options for selling a business
17%
Options for expanding internationally
10%
Complexity of business relationships
12%
Regulatory environment
10%
Availability of talent
11%
0
2
20%
27%
28%
28%
31%
25%
28%
31%
30
4
40
50
70
6%
7%
6%
14%
4%
10%
23%
10%
23%
11%
22%
60
5%
9%
26%
28%
25%
3
15%
37%
20
14%
30%
38%
10
10%
27%
32%
16%
Cost of doing business
26%
36%
28%
Overall environment for entrepreneurship
Significant improvement 1
38%
21%
80
8%
90
100
Significant deterioration 5
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Regional developments
In the most general terms, just over half of
entrepreneurs questioned for this survey believe that the
overall conditions for entrepreneurship have improved
over the past decade. Respondents from Asia-Pacific
and Middle East and North Africa are most likely to
report an improvement, a finding that can be attributed
to the fact that many countries in these regions are at an
earlier stage of their economic development. As the
political, regulatory and economic institutions that
support entrepreneurship become more established, it is
natural to see conditions improve more rapidly than in
the more mature markets of North America and Europe
(where respondents are also most likely to report a
deterioration in the overall environment).
“We are seeing people with
university degrees and deep
industry knowledge starting a
wide range of ventures in China.”
In China, opportunities for entrepreneurship are
broadening considerably thanks to government support
and ongoing liberalisation. Professor Rama Velamuri,
Associate Professor at the China Europe International
Business School, points out that entrepreneurship in
China has changed from a predominantly subsistencedriven model, to an opportunity-driven one. In other
words, individuals are becoming entrepreneurs out of
choice rather than because they have no option.
“We are seeing people with university degrees and deep
industry knowledge starting a wide range of ventures in
China,” he says. “Many are giving up lucrative
employment to launch these businesses. Another trend
is that more and more are first generation, so they don’t
come from established business families.”
19
He adds that the government in China is adopting a
top-down approach to encouraging and nurturing
entrepreneurship. “Innovation is on the national agenda
in China,” he says. “The government is investing in
universities, encouraging the Chinese diaspora to return,
and setting up new technology parks on a massive scale.
It is not unusual for these parks to contain more than
500 businesses being incubated at one time.”
The Middle East and, in particular, the six countries of
the Gulf Co-operation Council, is a region that has
become far more conducive to entrepreneurship over
the past decade (although there is considerable
variation from country to country). Ongoing
liberalisation and privatisation programmes, the
development of major financial centres in the region
and a greater willingness to attract foreign investment
have all contributed to an increasingly fertile
environment for successful entrepreneurship. At a time
when major global economies are slowing and tipping
into recession, the GCC also benefits from its high level
of capital reserves and the recent high price of oil.
“Innovation is on the national
agenda in China. The government is
investing in universities, encouraging
the Chinese diaspora to return.”
Charts for entrepreneurship
The overall Enterprise Environment Index
Graph 4 – This chart uses a simple formula to illustrate the extent to which entrepreneurs perceive the overall
environment for entrepreneurship to have improved over the past decade. A higher score denotes a more
widely perceived improvement
Middle East and North Africa
Asia-Pacific
North America
Europe
0
10
20
30
40
50
60
70
40
50
80
90
100
Middle East and Africa
Graph 5 – Entrepreneurs from Middle East and Africa only
Overall environment for entrepreneurship
Availability of talent
Regulatory environment
Complexity of business relationships
Cost of doing business
Options for expanding internationally
Options for selling a business
Options for raising finance
Scope for developing original ideas
0
Improvement
10
20
30
60
70
Deterioration
20
Asia-Pacific
Graph 6 – Entrepreneurs from Asia-Pacific only
Overall environment for entrepreneurship
Availability of talent
Regulatory environment
Complexity of business relationships
Cost of doing business
Options for expanding internationally
Options for selling a business
Options for raising finance
Scope for developing original ideas
0
Improvement
10
20
30
40
50
60
70
30
40
50
60
70
Deterioration
North America
Graph 7 – Entrepreneurs from North America only
Overall environment for entrepreneurship
Availability of talent
Regulatory environment
Complexity of business relationships
Cost of doing business
Options for expanding internationally
Options for selling a business
Options for raising finance
Scope for developing original ideas
0
Improvement
21
Deterioration
10
20
Europe
Graph 8 – Entrepreneurs from Europe only
Overall environment for entrepreneurship
Availability of talent
Regulatory environment
Complexity of business relationships
Cost of doing business
Options for expanding internationally
Options for selling a business
Options for raising finance
Scope for developing original ideas
0
Improvement
10
20
30
40
50
60
70
80
Deterioration
It is interesting to note that the Middle East and North
Africa is also perceived as the region that has seen the
biggest improvement in terms of the scope for
developing new ideas. Entrepreneurship in the Middle
East has, until recently, been slow to develop. One
reason for this is the high proportion of steady,
well-paid public sector jobs, which can prove to be a
strong disincentive to take on the uncertainty of
becoming an entrepreneur. “One has to balance the
personal motivations and risks of creating a business
against the security of receiving a significant monthly
wage over one’s working life,” says Professor Kenneth
Preiss of Zayed University in Abu Dhabi.
