What is the current state of the private equity market?

Business Leader recently sat down with Oliver Woolley, the CEO of Envestors, a fintech company that connects investors and scale-up companies. Oliver talks about the current state of the private equity market.

What trends are you seeing around private equity?

We are seeing an increasing investor interest in the medical, health and wellbeing sector.  It’s a competitive area, but we are seeing early stage companies that are demonstrating technology so innovative that they are redefining disease prevention, diagnostics and care.

What are the benefits of giving away equity ahead of debt?

Debt is only offered when the risk is minimal: the business will have to be at a point where they are achieving monthly profitability before trying to borrow funds.  I believe it’s far better to seek equity financing, as early stage companies shouldn’t burden their balance sheets with debt that needs to be serviced and affect their cashflow.

The main advantage of equity financing is that a business is not obliged to repay it – though of course every founder wants their business to succeed and make their shareholders money.  The other crucial advantage is that with equity finance you are not charged interest.

How best can a business turning over between £1m and £50m position itself to take on equity? What do they need to do and what do they need to avoid?

Like good football managers and whether it’s a £1m or £50m business, we look for founders with a clear vision, tactical nous and who can inspire and lead a team. Also, someone who has the perseverance and intellect to adapt the business when even Plan B needs refining.

We look for the obvious things in founders such as passion and drive as well as people who deliver a sensible and credible business plan.  Also, someone who has the perseverance and intellect to adapt the business when both Plan A and Plan B have not worked. The most important factor is to show potential investors a solid, strong path to profitability and exactly how they will get their money back.  There should be a demonstrable route toward a trade sale – the most common form of exit – or a flotation.

In terms of what to avoid, we receive around 200 decks a month and buzz phrases quickly get old – use of an algorithm to process data doesn’t equate to AI. Founders who say they are going to be the next Facebook, Twitter or WhatsApp generally aren’t and anyone requiring a huge amount of marketing spend – to drive users and buy market share – is a turn-off to investors.