Eigen Cortex

It was wonderful to hear the British Business Bank present on the opportunities for business funding in the Midlands area through the recently initiated Midlands Investment Engine Fund II. The funds focus on supporting high-aspiration SMEs was particularly clear and encouraging. Fascinating to hear about the options across equity, small and large debt options from Mercia Ventures, First Enterprise - Enterprise Loans and Maven Capital Partners. Fund I deployed £300m and unlocked a further £400m of private sector capital alongside - we look forward to seeing more of the same!

“Time kills deals” We have seen this statement brought up three times in posts the last week in respect of business acquisitions – like this good one from Al Zucker (https://lnkd.in/gK62rUws). Either there is a great sense of urgency out there (perhaps fuelled by lots of voting - https://lnkd.in/g_uGcd_z - plus 2.5 international level conflicts), or it is a confirmation bias and people are always writing about it, but we have just noticed it. In all events, we got to thinking: does “Time kills deals”? Unsuprisingly, there is not much real research into the assertion that “time kills deals” in respect of M&A, not because it is wrong as such, but because is not really a useful statement. Lots of things definitely do kill deals, such as bad DD findings, deal funding options changing, personality clashes, or big external events. And guess what, they all happen over “time”. But deals are like people, and it is not scientific to say that time kills people. Over time, deals fail, but this correlation is not causation. Time waits for no deal, but it doesn't care about it either. Contrary to the well-worn old saw, we often find that time and the opportunity to get to know a business or a counterparty can make the deal happen. Trust – in the people and in the data – is crucial, and everyones aims become more apparent. Hence, perhaps beware the party or advisor that seems to be an unjustified haste! All deals have to end one way or another but don't let the fear of time undermine the real opportunities.

Thank you to the MTC - Manufacturing Technology Centre in Coventry for a truly fascinating visit this morning. We left thinking what an amazing place to work it must be, with so many cutting-edge toys to play with (sorry "bring to commercial adoption"): huge laser welders, a factory-in-a-box, massive robots for moving modular home components, and a 3D printer bigger than you can ever imagine. Amazing. It was incredible to learn about the work this amazing site does, especially its support to UK SMEs. Thank you to ICAEW for organising the event, and the very knowledgeable Junuz Jakupović for showing us around.

Wonderful to see PitchBook placing London at number 7 in the top 50 cities globally for startups - only behind the obvious US and China centres, and easily the leading location in Europe (https://lnkd.in/exA39bC4). Next challenge is to make is a more compelling scale-up city, and a place where the best start-ups can grow and stay into their economic maturity. Making the steps to encourage more late stage investment has the be a priority of the (whoever is) the UK Government if the UK is to not end up being an only an economic nursery school (https://lnkd.in/dM2ESvQS).

Feel like you are slipping sideways? Fear not, you may be onto the winning path, as this great article in The Economist sets out: https://lnkd.in/emDnRzmM Lessons: - If you are a leader-manager create opportunities for lateral moves. Your employees will stay with the organisation to build experience and learn. - Value leader-managers who look for development opportunities for colleagues and don’t hoard talent in their team. It makes money in the long run. - If you are an employee, take up chances for lateral moves, they build experience and breadth and increase the chances of late career promotion: build bench-strength for ongoing career development. - People will voluntarily electrocute themselves to avoid boredom!

At Eigen Cortex we have followed the work of Steven Bartlett on Dragons' Den, but not really engaged with his podcast The Diary Of A CEO, so when a recommendation came in it took a few weeks to get it into our headphones. The episode sent to us, Steven's recent interview with Daniel Priestley, was excellent. Listen here: https://lnkd.in/ekjCUKjx (it is also YouTube, Spotify etc). Our favourite bits - "Never before have people had the opportunity to build something that is a global business, full of fun, freedom and flexibility, full of passion and purpose... The Baby Boomers, they got access to affordable housing. We get access to affordable global small businesses." - 1:28:35 to 1:37:33: Daniel talks about buying existing small businesses. One of our favourite subjects. Describes it as "one of the biggest opportunities in the world right now". Cheers to that. - The whole discussion on running sensible experiments as an entrepreneurial process, especially the "waitlist hack". Everyone needs to know this (6m 57s and throughout from there)! The whole interview was full of inspiring energy and great advice. Required listening. Thank you to the excellent Sophie de Rosee for the recommendation.

