Modwenna Rees-Mogg speaks exclusively to Jon Moulton about whether you should be a turnaround angel investor.

Everyone knows Jon Moulton the big name in private investing, whether as angel investor or private equity fund manager. But how many of us know the man behind the persona and what makes him tick. We met up with him recently to seek enlightenment! These are the questions we asked and the answers we got.

Were you always passionate about investment and entrepreneurship?

I spent most of my childhood being ill, so I couldn’t go to school much. My grandfather, who was a great businessman and from a family where entrepreneurial success was in the blood, took me to work with him instead. So I was exposed to business from the earliest age. I later became a chartered accountant and did a lot of corporate insolvency — where I got a lot of power and little responsibility which made for a great learning environment. It also gave you a wonderful feel for what can go wrong. So now I try to use that experience.

Are you really an entrepreneur, not an investor?

I have a busy brain which is only satisfied by being bombarded. So I like to have half a dozen businesses on the go and a similar number of charitable activities, so I am really an entrepreneur, but investing is a way to guarantee I am involved in a pile of different businesses — QED satisfaction.

What is the trick to being a great angel investor?

The first thing is access to good flow. I probably see an angel opportunity twice a day and because of who I am, the flow is a better quality than most will see, though in the mix, inevitably is some unspeakable c**p.

The best I see are a small number of high quality deals from repeat entrepreneurs who have a reputation for doing things quickly. Deals come my way not least because I am known for being decisive, and, of course, my reputation makes me an attractive potential investor… I believe the best angel deals don’t involve funny money. The terms need to be simple, but tough, with great legals.

I am obsessive about the power of a proper set of warranties, with a catchall clause which demands that all material facts have been disclosed. It’s usually the disclosure letter which is the most important document in a deal.

As a result, I have only had to reach for the lawyers, post investment, twice and that was because there was clear and obvious fraud. Let’s face it you can’t get your money back after you have invested in all likelihood, so you need warranties which, if breached, equate to a breach of the service contract. People pay much more attention if they know they will be kicked out if they do breach.

As a rule I don’t believe a business plan, which means I am pleasantly surprised when the people who present it to me do deliver. I just don’t invest in a rubbish business and I also believe that you have to look at the industry first and the people second, but that doesn’t mean the right people aren’t important.

Look at the Better Capital team — we are a gang of people with the right experience in the right industry for us - Your readers might enjoy our A-Z of Private Equity terms, by the way. They are worth a read before you ever make another investment!

Turnarounds — the big investment opportunity right now?

It’s not happening yet and many businesses will struggle on, helped by the banks which would rather roll over a loan or extend a facility rather than face a write off. But there are many businesses out there which are not worthy of survival long term, now or later, and they won’t be saved by a turnaround today or tomorrow. I have seen 200+ deals this year at Better Capital, but only five had the right characteristics for us to make into a successful turnaround.

The turnaround market always picks up as an economy is coming out of recession. Although, it has been delayed this time around, the stats suggest that, when it does come, the opportunity will be massive, because this recession has been so deep. When it comes, and it will, it’s partly in the hands of the banks as I said, but it is also in the hands of the Coalition.

Should angels be turnaround investors — if so why and how?

As a rule, no no no! There are a few angels who can do the job, but you need a tremendous mixture of skills to get a turnaround investment right; many more than investing in a young business.

You might think I would say it, but most angels would be better off buying some Better Capital shares to get exposure to the turnaround sector and then concentrate their investing on finding a great young business to back. And remember I have made more money personally from my angel investing activities than from my earnings as a private equity fund manager! However, if you do want to invest in turnarounds, read our Compair case study cfm which is a classic in how to get it right. And tell your readers to take note of how much cash needs to be put into a turnaround to get the right result. Expecting success in a turnaround, if you bootstrap it, is dumb.

Should you chase your stars or protect your sufferers?

Chase your stars definitely, even if your instinct (and it is the instinct of nearly all of us) is to protect our sufferers.

If you only have £100k left what should you spend it on?

If you are an investor? To be honest, if the business or businesses you have backed or want to back is rubbish, you would be better off putting it on the number 36 at the casino.

You need to decide whether the business is rubbish. But what I really mean by this is that if you cannot afford to lose, don’t play. The odds in angel investing, and in turnarounds too, are bad. And if you are an entrepreneur with hardly any cash left in the bank you should spend your final pennies getting your team in better shape. Use the money to get rid of the noxious rubbish in your team so you can move on. Why did you call your new business Better Capital? Because it should be!

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