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