In addition to its high score for enhancement of the
overall environment for entrepreneurship, respondents
point to the Middle East and Africa as having improved
most in terms of the scope for developing new ideas
and second most in terms of options for expanding
internationally. Fouad Alaeddin, Managing Partner at
Ernst & Young Middle East, points out that
entrepreneurship is much more widely discussed
in the region than a few years ago.
“Entrepreneurs all over the
Middle East have been encouraged
But in the past few years, this situation has started to
change. Oil wealth is being directed into education,
which is gradually encouraging the development of
start-ups. Although the scope for developing original
ideas in the region is starting from a low base, it is clear
that an upwards trend is underway.
to tell their stories – which were a
well-kept secret for too long.”
22
“One has to balance the personal
motivations and risks of creating a
business against the security of
receiving a significant monthly wage
over one’s working life.”
Professor Kenneth Preiss, Zayed University in Abu Dhabi
23
24
The UAE: A fertile environment for entrepreneurship
If the Middle East and Africa have seen the biggest
improvement in the climate for entrepreneurship, then
the United Arab Emirates is the country within that
region where change to the business environment has
been most dramatic. The 2006 Global
Entrepreneurship Monitor study, an influential report
on enterprise around the world, ranked the UAE
41st out of 62 countries for the promotion of an
environment for start-up businesses and
entrepreneurial activities. In the 2007 study, it had
risen to 25th.
But there remain some significant hurdles to
entrepreneurship in the UAE in terms of infrastructure,
bureaucracy and intellectual property. According to
Professor Preiss, one of the biggest challenges is the
perceived risk of starting a new business and fear of
failure. “If a new venture fails in the UAE, there is a
tremendous risk under the current legal system that
one could be sent to jail if there are any unpaid debts.
It’s not like in the US, where after bankruptcy, one can
start up another venture a few years later.”
Professor Preiss of Zayed University, who co-ordinated
the UAE GEM study, says that the role of the
government has been crucial in enabling this change.
“There is immense government support for
entrepreneurs in terms of finance and educational
programmes within the UAE,” he says. “The
government is highly motivated towards
strengthening the basis of the economy, and in so
doing there may well be a shift in the balance from
the public to private sector. While the public sector in
many countries has been a very strong recruiter of
graduates, in the future, the private sector is expected
to take up a more active and important role in hiring
and recruitment.”
“I spend a lot of time thinking
“There is immense government
support for entrepreneurs in terms
of finance and educational
programmes within the UAE.”
Ramesh Prabhakar, Managing Partner of Rivoli Group,
a luxury goods retailer with around 300 stores across
the Middle East, agrees that there has been a sea
change in the business environment in the UAE over
the past decade. He puts this down to the partnership
between government, public and private sector. “The
government strategy has been far-sighted. The
commitment to create a world-class infrastructure for
business – in terms of communications, rapid public
sector decision-making, banking and finance – has
clearly paid off.”
25
about how we can recruit and
keep the best people to build
the business.”
In the long-term, availability of talent is also likely to be
an issue. “Good people are essential to deliver the
kind of service excellence that we as a company
expect,” says Mr Prabhakar. “There is a relatively
limited labour market in the UAE and a lot of
competition for good people. I spend a lot of time
thinking about how we can recruit and keep the best
people to build the business, about how to share my
passion and commitment to outstanding quality with
everyone in our business.”
“Entrepreneurs all over the Middle East have been
encouraged to tell their stories – which were a well-kept
secret for too long,” he says. “The positive economic
developments and significant growth enjoyed by the
Middle East in the past three years has opened the door
for private and family-owned companies to start going
public to help finance their needed expansion and,
most importantly, to institutionalise ownership and
create the right governance.”
North America, a region that historically has been
closely associated with support for entrepreneurship,
continues to perform well according to respondents
based there. It shows most improvement in terms of
options for raising finance – starting already from a very
high base in terms of availability of venture capital and
other sources of funding – while the majority of
respondents continue to see improvements in the
scope for developing new ideas and options for
expanding internationally.
It fares less well on the regulatory environment, where
only 31 per cent have seen an improvement over the
past decade. Although the US has traditionally been
known for its light-touch regulation, interventions such
as the Sarbanes-Oxley Act of 2002, a set of rules
enacted in the wake of the Enron scandal to improve
probity and transparency of governance, have
dramatically increased the regulatory burden for listed
companies. This, in turn, has discouraged some
entrepreneurs from flotation as an exit possibility, a
trend reflected in the fact that North America is seen as
the region with the least improvement in terms of
options for selling the business.
“I don't think the legislators who wrote Sarbanes-Oxley
meant to kill the IPO market,” says Mr Graham, “but if
they could overhear the conversations of start-up
founders, they'd be shocked. The word on the street
now is that you shouldn't even think of going public [in
the US] and that the only exit is to get bought.”