Science: Psychology beats business training for entrepreneurs. At Eigen Cortex we are big fans of the awareness and application of good psychology in the business environment. Business is a human pastime so why wouldn't psychology be relevant. So this study published in Science Magazine (2017) has been a favourite for a while, and is always worth a re-read: https://lnkd.in/e2rVPBda In the study a large group of small business entrepreneurs were given access to either a formal business training programme (accounting, marketing, HR etc) or a programme focused on personal initiative (mindset, problem solving, innovation, planning and feedback and so on). Both groups benefited, but the entrepreneurs who had received the psychological training saw a 17% increase in monthly revenue, and a 30% increase in profits versus those in the formal business training programme: "Entrepreneurs who went through personal initiative training earned higher profits than those in the traditional training or control groups at every percentile." Lesson...As The Economist put it in their own write up of the results (https://lnkd.in/euevDin2): "Budding entrepreneurs might want to avoid the business shelves and make for the psychology section."

Re: Cazoo - as Russ Mould of AJ Bell puts it, they key question in terms of the crashing share value of the company is "Why on earth they got to where they did in the first place". The article put forward some interesting macro points on the thundering loss of value (c$8,000m at listing in in 2021 to c$20m now - ouch) including: the impact of covid, the recent decline in used car values, the decision to list in New York. But this is all incidental. Ultimately, the case for digital dispruption was overplayed and the fundamentals of the industry misunderstood. Dealing in cars remains a very physical activity. The cars are big lumps of capital held on stock that must be bought wisely if not to become lead weights on the balance sheet. They need storage and transport, and despite the best efforts of Cazoo and others, it seems most customers still want to inspect the goods before buying the first or second most expensive asset in their life. Car dealing is capital and operationally intensive. Cazoo is a fabulous case of the Emperor's New (digital) Clothes. It convinced the market that digitisation plus some snappy advertising was the key, yet even with 65k used cars sold in 2022 it never hit the volumes of competitors such as the listed Pendragon PLC (which even with the bump of a pending acquisition is still only worth c£600m). Digitisation can propel an industry forward, and companies like AutoTrader are doing fascinating things with both marketplaces and data. But when the rubber hits the road, big expensive tangible assets remain very much "IRL" things and dealing with that remains a core skill for any operator in the sector. "Why on earth they got to where they did in the first place"? Hubris, bias and plain old silliness. https://lnkd.in/eregYxVt

"Nearly Half of M&A Deals Wind Up in Accounting Disputes" - Grant Thornton LLP (US)... Easy to image that. And we believe most of the remainder would be legal points. In many ways, what else is there? Issues around accounting and legal points are why some much blood, sweat and tears are spend paying for the advisors to place fig leaves over the areas in question. But digging in it is clear that the same solvable issues keep coming up, and could be mitigated with a little proactive action. For example, across all deal sizes c.40% of deals reported a dispute around the working capital true-up. It is true even for SME deals. As Grant Thornton write: "Parties to a deal should not think that they are less likely to be affected, solely due to the size of the deal." Vague language remains the enemy of so many deals, as shown in this report. But aside from a failure to be clear, there is also the theme of being overly reliant on GAAP of other standards that often still allow a lot of discretion despite being a standard. The key point - if in doubt get it clear as early as possible. https://lnkd.in/gC8t73si

"The roulette table pays nobody except him that keeps it. Nevertheless, a passion for gambling is common, though a passion for keeping roulette tables is unknown.” - George Bernard Shaw (Accidentally sharing wisdom on finding the right business ideas!)