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15/11/2013
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Access to Finance update Jerry Davison, The Mill Consultancy and SouthWestfd
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Agenda
Ê Risk and reward equation
Ê The current funding landscape
Ê Equity
Ê Debt
Ê South West and Government initiatives
Ê Some funding examples
The risk and reward equation
Time >
Capital need
Growth
Seed Start up Early growth Sustained growth
Risk
Flotation
VCs/private equity Business angels/small VCs/ crowdfunded equity and loans
Friends, family, employees
Bank finance - with security
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The current funding landscape
What are we seeing?
Ê Bank finance very difficult and more expensive
Ê Angel equity (funding directly by individuals) is plentiful: £800 million p.a.
Ê Advent of web-‐based ‘crowdfunding’ (lending and equity)
Ê A few VCs are investing, especially in cleantech, biohealth, web (e.g. SaaS), mobile, energy
Ê Many VCs sitting on their cash or propping up existing investments
Ê Lots of Government initiatives such as grants and tax incentives
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For earlier stage companies
Ê equity
Ê grants and quasi-‐grants
Ê Enterprise Finance Guarantee
Ê crowdfunding – equity only
Ê mezzanine
Ê tax incentives – R&D credits, EIS and SEIS
For later stage companies
Ê bank lending Ê invoice discounting Ê leasing Ê unsecured loans e.g. mezzanine Ê peer-‐to-‐peer lending Ê equity -‐ including crowdfunding
Ê larger grants Ê tax incentives
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Finding Equity
Ê Sources Ê Friends, family, employees
Ê Business angels Ê Angel funds, syndicates and networks
Ê VCTs, Venture Capital, private equity Ê Crowd funding
Ê How do you find them? Ê Google, Advisors, BVCA and UKBAA
Ê Investors like tax incentives – SEIS and EIS
Equity -‐ some metrics
Ê Only 6% of private equity is invested in start-‐up or early stage companies – the rest is follow on funding, MBOs, expansion
Ê For the best entrepreneurs, with the top 1% of propositions, there is plenty of funding out there
Ê The next 5% or so will usually find funding, it justs takes longer
Ê Fewer than 5% of SMEs demonstrate the > 20% per annum growth potential which makes them investment attractive to equity
Ê Typical size equity deals: Ê £250k to £2m for early stage Ê £500k to £50m+ for established companies needing expansion or MBO
capital
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Crowdcube | Transforming Equity Finance
§ Crowdcube is the world’s first and leading equity crowdfunding platform letting people invest in UK businesses
§ Crowdcube is authorised and regulated by the FCA
Benefits
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Success so far…
£16 million
funded so far…
£250,000 largest single investment
>50,000 members
Deals successfully funded
81 £1.95 million
biggest deal
£2,500 av. investment >5,000
Self-‐Cert HNW or SI
Debt finance sources
Ê Banks -‐ maybe
Ê Enterprise Finance Guarantee – only £194m lent 1 July – 31 Dec 2012 Ê Companies with little or no security; loans up to £1m
Ê Factoring and invoice discounting – and new models on the web Ê e.g. Platform Black, Market Invoice, Tinderbox
Ê Leasing, other asset based finance
Ê ‘Mezzanine’ loans – unsecured but high cost e.g. BMS Finance
Ê Peer to peer lending
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Peer-‐to-‐Peer lending
Ê e.g. Funding Circle Ê Requires at least two years of filed accounts
Ê Funding Circle has financed £173m of loans to date
Ê Online auction basis
Ê Interest rates ~ 9%
Ê The future method of debt funding for SMEs?
Ê p2pmoney.co.uk/companies.htm
Government initiatives
Ê Grants e.g. GBI, R&D and innovation (Technology Strategy Board -‐ Smart), Nesta; note matching requirements for most grants
Ê Business Growth Fund: equity £2m-‐£10m in larger SMEs
Ê Enterprise Capital Funds
Ê Angel Co-‐Fund: co-‐investment with angel syndicates
Ê http://british-‐business-‐bank.co.uk/applying-‐for-‐finance/
Ê https://www.gov.uk/business-‐finance-‐support-‐finder
Ê http://www.businessfinanceforyou.co.uk/
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Some South West initiatives
Ê PWGF -‐ £3.9m from the RGF – grants up to £150k
Ê SWIG -‐ Start up loans; Loans Fund; Cleantech Fund -‐ £250k
Ê Angels: SWAIN, Silicon Beach, Horatio, Notion, Devon Business Angels
Ê Grant funding – GBI, BIG and R&D – particularly strong in Cornwall
Ê Fredericks Foundation – up to £20k
Ê http://www.gaininbusiness.com/funding
Funding structures
Ê Most entrepreneurs are likely to use a whole mix of finance Ê Equity Ê Debt Ê Grants Ê Tax breaks Ê Examples – Forest Fuels, Cornish Sea Salt,
Fizcast
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Funding examples
Ê Forest Fuels – biomass wood fuel supplier (2009-‐2013) Ê Equity, Funding Circle loan, invoice discounting, very small
overdraft
Ê Cornish Sea Salt (from 2008 and onwards) Ê Equity (founder and two regional VCs), GBI grant, Springboard,
mezzanine loan (regional VC), commercial mortgage facility
Ê Headcastlab – digital animation apps (in late 2012 and 2013) Ê Equity -‐ £150k under SEIS then £170k EIS Ê GBI grant £225k and BIG grant £11k
Strategy
Business Development
Business planning and forecasting
Investment readiness
Marketing consultancy
Raising finance
Share option schemes
Commercial advisory services
Exit readiness
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Some other sources and initiatives
Ê Pension scheme (e.g. transfer of property, or even IP to a SIPP or SSAS fund)
Ê Supply chain finance – large co approves payment – 100% advance
Ê Santander – ‘Breakthrough’ Ê £200m for high growth co’s Ê > 3 years trading Ê mezzanine loans
Ê flexible repayments
Ê Discount for early payment?
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