Europeans, who were most likely to believe that overall
conditions for entrepreneurship had deteriorated over
the past decade, were less sanguine about many
aspects of the business environment. In particular, they
were worried about the cost of doing business, with
four out of 10 reporting a deterioration in this aspect of
the environment. Although input costs are rising for
businesses all around the world as a result of recent
surges in commodity and oil prices, companies in
Western Europe in particular face more expensive
labour costs than many other regions, as well as a high
cost of living. The Business Environment Rankings, run
annually by the Economist Intelligence Unit to measure
the quality of the business environment in 82 countries
around the world, finds that Western Europe scores
poorly on these two measures when compared with
other regions.
A survey conducted in October 2008 by the Federation
of Small Businesses, a UK member organisation,
highlights some of the concerns. Asked whether they
had seen the cost of operating a small business
increase in the past 12 months, 84 per cent agreed,
while 46 per cent reported a decrease in trade.
“I don't think the legislators who wrote Sarbanes-Oxley
meant to kill the IPO market, but if they could overhear the
conversations of start-up founders, they’d be shocked.”
26
Respondents in Asia-Pacific, like those in the Middle
East and Africa, are in general confident about the way
in which the business environment has improved over
the past decade. A strong majority thinks that it has
become easier to conduct business internationally,
which no doubt reflects the ongoing integration of this
region into the global economy, as well as the huge new
opportunities that have opened up for reciprocal
investment between the west and the east.
“The exit scenario in India has been good for some
years,” says Indian Venture Capital Investor Kanwaljit
Singh, co-founder of Helion Venture Partners. “There
have been many Indian IPOs, supported by a stock
market with a good appetite for exciting high-growth
companies, which are still in the minority on the stock
market. Also, as many industries are in an early stage of
development, mergers and acquisitions are a common
way for companies to grow and scale their business,
offering another exit possibility.”
“Until quite recently, many
In India, perhaps the biggest change in recent years has
been cultural. “Until quite recently, many communities
in India looked down on entrepreneurs,” says Professor
Velamuri. “But now, it is becoming much more socially
acceptable and financially viable.”
communities in India looked down
on entrepreneurs. But now, it is
becoming much more socially
acceptable and financially viable.”
Inward and outward foreign direct investment in Asia
continues to reach record levels. In 2006, according to
World Investment Prospects, an Economist Intelligence
Unit publication, FDI inflows to Asia were US$238.6
billion, compared with an average of US$116.2 billion
between 2001 and 2003. China has been far and away
the largest recipient of this inflow of investment,
accounting for US$78.1 billion in 2006. What is
interesting about FDI flows in Asia is that much of the
activity takes place within the region – intra-regional
investment currently accounts for around half of all flows.
Out of all four regions examined for this study,
Asia-Pacific has also seen the biggest improvement in
terms of options for selling the business. Recent years
have seen a deepening of capital markets in countries
such as India and China, with record numbers of IPOs
generating significant wealth for local entrepreneurs,
and growing interest from global private equity firms in
the region, especially as their more traditional markets
have cooled.
27
Certain factors continue to dissuade entrepreneurs in
India, however. For example, bankruptcy laws are highly
cumbersome, and it can take up to 10 years for an
entrepreneur to extricate himself from the complex
legal issues involved. This engenders a fear of failure
and discourages some entrepreneurs from the safer
path of full-time employment.
Money matters
Enterprising individuals, the right opportunities and the
institutions to support entrepreneurship may be
essential ingredients to turn new ideas into successful
businesses, but they are not sufficient on their own. In
order to convert concepts into reality, entrepreneurs
need capital. And in societies where funds are readily
available for deserving enterprises through venture
capital, private equity and a host of other channels,
entrepreneurship is likely to thrive.
From his perspective in the UK, Deloitte’s Mr Cohen
agrees that a broader range of financing options have
become available for entrepreneurs. “There has been a
lot more money available for entrepreneurial companies
and many new sources of capital,” he says. “The growth
in private equity in recent years is incredible. Also, there
has generally been much more acceptance of private
individuals going into illiquid private businesses – that’s
what private equity is mostly about.”
According to our survey, which was undertaken prior to
the most recent turmoil to hit global financial markets,
53 per cent of entrepreneurs believe that the options for
securing finance have improved over the past decade. A
key change during this period has been an increase not
only in the availability of capital, but in the range of
structures by which investments are made.
Danny Rimer, a Partner at Index Ventures, one of
Europe’s largest venture capital firms, echoes this point.
“Over recent years, so many different funding options
for companies have become available. For example,
there is AIM in the UK, or NASDAQ in the US, a trade sale
and refinancing with a private equity house. There is also
a trend for secondary offerings, where the investor buys
shares off the founders so that incentives are aligned.”
