Brian Dorricott Presentation

The Funding Ladder Bristol & Bath Enterprise Network Monday, 22 nd November 2010 Brian Dorricott Business Mentor, Coach and Investor http://www.meteorical.co.uk [email_address]

Finding Money
General principles
Terminology
Things to sell
Enhancing chances of success
Funding type summary
More information

Terminology
Return on Investment
Equity

Return on Investment
Also known as:
Cost of money
Internal Rate of Return
Inflation + Costs + Risk premium
Return = ( 1 + IRR) years Years 1% 5% 10% 50% 100% 1 1.01 1.05 1.10 1.50 2.00 2 1.02 1.10 1.21 2.25 4.00 3 1.03 1.16 1.33 3.38 8.00 4 1.04 1.22 1.46 5.06 16.00 5 1.05 1.28 1.61 7.59 32.00 10 1.10 1.63 2.59 57.67 1024.00

Equity
Company is a legal entity
Company has value
Equity is name given to that value
Company has owners
Equity is shared between owners
Shares in company
Dictate rights to company assets
Control over company proceedings

Things to sell
Assets
Cars, vans, computers, property
Immediate future
Customer purchases
Invoices
Ability to pay
Loans
Dreams
Equity

Enhancing Chances of Success
Sales process
Selling company’s assets / future
Not just the MD / CEO!
Be prepared
One chance...
Learn from others
AngelsDen
Collegues
Advisors

SCOTSMAN
S olution
C ompetition
O nly me / uniques
T ime bound
S ize
M oney
A uthority
N eed

Solution

Competition

Only me / unique

Time Bound

Authority

The Funding Ladder
Overview
Quick review of each option
You choose!
Contact information
Website

Funding Ladder

Your choice...
Friends & family
Grants & competitions
Crowd sourcing
Loans & debt
Hire Purchase
Factoring and CID
Trade Finance
Revenue Based Finance
Business Angels
Venture Capital

Friends & Family

Friends & Family
Based on personal relationships.
Little or no sale of equity required.
Immediate cash.
Little or no valuation of idea itself.
Can sour personal relationships.
Generally low value (<£50K).

Friends & Family
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
to £50K
No
No
No
May be
May be
0%
months

Grants & Competitions

No requirement to pay back.
No sale of equity required.
Can include press coverage
Generally low value.
Targeted at dis-advantaged.
Availability changes.

Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
to £50K
n/a
No
No
No
No
Often
0%
Many months

Crowd Sourcing

Crowd Sourcing
Credit profile different.
No need to value company.
Bad debts pursued.
New, untested form of financing.
Partial success... no funding at all.

Crowd Sourcing
Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
to £50K
3 to 5
May be
No
No
No
No
7% to 12%
months

Loans & debt

Loans & debt
Money available immediately.
Failure to repay... foreclosure.
Evidence how loan will be paid back.
Secured against tangible assets.

Loans & debt
Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
any
5 to 10 years
Yes
No
Yes
No
No
2% - 5%
months

Hire Purchase

Hire Purchase
Can be used to assets.
Asset available immediately.
Can reclaim VAT immediately.
Personal guarantees needed.
Can’t fund cash flow.
May be challenged by HMRC.

Hire Purchase
Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
any
3 to 10 years
Yes
No
Yes
No
No
8% - 20%
month

Factoring & CID

Factoring & CID
Immediate cash.
The customers don't know.
Significant turnover (usually £1M+)
Can be expensive.
Still need to collect payments.

Factoring & CID
Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
£50K +
No
No
Yes
No
No
10% - 15%
1 month

Trade Finance

Trade Finance
Funding for all purchases.
No need to value the business.
Funding increases with business.
Used against firm orders.
Back to back with Invoice Finance.
Two charges increase overall costs.

Trade Finance
Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
£50K+
Yes
No
Yes
No
No
8% to 25%
1 month

No security or equity required.
Investors want company to grow.
Need revenue stream.
Cost higher than bank loan.
New class of funding in the UK.

Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
£50K - £250K
3 to 5 years
No
No
Yes
No
Yes
20% - 30%
1 – 3 months

Business Angels

Business Angels
BAs may help the business grow.
Money available immediately.
No security required.
Deals can take a long time.
Equity must be sold.
High growth potential and exit.

Business Angels
Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
£50K - £250K
3 – 10 years
No
Yes
No
Yes
May be
30% - 60%
2 to 9 months

Venture Capital

Venture Capital
Large sums of money available.
Minimum investment is £2M.
Team of experts available.
Equity must be sold.
High growth potential and exit.
Deals can take a long time.

Venture Capital
Deal size
Term
Collateral required
Sales Required
Sell equity
Cost of money
Deal time
£2M +
3 to 10 years
Yes
Yes
No
Yes
May be
30% - 60%
2 to 9 months

Useful websites
Business Link
http://www.businesslink.gov.uk
Meteorical
http://www.meteorical.co.uk
Funding section
Business Angel Network listing

Brian Dorricott Presentation

by Science City Bristol on Nov 23, 2010

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