Early-stage companies flourish with mentoring

Providing start-ups with sound mentoring and business advice is crucial to the success of your investment, says NESTA Investments mentor, Alan Edwards.

Mentoring is just as important as funding for early-stage technology companies - particularly if they are to achieve their objectives and provide a strong return on the investment. Alan Edwards, one of NESTA's portfolio company mentors talks about his mentoring experiences, and some of the pitfalls that such companies can face.

A steep learning curve

"When early-stage technology companies are given seed funding, they have a limited time before that money runs out. To get another round of funding, they have to prove that they have achieved their year-one objectives and are capable of managing any resources awarded to them - in other words, the management team have to show that they are credible."

Here, Alan Edwards details a scenario faced by many early-stage companies. "Not only do companies suddenly have to cope with all sorts of new business-related demands," he continues, "but they also need to develop their product or service satisfactorily in order to make the next round. And if they don't, that's it. The end. They're out of business."

Staying in business

Alan's firsthand experience of building early-stage technology companies - MD at Cardiotech then CEO of Credent Vascular - and mentoring start-ups on behalf of NESTA has given him a unique perspective on the kinds of issues that often need to be dealt with.

He explains that "Many of the people involved in early-stage companies don't have a clue about book-keeping, tax and VAT - and why should they? Their talent and focus lies elsewhere.

"But when they neglect to take care of the basic elements involved in running a business - then suddenly they have the taxman on their back. And that means they've got to take time away from the business in order to sort it out. And the business suffers as a result."

"Of course this could be remedied by a basic course in accounting and business administration, but there's a lot to take on board. And if it slips to the bottom of the pile, then they won't realise the significance of the information until it's too late.

That's where a mentor comes in. Someone with experience can spot potential problems and raise issues in good time for them to be resolved."

Industry-specific experience

However, having a mentor on board is not just about advising on good administrative practices, specialist sector knowledge is also important. As Alan explains, "There's also an established, uniform process for developing a medical product, regardless of what that product is.

"What a mentor can help with is making judgement calls. Often early-stage companies think they have to do or prove something that's not really necessary. A mentor can step in and say, 'you're heading down the wrong track. You don't need to waste your time with that.'"

Venture capitalists stand to benefit by adopting the mentoring model

There are many venture capitalists prepared to invest in early-stage technology companies, but not many of them offer mentoring support.

As Alan says, "They all have investment managers who can advise on strategy and the basics of business, but typically they don't have specific industry experience."

"More and more though, VC's are realising the benefits of attaching a mentor to an investment. Basically it improves the chances of success for the company they are investing in, giving a much greater potential return."

The value of a flexible approach

Alan believes the success of NESTA's mentoring scheme lies in the way it's organised. "If the scheme became too formalised it would detract from its value," he explains.

"NESTA has built up a fantastic bank of mentors, and they all work in a slightly different way. They use their individual experience to make a judgement about the way they can best help the company they're involved with."

"The real beauty of being a mentor is that you can be completely impartial," Alan concludes. "You haven't got a stake in the company's success, you're just there to help."