“There has been a lot more money
Although the overall trends over the past decade have
been positive, recent events have transformed the
financing landscape. Today, sources of credit have
slowed to a trickle and entrepreneurs have far fewer
funding opportunities. “There is no doubt that the
credit crisis is having a major impact on entrepreneurs
looking to finance their business across Europe,” says
Deloitte’s Mr Cohen. “The truth is that a lot of
organisations are less willing to take risk and they are
increasingly looking to back their investment with
assets. This is very different compared with just a few
years ago when money was being lent against the
business itself.”
available for entrepreneurial
companies and many new sources
of capital. The growth in private
equity in recent years is incredible.”
“IPOs and private placements have always played an
important role in financing growing entrepreneurial
businesses, and have done so particularly in recent
years,” says Mr von Daeniken. “However, in terms of
raising finance, the balance has recently shifted towards
private equity and hybrid hedge funds, with high-net
worth individuals and family offices also getting
involved. Co-investment is also a trend. Certainly,
finance options have become broader.”
28
Availability of venture capital, previously seen as the
lifeblood of new entrepreneurial ventures, has in many
countries declined considerably. According to Library
House, a research organisation, there were 357 venture
capital deals in the second quarter of 2008 in Europe,
compared with 447 in the first quarter. Investment in
venture capital has also fallen, from €1.43 billion in the
first quarter of 2008 to €949 million in the second quarter.
The size of deals being executed by private equity firms
has also fallen since mid-2007. According to Zephyr, a
data provider, there were 1275 private equity deals
globally in the third quarter of 2007, falling to just 705 in
the third quarter of 2008. Deal value has shown an even
more dramatic decline, with total deal value reaching
US$447 billion in the third quarter of 2007, and
dropping to US$57 billion in the third quarter of 2008
(see chart).
There is a general trend among venture capital firms to
move away from early-stage investments, with many
citing concerns about excessive risk and poor returns.
For example in March this year, 3i, which was once a
powerhouse of the venture capital industry, announced
that it would abandon early-stage investment in
start-up companies. This is a very different scenario to
2000, when the company managed 750 technology
investments valued at US$4.8 billion.
Private equity deals by quarter, 2007–2008 (number of deals and known deal value)
Table 1
Time period
(Announced date)
No of deals
Total known deal value
(US$ million)
Q1 2007
1245
234,817
Q2 2007
1275
447,173
Q3 2007
1192
156,834
Q4 2007
1093
128,142
Q1 2008
1028
77,370
Q2 2008
1063
134,306
Q3 2008
705
57,134
Despite this bleak funding picture, other sources of
finance may go some way towards filling the vacuum.
Gerard Aquilina, Head of International Private Banking
and Vice Chairman of Barclays Wealth, points to the
growing ambitions of sovereign wealth funds as one
interesting trend, and suggests that these may in some
cases replace private equity and hedge funds as
providers of capital to ambitious enterprises.
29
While it is not impossible to secure funding in the
current environment, it is clear that investors will be
much more discerning about where they put their
money and the conditions on which they do so.
Entrepreneurs seeking capital will need to get used to
far more searching questions about the track record of
the management team and future prospects for the
business. They will also need to explore the available
options more thoroughly, and consider less traditional
funding options in order to realise their ambitions.
Opportunity in adversity
At first glance, a downturn may appear to be the worst
time possible for entrepreneurs. Capital is hard to come
by, consumers and businesses are reining in their
expenditure, and investors are looking for save havens
for their money. But for many entrepreneurs, a testing
economic climate can be the time to create winning
ideas. “If we look at history, the most interesting
innovation always comes out of a crisis,” said Davide
Sola, Associate Professor of Strategy at ESCP-EAP
European School of Management, in a recent
Economist Intelligence Unit webcast. “People seem to
react quite positively to adversity. And the reality is that
innovation, most of the time, is the result of creativity,
and creativity is triggered much more when there are a
lot of difficulties around you.”
“If we look at history, the most
interesting innovation always
comes out of a crisis.”
When capital is abundant and consumer confidence is
high, entrepreneurs can make big bets and the chances
of those being successful are fairly high – sometimes in
spite of the quality of the strategy and business plan.
But in a more difficult environment when credit is
scarce and confidence low, there is no longer a rising
tide to lift all boats. This will certainly lead to more
business failures than in the past, but this could be
regarded as the “creative destruction” that is required
for economies to shed unproductive and unprofitable
capacity. In such an environment, the best ideas will rise
to the surface because those responsible have carefully
thought through their business plan, partnered with
discerning investors and made sure that their strategy
is appropriate not just in a booming economy but in
more testing times as well.
“Entrepreneurs are by their nature good at adapting to
changing business conditions,” says Mr Aquilina. “There
will always be some who can take advantage of the
situation and use the environment to enhance their
strategic position.” He adds, however, that investors will
become much more discerning – and scarce. “In cases
where investors will make funds available, they will look
for entrepreneurs who know how to survive and thrive
in testing conditions, who know how to be frugal, and
who have the capacity to sustain themselves.”
A downturn also presents bold entrepreneurs with a
wide range of opportunities. Business and office space
can be acquired more cheaply, and suppliers will be
more likely to discount in order to secure business.
Competition may be less fierce in some sectors.
