Founders and business owners often say proudly, “I’ve never borrowed a penny.” This can sound a measure of success but sometimes it is sadly an opportunity missed.
Essentially, if your business can deliver a higher return than a bank or investor is looking for, then you are leveraging or making a profit on someone else’s money. Does that sound like a bad idea?
Sometimes banks can be reluctant to lend to new businesses or for new projects where there is no long track record of success, so that option is sometimes closed to innovating businesses.
But could another well-established option be getting more attractive?
As Venture Capital Trusts gear up for another bumper year, it is becoming clear that supply of funds is outstripping demand from companies. As always in cases of supply exceeding demand, prices tend to fall.
If you’re an investor, this is not such good news but conversely, if you’re a business looking to attract investors, it could be. More funds chasing less opportunities means that it is likely that companies looking for investment will get a better deal.
In addition, whereas VCTs have often been seen as suitable only for those more mature companies seeking larger investors, new rules mean that there is a greater emphasis on companies in their infancy, which will mean better value and more opportunity for smaller or early start companies.
Pension changes are having an effect, with more people having control over their pension funds and looking for better returns than traditional investments offer. After two strong years of fundraising, several VCTs have lots of cash and there is pressure to get it deployed, which is a great position for a good company seeking investment.
One well respected VCT manager was quoted saying: “We see thousands of opportunities and meet hundreds of entrepreneurs each year in the UK which is thriving. We have doubled the number of new deals in the past 12 months.”
For the right business, exploring the option of getting investors to back them can turbo charge growth opportunities and support the company in reaching its growth ambitions.