Richard Onians was one of the leading figues in the venture capital world, before his untimely death in 1999. The following is a synopsis of his celebrated lecture delivered to the Royal Society of Arts entitled "Making Small Fortunes: success factors in starting a business". It is made particularly topical by the current wave of venture-capital backed dotcom start-ups. It will be interesting to see which of these survive, and in doing so how closely they have followed Onians' Laws.

All experienced providers of new capital for business start-ups have seen substantial sums disappear into well-intentioned but badly conceived and executed businesses. My purpose here is to identify a few investment criteria which, if applied, can improve the success rate of new business creation.

For evidence, I conducted a personal review of 20 start-ups to which I have had exposure. I took the ten that failed most spectacularly and the ten most successful, and attempted an objective assessment of the causes of failure and success.

Experience tells me that there are six headings under which all the important causes will fall. These are the abilities:
1. to analyse and exploit a market
2. to develop, communicate and implement a realistic strategy
3. to manage technology or product development programmes in an efficient and timely fashion
4. to attract sufficient capital on affordable terms
5. to install, interpret and act on reliable management information
6. to recruit, build and motivate a competent workforce.

1. The market place
There are two market-related capabilities a business needs to succeed: to know the market and to exploit it. In our sample of 20 businesses, with one exception the failures did an acceptable job of analysing their opportunity. As for exploiting it, i.e. in closing sales, only in two cases can we say that incompetence was a major contributor to their demise. We can conclude that lack of marketing ability need not be fatal, but its presence will contribute to success.

2. A realistic strategy
Five of our problem children, despite their failure to survive as independent businesses, had devised strategies that with hindsight were workable. The other five got it demonstrably wrong. Our prodigies seem to have got it right ten times out of ten. Conclusion: a realistic strategy always accompanies success but can also frequently be a fellow-traveller of failure.

3. Managing technologies or product development
New world class businesses should be, and are normally, innovative. During the start-up period, management is often preoccupied with the development of a new technology, product or service which will eventually become the main revenue earner for the business. An ability to manage this development process within agreed resources and timescales is therefore crucial. Eight of our failures missed their timing by a significant margin, but even four of the successes did likewise.

While these first three causes: marketing, strategic positioning and late product development, are important factors, they are in my view subsidiary to those causes which are resource-related, specifically the resources of money, information and people.

4. Attracting sufficient capital
The tendency in the UK is for entrepreneurs to use banks as their preferred source of start-up funds. Out of the ten failures, nine were very highly dependent on their bank's short-term lending. Our ten successful start-ups behaved in a more truly "capitalist" fashion, i.e. they were much more dependent for their start-up finance on shareholders' funds. They accepted significant equity dilution in return for a solid balance sheet. They realised that 10% of the equity might eventually be worth more than 100% of an under-capitalised, underperforming enterprise.

5. Reliable management information
In five of our failed start-ups, lack of numeracy or numerical judgement played an important part in their demise. They tended to place too much reliance in computer-generated forecasts whose precision brought with it a false sense of security. In all the successes, an ability to make a realistic assessment of financial needs and expectations made a critical contribution.

Here, the non-executive directors, by applying objective and experienced judgements to the monthly or quarterly figures, helped management to question the validity of even the most immaculately prepared spreadsheets.

6. People and their pay
The most critical cause of success or failure was however the quality of the management team and its approach to remuneration. In our little sample of 20, the ten successes are dominated by those who took a long term point of view, and paid themselves only what the business could afford. Of the unsuccessful ten only three had a thoughtfully constrained attitude to their own compensation. The other seven were somewhere on a scale between Oliver Twist and the reputed practices of chief executives of privatised utilities!

We also have evidence that prima donnas rarely succeed in establishing a sustainable business. In four of our failed start-ups the seeds of destruction were sown and reaped by the founder of the business. In the majority of the successes, a tight-knit, self-selected, complementary management team has taken the business from milestone to milestone.

To compete in increasingly competitive world markets, Britain urgently needs more boldly managed, more robustly financed, more internationally aggressive start-ups which build on our demonstrated ability to innovate. Experience has convinced me that the key to this success is less reliance on short-term management practices and much greater commitment to building long-term value through truly "capitalist" attitudes.