Entrepreneurs may also see the current climate as one
in which to acquire at attractive valuations. In a survey
of board-level executives conducted by the Economist
Intelligence Unit in April 2008, 51 per cent said that
they thought the current environment had made
conditions more favourable for the strategic acquisition
of assets.
Canny entrepreneurs with a stomach for risk and a
strong team of managers and investors alongside them
will undoubtedly be able to profit from current
conditions – provided they can overcome the major
obstacle of securing access to the capital they require.
As these entrepreneurs take the plunge, some will no
doubt be mindful of Warren Buffett’s famous adage:
“Be fearful when others are greedy and greedy when
others are fearful.”
30
The realisation of
wealth
31
As well as facing a tighter funding environment,
entrepreneurs are also getting used to a narrower set of
options for exiting an investment in the current climate. Until
recently, there were good opportunities for entrepreneurs to
achieve partial or full exits on the back of buoyant stock
markets, strong economic growth, good corporate liquidity,
and an active mergers and acquisitions market. Now, there
are fewer opportunities as buyers tighten their belts and as
stock markets remain unattractive for flotations.
Exit by IPO, which was once seen as the Holy Grail for
entrepreneurs, has become all but unattainable. “There
are no IPOs taking place at the moment,” says Mr
Aquilina. “M&A figures have fallen dramatically,
valuations continue to be extremely challenged and
entrepreneurs are postponing exit plans for the
foreseeable future.”
Data from Library House show that there were 63 exits
in Europe in the second quarter of 2008, and only three
of these were IPOs. In the same quarter in 2007, there
were 31 IPOs in Europe. In Asia, IPO activity is
considerably more robust, but even in this fast-growing
region there has been a decline in activity. According to
the European Venture Capital Association, a total of 41
companies went public in Asia in the third quarter of
2008, down from 98 in the second quarter.
But while the current climate may have temporarily
reduced the flow of exits, the question of what drives
entrepreneurs to exit and the plans that need to be put
in place to extract maximum value from the
transaction, remains highly relevant. For decades, the
exit or ‘liquidity event,’ has been the prize for the
successful entrepreneur, when years of hard work
translate into the realisation of wealth. “When you look
at exit planning,” says Mr Cohen, “what you find is that
most entrepreneurs don’t plan it at all. It’s very
opportunistic. Their focus is on trying to build
something of high value and they are not thinking
about or planning to sell in three years. First and
foremost, it’s about building a valuable business.”
Tom McKaskill, author of several books on selling and
valuing companies, echoes this idea. He says that in a
recent workshop with around 100 entrepreneurs, he
asked how many expected to sell their business in the
next few years. Around 10 per cent indicated that they
planned to do so. He then asked how many thought
they might get an offer. In this case, around 80 per cent
put up their hands. “Generally few entrepreneurs, apart
from venture capital-backed companies, really spend a
lot of time thinking about selling,” he explains. “Most
are optimistic, however, that they will get an offer.”
32
To sell or not to sell
When it comes to selling the business, the main fear of
entrepreneurs in the survey is that the business would be
sold too cheaply. Asked about the factors that might
deter them from making a sale, concerns about failure to
maximise value are also high on the list. But while
economic considerations are clearly important, many
business owners also retain a strong emotional link to
their company. An important concern among the
respondents is that, if they were to sell, the new owners
would restructure, lay off staff or break up the business.
Moreover, the main deterrent preventing respondents
from selling their business is that they have unrealised
ambitions for the business.
According to Mr McKaskill, there are effectively three
scenarios when entrepreneurs might sell their business:
first, when the business has problems and is struggling
to survive; second, when someone makes an offer at a
price that is difficult to refuse; and third, at a time of the
entrepreneur’s choosing, when they might want to
pursue another opportunity or spend more time with
their family. “It’s only in the last case that you have some
degree of choice and time to do the process,” he says. “I
would say that this third scenario accounts for maybe 20
per cent of all exits.” Index Venture’s Mr Rimer puts it
succinctly: “In the main, companies are not sold;
companies are bought.”
If you were to sell (or have sold your business), what would be/were your most significant concerns?
Graph 9 – Entrepreneurs only
29%
Risk of selling too cheaply
25%
New owners would restructure and lay off staff
Potential for the business to be broken up
16%
13%
New owners would change strategy
9%
Lack of confidence in new management
Not sure of how to spend time
7%
Other, please specify
3%
10
0
20
30
40
50
60
70
80
90
100
Which of the following factors would be most likely to deter you from selling your business?
Graph 10 – Entrepreneurs only
Unrealised ambitions for the business
19%
Fear of selling too cheaply
17%
Expectations of strong future growth
17%
Loyalty to employees
15%
Too attached to the business
13%
Unsure of what to do next
10%
Reluctance to lose control of business
8%
Other, please specify
1%
0
33
10
20
30
40
50
60
70
80
90
100
seen as the main objective, with the need to focus on
new challenges the next most important. The survey
reveals that a lot of factors are influential in determining
when to sell. Chief among them are the value of the
business, which 85 per cent see as important, the point
in the business cycle, which 72 per cent see as
important, and the level of interest from buyers, seen as
important by 71 per cent.
