To look at what funding options are available to businesses looking to grow and scale-up, Business Leader brought together a panel of experts from across the funding spectrum, to delve deep into the subject matter.
Jacqueline Watts, A City Law Firm
EJ Flynn, The Supper Club
Tom Britton, Syndicate Room
Alexei Garran, Shaw + Co
Matt Gubba, BizBritain
Andy Vears, Metro Bank
Steve Ive, Investec
Stephen Brewer, Lombard Asset Finance
Tom Purkis, Maven Capital Partners
Chand Patel, Bagboard Ltd
Kevin Steinlechner, Radcliffe & Newlands
How are the funding options available to businesses evolving?
EJ Flynn: “I have heard that there are something like 320 different types of funding options available, which is huge.
“To help with this, The British Business Bank is looking to create a portal where you can search and find out what is available. Now, entrepreneurs are having to be much savvier in pinning down what option is best for them.
“Entrepreneurs are not just looking for money now either, they’re looking for much more and this can be around what networks the funder can introduce them to.”
Matt Gubba: “A big challenge is the lack of understanding around what is available and what is right for businesses. The other thing we’re seeing is younger businesses, who are not as educated, going to the major banks and getting batted away after applying because they haven’t got either the track record or the understanding and it puts them off. I think there should be more awareness of what’s around other than the traditional methods.”
Alexei Garran: “We see a lot of people borrowing any which way they can, without any order around liability structure. What’s happened is people have concentrated on the asset-based and business growth side and neglected the attention on what’s being paid out for capital.
“People can choose whatever avenue they like but what’s smart to do is assess which option is likely to have the more positive impact on your business.”
Jacqueline Watts: “Education on the options available to entrepreneurs needs looking at. When companies come to us, especially early stage start-ups, they only have equity. They haven’t had a look at all the funding options available and instead we see a lot of businesses blindly going for one particular option.”
EJ Flynn: “There is something with start-ups and the sexiness surrounding ‘closing a round’, and it’s the ego shot that they can close a million pound, but maybe it could have been much better with another option? There’s a love story that the press has with fundraising of these types at the moment, but beyond the headlines the funding option has to be what’s right.”
Do you believe entrepreneurs know the difference between the different types of funding available?
Chand Patel: “I’m unsure the advice has been there, and the options remain unclear. What we’re seeing is a gap between the earlier stage VTC/EIS qualifying, and then older businesses who haven’t quite showed that recurring revenue.
“Once businesses reach a certain level of scale it’s probably more obvious which route to go for. I read in the recent British Business Report that 70% of smaller businesses would rather not borrow for growth than actually grow, which shows that there is still some negativity around this. There’s still a lot of businesses out there which are nervous and hesitant about funding.”
Steve Ive: “It’s a time-consuming thing looking for debt or equity and you need to be targeted in terms of who you speak to and that they’re the right people in terms of deciding.
“We see lots of people who haven’t done the preparation and don’t know what they want. It’s very hard to be supportive on that basis until there’s a clearly defined plan.
“It’s impossible for a business to know all the options and to know where the lenders are in their cycle, as what they were doing six months ago isn’t necessarily what they’re doing now.”
How are we seeing equity investment changing?
Tom Britton: “I think we’re starting to see companies finally realising that they should be raising more capital than previously. When the Syndicate Room started almost six years ago, companies wanted to do small frequent rounds, and if you’re raising capital that takes time. Doing these small rounds means you raise the money but then after a few months you need to raise some more.
“Now, businesses are more open to taking more. It’s pleasing to see entrepreneurs looking for larger rounds to raise more capital.
“However, larger rounds do mean they’re giving up a bit more of the company because they’re taking more valuation, but it means they can scale it more in that round and then the next. The landscape is going more towards where Silicon Valley is, where people raise larger seed rounds than wanting £150,000 and then needing more.”
Where are we seeing investment in the UK? are we seeing it outside of London or is there a bigger problem here?
Tom Purkis: “There’s a lot of good growth businesses out there which potentially don’t have the same attention as others around London. There’s still a lot of capital in the private equity market, whether that’s based on the venture capital side or the buyout side which has increased the pricing.”
Regarding asset finance, the sector has seen record levels of investment – what’s next for it?
Stephen Brewer: “We like to see customers with a blend of funding, leveraging different elements of their balance sheet. Whether it’s funding assets or funding debt, I think working across products is better for a customer in order to get more efficiency, more effectiveness and more growth of capacity for capital.”
Moving onto banking – What is the reality around bank lending to businesses?
Andy Vears: “Because we’re a new bank, we’ll do these deals between £1m and £8m, and the other banks don’t get out of bed until it’s at least £10m, so there’s a nice gap for us in the space of MBO’s and MBI’s. All we do is finance a business without them giving away any of their company, and for us it’s about knowing the company and building a relationship.
“It’s something which banks should be doing, and I don’t think our industry promotes enough of it. We need to promote what we do in banks better.
How can businesses best prepare for sale?
Alexei Garran: “Engage early in the process. You’re selling all the time and exiting most of the time, especially a couple of years out. Get advisors on board early, to point out what creates enterprise value.”
Jacqueline Watts: “From a legal standpoint you have to have your house in order. It’s never too late to get all your legal documents sorted and make sure that you can have a very slick due diligence process, because it is painful and always takes longer. It’s hard as a seller to also run a business at the same time especially as you close to completion.”