How can you leverage funding options to scale up?
BLM was the media partner for the 2019 Business Funding Show. Held at East Wintergarden in Canary Wharf, it brought together some of the UK’s most prominent investors, professionals and business leaders to pour over the latest trends shaping the funding market.
Here are some key takeaways from the show.
What role is British Business Bank playing in the funding eco-system?
Alice Hu-Wagner, managing director of British Business Bank: “It is a wholesale bank and we ensure there is enough funding available to keep the whole eco-system moving. You can’t ask us for money, but we help to make sure the people that you do ask for money, have it.
“Awareness around different funding options such as alternative finance is actually pretty low amongst SMEs, so our job is also to inform businesses about these options and how they can leverage them.”
Considering the current economic challenges, are investors likely to have less desire to invest in businesses?
Peter Cowley, serial entrepreneur and investor: “Not from my perspective, no. I receive about 300 cold proposals a year which are then screened, and I end up investing in about six or seven of them. This will not change at the end stage, but what does worry me is that capital availability may slow down.
“One interesting trend is that there are many more entrepreneurs now than there were ten years ago, and there isn’t enough capital to go round for everyone. So, what we do as investor is end up backing the good people who have been there and done it. I’d rather invest in an entrepreneur who has failed, than somebody who hasn’t tried it before.”
Jenny Tooth OBE, chief executive of UK Business Angels Association: “I do agree with Peter that investors will not change their approach due to the current climate and they will continue to back good entrepreneurs.
“When angels invest, they’re looking for businesses that can scale, so it’s important that funding options at the later stages in the cycle are also well funded.
“One issue we’re still not tackling is that 68% of investment is still in London and the South East. We need more investors operating in the other regions, to help build their local economies.”
How do we encourage more women and people from diverse backgrounds to become part of the investor scene?
Jenny Tooth OBE: “Around 15% or 16% of the investment population are women and we’re working hard to encourage more females to become investors. It’s true that the more female investors we have the more female led businesses will receive investment – which is good for the eco-system.”
Which sectors are most active for investors?
Alex Sleigh, investment director at Newable Private Investing: “Office space and the flexible working market and the data that surrounds it is a growing market for us. We’ve funded around ten companies operating in this space. Alongside this it’s about innovation and that covers all sectors.”
How can businesses take advantage of grants and loans that are available?
Nigel Walker, Head of Innovation Lending at Innovate UK: “Innovate UK runs two grant funding programmes. One is focused around the industrial strategy and looking at the big issues around AI, infrastructure and transforming construction.
The time and scope of this funding programme doesn’t work for everybody though, so we have another competition called SMART and this responds to the challenges business people put to us and funds the best innovation led projects across the UK.”
How do we solve the problem of investments being centralised around London and the South East?
Alice Hu-Wagner: “I recently attended an event in Bristol and asked entrepreneurs where they typically go to look for funding. They answered London.
“Something is broken outside of the golden triangle of London, Cambridge and Oxford and it’s up to us an investor community with the universities and business leaders in the cities outside of London to fix it.”
How can you tell between a real investor and one who is just there for a free lunch?
Peter Cowley: “What you need to do is find a deal lead and he or she will act as the conduit that organises the investors and will save you time.
“It’s also important not to get investment from a single investor as he or she can hurt you in the long-run. You’re better served getting investment from smart angels, not so smart and also dumb investors.”
How is best to prepare your business for investment?
Karen Holden, founder of A City Law Firm: “Fundamentally, preparing your business for investment is about being open and honest.
“If you do have skeletons in your closet talk to your lawyer or tax advisor. Prepare an executive summary for your investor on why there was an error and how you resolved this.
“Making sure you own any IP and that it’s available in the UK is important too, as it will show an investor that the business has collateral.
“There are also lots of ways you can complicate a business through legal and business structures, but you won’t dazzle an investor unless your business has a simple structure.
“Finally, you will need very concise legal documents and a clear plan of your business journey, and you need to be prepared for tough questions about the financial performance of your business; as well as ensuring all of the founders are aligned and in agreement about the potential investment.”
How may the way your business handles data impact any investment?
Karen Holden: “There is also a requirement around GDPR now and ensuring the way you handle data meets regulations. Investors will be looking at your business’s GDPR policies and they don’t want to acquire a company that isn’t compliant. This means you need to look at contracts and processes.”
What is EIS investment and how can it help businesses?
Stephen Hemmings, Corporate Tax and Tech partner at Menzies LLP: “It was introduced by government to incentivise investors with tax relief and recognise the risk they’re taking. You get income tax relief up front and you can also receive tax relief on exit.
“SEIS is for smaller companies and you can claim up to 50% tax relief up front. You can also claim up to 72% back, should the investment go wrong.
“EIS is for larger deals and you can claim 30% tax relief up front.”