“Entrepreneurs have a strong emotional bond with their
business,” says Mr Cohen. “They care about the fate of
the company and employees. I frequently see
entrepreneurs who won’t sell because they don’t believe
that the buying company will treat their people well.”
In cases where entrepreneurs in the survey have sold or
intend to sell the business, the realisation of wealth is
How influential were/would the following factors be in determining your decision to sell the business?
Graph 11 – Entrepreneurs only
Value of the business
50%
30%
Point in the business cycle
Options for succession
24%
11%
Desire for new challenges
Level of interest from potential buyers
0
10
3
19%
41%
40%
20
4
If they were to sell a business, younger and older
entrepreneurs have somewhat different motivations.
Younger entrepreneurs are more likely to consider the
point in the business cycle and growth ambitions as
being important, while older entrepreneurs place more
weight on their retirement plans, the desire for new
challenges and the level of interest from potential buyers.
Looking to the future, the current state of the
international capital markets, general financial instability
and stalling economic growth will have temporarily
curtailed most exit plans. Mr Graham says, however,
that this should not necessarily have a negative impact
on the exit prospects for the current wave of start-ups.
“You need to remember that it takes at least four to five
years on average, and sometimes longer, for a start-up
to succeed,” he says. “It’s a very rare economic cycle that
lasts five years. You can be pretty sure that the stage of
the economic cycle when they’ve succeeded will be
different from where it is today.”
30
40
50
60
70
7%
11% 3%
25%
32%
31%
10%
17%
41%
29%
11%
12%
34%
24%
4% 3%
15%
29%
30%
21%
Legislative changes
21%
33%
12%
Growth ambitions
2
30%
16%
Influence from stakeholders
11% 2% 1%
42%
20%
Retirement plans
Very important 1
35%
13%
20%
5% 4%
22%
5% 3%
80
90
100
Not important 5
Mr Singh of Helion Venture Partners remains relatively
optimistic about prospects for the Indian market.
“There is no doubt that the current financial and
economic conditions have dampened the appetite for
IPOs and other exits in India, but we believe that will not
last for too long – and is the result of an external factor
out of our control. Although the US market is clearly
important for many Indian companies, the emergence
of a large Indian domestic market will become
increasingly important.”
Mr Rimer also takes a longer view with his venture capital
investments. “We work on a seven-to-ten year horizon
with our businesses and are not changing our investment
approach, nor indeed are any of our peers. Our goal is still
to finance entrepreneurs that are passionate about
building big, world-changing businesses.”
34
Exit strategies: Multimap.com
Sean Phelan has spent the past 12 years building UK
online mapping company Multimap.com into a
leading online supplier of mapping information. This
summer, he had the opportunity to spend some time
indulging in one of his favourite hobbies – sailing –
following the sale of his business to Microsoft, the
world’s largest software company.
Mr Phelan set up Multimap as a one-man operation in
a spare room in 1996, funding the business initially
from his savings. The company offers two different
services: a free general service for the public that
provides street maps and driving directions, and a
more customised offering for businesses that need to
show their map location on a corporate website.
Multimap became profitable in 2003; by mid-2006, it
was receiving some 8 million unique visitors a month
to its website and generating about £9.5 million in
revenues, with about 60 per cent of these coming
from customised services.
By the October 2007 deadline, there were several
offers on the table. The Multimap board accepted the
Microsoft offer, which was in excess of US$50 million,
even though it was not the highest. “Microsoft
invested a lot of time early on and really did their
homework to understand the business and work out
how Multimap would fit into their company,” says Mr
Phelan. “It understood and valued what we had
created: that was very important to us. It was never
just about the money. We didn’t want to sell to
someone who didn’t share the same values. We felt,
all in all, that Microsoft was the best home for the
company in every sense.”
Multimap’s growth was self-funded, apart from one
substantial outside investment of £1.9 million in 1999
from TV production company Flextech (now Virgin
Media Television), which was interested in integrating
the service within its cable television offering. In early
2006, Virgin decided to exit the business, which
prompted Mr Phelan to start looking for a new
investor. The goal initially was to sell 30 per cent of
the company, including the 25 per cent Virgin holding,
but with the board’s input, the company decided to
consider all the different options available, from selling
a block of shares through to an IPO.
After the sale of Multimap in December 2007, Mr
Phelan was flexible about his ongoing involvement in
the business. “I offered to stay on for as long as
Microsoft wanted in whatever role they wanted,” he
says. “But I think having founders around is not really
a great thing after buying a company. It usually goes
well until the acquiring company wants to make some
changes that the founder doesn’t like. Founders are
not good at toeing the line and not very good at
hiding how they feel.” Today, Mr Phelan’s ongoing
involvement is mainly public speaking, and he is
leaving the company on amicable terms.
