Invest in the real economy

Peter comes straight to the point; “a fundamental handicap in Belgium is an apparent lack of trust among investors, both private and managed, in our home-grown companies.  There is no reason for it—we have the skills, the education, the work ethic...  There is so much capital available in this country, parked away on savings accounts.  I cannot understand why so little of it is invested in our companies.  As an entrepreneur I would like to make an appeal that an increasing proportion of the huge capital reserve we have in this country is pumped back into the economy.”  

Principle

Although Septentrio doesn’t seek capital right now, this is an understandable appeal from an entrepreneur.  The last time Septentrio raised capital was in 2002. Since then the company has grown organically, ploughing back its profits in new product development.   For Peter it’s a matter of principle.  There’s so much talk about the economic benefits of entrepreneurship and indeed, we have a lot of  talent and the enthusiasm in this country, but that counts for nothing if there’s no money available.  

It also is about growth and the ‘anchoring’ of our talent and assets.  Peter laments the fact that so many home-grown companies are acquired by foreign companies, as opposed to the other way round.   “It’s sad to see our corporate HQs, with all their talent, move abroad.”  

Trust

Peter is not alone in his opinion.  Many of the entrepreneurs we talked to for this edition are equally frustrated, even angry, about the shortage of risk capital.  But what one can do? How do we convince investors do part with their money?  According to Peter, some of the initiatives launched by the previous Flemish government were a step in the right direction.  Instruments like the ARKimedes fund (wherein the Flemish government matched every Euro invested by a private venture capital fund) certainly help.  But Peter acknowledges that ultimately it isn’t the government that should be investing in the economy. That’s not their role; the market should be doing its job.  But the lack of trust is what it is.  Ultimately it’s probably up to companies—and the broader business community—to improve their communication to the investor community.  Peter thinks a comparison with the Dutch, Danes and Swiss can be useful.  Why do they seem more ‘chauvinistic’ than us? Why do they take so muchpride in their companies?  Partly this is a cultural matter but it may also be because these companies have done well in anchoring themselves to their home base.  And the result is that the home community invests in those companies. 

Direct communication to investors is equally important.  Peter thinks that especially non-listed companies can do more to instil trust among prospective investors.  This is because scarce (audited) information about non-listed companies is available.   While governance (i.e. bringing in external non-executive directors) is one key area where many family-owned SMEs can professionalise their business, Septentrio also found it useful to engage an auditor specifically for communication to a select group of investors.  To engender trust, one needs to be more transparent.

Think big

For all Peter’s passion about the availability of risk capital, he doesn’t actually need it today.  Septentrio is not a start-up.  The company was founded in 2000 to commercialise know-how developed at IMEC, the famed microelectronics institute in Leuven.  Within a year the first product was launched and sold to a select group of ‘beta’ customers.  Lessons were learned, the product was improved, new products followed and today the business is an international leader in satellite navigation technology for original equipment manufacturers (i.e. Septentrio does not sell products to end users or consumers).   Looking back at those years, Peter has a number of valuable tips for starting entrepreneurs. 

Stay on course

Set your objective and stay the course.  Sure, one needs to adapt to circumstances and opportunities but it is so critical to keep focused.  For Peter it’s akin to sailing.  The wind direction may change, requiring a different tack, but the destination remains the same.  To illustrate, in the early years Septentrio was asked by various parties to participate in large R&D projects focused on the consumer market.   Today Peter is thankful that he declined.  It would have destroyed the company since they were not capitalised nor organised for such initiatives.

Take the money

If capital is offered take as much as you can.  Too many entrepreneurs ask for a small amount, thinking they can collect more at a later stage.  No, don’t delay, think big, much bigger.   You need to think in terms of millions, not thousands.   

Cash is king

It’s all about money and cash flow.  We may do it because we’re passionate about the technology or the product, but ultimately it’s about money.  Don’t turn your nose up at money.  Money is the kerosene that keeps the plane in the air; without it you crash and burn.  It’s critical to build a business that generates cash.  

Get in the market

Septentrio’s first product was a rudimentary, hand-made box (admittedly with some fancy electronics inside).  It tested well in the lab, but whether it would cope with real world conditions was an uncertainty.  Nevertheless, the product was sold to a number of friendly customers, who helped test the product and thus gave Septentrio the ammunition needed to develop products that would succeed in the market.  Don’t sit fifteen years in a lab, hoping for a ‘big bang’ launch, before entering the market.  If you do so you’re likely to be hopelessly out of sync with market conditions.  And even if you do manage to come up with the killer product, then you simply won’t be able to cope from an organisational perspective.  A company can grow too quickly, especially if it is under-capitalised.  One might excel in R&D and product development, but once you start growing in the market you need to be able to follow with invoicing, logistics and recruitment.  That is not easy.