The board eventually decided to undertake a parallel
strategy to sell the Virgin block of shares at the same
time as looking for buyers for the entire business. Mr
Phelan was sanguine about the prospect of the sale of
the business at the time. “I knew that sooner or later
we would exit, so it wasn’t an emotional wrench for
me when I thought about selling the entire business,”
he says. “We had some pretty clear financial criteria,
but more importantly perhaps, I was very concerned
about what would happen to the team and the
business after the acquisition. That became a crucial
factor to consider in any effort to sell the business.”
Aware that he would have to deal with some unusual
pressures following the sale of the business, Mr
Phelan made some rules for himself. “I set three rules
that were to last one year after the sale,” he says. “The
first rule was not to try and start another business.
The second rule was not to try and buy a business.
And third: not to make any mad acquisitions – aircraft,
super-yachts or cars you could not safely park on the
street. This third rule hasn’t been a problem at all. But
I do think there is a temptation when you have just
sold a business to think that you know everything, a
possibility of overconfidence. These rules are useful
for any entrepreneur.”
A week before the deadline for offers, Mr Phelan,
together with other UK entrepreneurs, received some
worrying news. Capital gains tax for entrepreneurs
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selling their business was to increase from 10 per cent
to 18 per cent. “This helped focus my mind,” says Mr
Phelan. “We knew that if we didn’t close the deal by
5 April 2008, we would be liable for the higher rate.
That wasn’t the motivation for going for a full sale but
it was perhaps the straw that broke the camel’s back.”
Life after the exit
Exits may be difficult in the current environment, but the
patient entrepreneur who succeeds in selling his or her
business has a variety of options in which to channel
their new-found wealth and freedom. Some
entrepreneurs will dive straight back into founding
another business, while others will prefer to spend time
with family or invest in leisure pursuits. Some will seek
to mentor up-and-coming entrepreneurs or become
business angels, while others will adopt a portfolio
approach, playing several different roles at once.
Often, the most immediate question for an entrepreneur
who has gone through the exit process is the nature of
their ongoing relationship with the business. This can be
tricky. “There are emotional issues for an entrepreneur
who stays involved in the business after the exit,” says
Ms Coutu. “It can be difficult for them, as inevitably the
company will want to make some changes.
Entrepreneurs need to learn to distance themselves
from the business.”
Charles Collier, Senior Philanthropic Adviser at Harvard
University, who works with many US entrepreneurs after
they have exited their businesses, stresses the
importance of keeping a work ethic after the exit,
notwithstanding the desire to spend more time with
their family. “It can take a couple of years for an
entrepreneur to really get an understanding of what
they want to do with their lives after their liquidity
event,” he says. “Many entrepreneurs understandably
are keen to spend time with their family, particularly
after they have invested a lot of time in building up their
business. But it’s important for those entrepreneurs with
younger children to instil a work ethic by going out to
the office every day.”
Serial entrepreneurship, a trend that has already been
observed for some time in the US, is also becoming more
prevalent in countries such as the UK. “In the past, many
entrepreneurs in the UK used to build the business, sell it
and then live off the proceeds,” says Mr Cohen. “That’s
changed now. More people want to get involved in new
ventures, leading to more serial entrepreneurs. We are
seeing many more entrepreneurs that have a much
bigger appetite to do something again.”
In Asia, a strong culture of family business ownership
and succession means that serial entrepreneurship is
less widespread. “If they go through an IPO, Asian
entrepreneurs often sell the minimum number of shares
necessary to float the company and will keep tight
control of the business,” says Mr von Daeniken. “My
sense is that there is less serial entrepreneurship in Asia,
although entrepreneurs may become involved in other
projects within the family group after the IPO.”
If you have (or were to have) more free time as a result of selling your business, how do/would you spend it?
Graph 12 – Entrepreneurs only
Travel
20%
Spend more time with family
20%
Setting up a new company
17%
Taking on an advisory role in another business
15%
Hobbies/leisure activities
15%
11%
Philanthropic activity
Taking on an operational role in another business
4%
Oher, please specify 0%
0
10
20
30
40
50
60
70
80
90
100
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Good business: The rise of philanthropy
Philanthropic activity may be fairly low on the list of
post-exit priorities for entrepreneurs in the survey, but
the number that are dedicating at least some of their
time to charitable work is on the increase. Moreover,
the way in which entrepreneurs are approaching
philanthropy is changing, with many seeking to apply
the lessons they have learned in business to the way
in which they give. Although many of the trends
described below are most advanced in the US, where
the state has traditionally played a relatively minor role
in the provision of welfare, they are spreading more
widely, including to the key emerging markets of
Brazil, China, India and Russia.
“There is a trend for donors to
become more involved in their
Many donors with a background in business expect
philanthropic organisations to be run efficiently and
will measure performance by looking at outcomes.
“Businesses and charities are not the same but they
both need transparency and quality governance,”
says Ms Mackenzie. She also believes that newly
wealthy donors are more willing to support
innovation in philanthropy. “You need to be able to
take risks to find new ways of doing things,” she
explains, “and donors are looking at more innovative
ways of spending their money.”
Some donors will be willing to fund overheads, by
investing in computer systems for example. Others
will look to explore a broader range of financing
options, such as loans and ‘quasi-equity’ (debt that
has equity characteristics), to fill gaps in the
traditional funding market.
donations. Philanthropy is
becoming a more important part
of donors’ lives.”
“You need to be able to take risks
to find new ways of doing things
and donors are looking at more
Susan Mackenzie, Director of Philanthropy UK, a
leading source of advice to donors and aspiring
donors who want to give effectively, believes that the
world of UK philanthropy is in the midst of a sea
change. “The biggest difference is a demographic
one,” she says. “A tremendous amount of wealth has
been created over the past five years. Traditionally,
most wealth in the UK was passed down the
generations. Now it is mostly new wealth, and many
of those entrepreneurs have different priorities and
ways of engaging in philanthropy.”
One major change that Ms Mackenzie sees is that
donors are more likely to give within their lifetime
than to leave a bequest, which has until recently
been the more traditional approach. “There is a trend
for donors to become more involved in their
donations,” she says. “Philanthropy is becoming a
more important part of donors’ lives. One of the
main reasons is because they enjoy it. Donors get
satisfaction from mingling with their peers, meeting
like-minded people and, very importantly, seeing the
impact of their giving.”
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innovative ways of spending
their money.”
Although there is still a general reluctance among
wealthy donors to speak publicly about their
philanthropy, another trend is that donors are
becoming more willing to discuss and be open
about their motivations. “This is partly because they
see others doing it,” says Ms Mackenzie, “but mainly
it is because it helps the causes that they are
supporting. Press coverage has undoubtedly had a
role to play here.”
Conclusion
Entrepreneurship has long been recognised as the
lifeblood of a successful economy. Countries that have
thrived over the past few decades have, more often than
not, been those that have put in place the institutions to
support entrepreneurs and attracted the investors and
intermediaries that are necessary to turn ideas into
successful businesses.
Although countries vary widely in the degree to which
they have enabled entrepreneurs to develop their
companies, it is clear that there has been a general
improvement in the global business environment.
Improvements in the conditions for enterprise in many
regions of the world are leading to the ‘globalisation of
entrepreneurship’ with the most ambitious, successful
entrepreneurs thinking globally about potential markets
and opportunities.
But despite these difficulties, there are strong grounds
for optimism about the current state of
entrepreneurship. It is in the nature of entrepreneurs to
use their perseverance, risk-taking zeal and creativity to
overcome obstacles and see opportunity where others
see only adversity. Indeed, there is a strong argument to
be made that the current financial crisis, rather than
impeding innovation, may actually encourage it.
While overall conditions for entrepreneurship have been
on an upwards trend for many years, recent events have
changed the landscape. Since August 2007, a
deepening financial crisis has dramatically affected the
short-term prospects for entrepreneurship in many
regions of the world. Early-stage investment has slowed
to a trickle, declining customer and business confidence
has dampened demand, and the environment for exits
has become highly unfavourable.
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Methodology
Written by the Economist Intelligence Unit (EIU) on behalf
of Barclays Wealth, the report examines the motivations,
characteristics and perceptions of entrepreneurs around
the world, with special emphasis on how they are dealing
with the challenges of today’s economic environment.
It is based on two main strands of research: a global
survey of more than 2,300 mass-affluent (with up to
£1 million in investable assets), high net worth (with up
to £10 million in investable assets) and ultra high net
worth individuals (with up to and in excess of £30
million in investable assets) and a series of in-depth
interviews with experts on entrepreneurship. Among
these 2,300 respondents, 960 were entrepreneurs.
Please note that in some cases percentages used in the
report may not equal 100, either because survey
participants were asked to select three choices or
because neutral or ‘don’t know’ responses have not
been included.
Survey demographic
The 2,300 respondents were recruited from EIU
databases of individuals around the world.
The survey was undertaken between March and
April 2008 by the EIU.
Geography: Canada, the United Arab Emirates, Hong
Kong, India, Monaco, Spain, Singapore, Switzerland, the
United Kingdom and United States were each
represented by 100 respondents. Additional
respondents were generated from elsewhere in the
world (30 per cent North America; 30 per cent Europe;
30 per cent Asia-Pacific; 5 per cent Latin America; 3 per
cent Middle East; 2 per cent Africa).
Net worth: 40 per cent between £500,000 and £1
million in investable assets; 40 per cent between £1
million to £10 million; 10 per cent between £10 million to
£20 million; and 10 per cent have more than £30 million.
More than 40 per cent of respondents are entrepreneurs.
Legal note
Whilst every effort has been taken to verify the
accuracy of this information, neither the Economist
Intelligence Unit Ltd. nor Barclays Wealth can accept
any responsibility or liability for reliance by any person
on this report or any of the information, opinions or
conclusions set out in the report.
This document is intended solely for informational
purposes, and is not intended to be a solicitation or
offer, or recommendation to acquire or dispose of any
investment or to engage in any other transaction, or to
provide any investment advice or service.
Contact us
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