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Access to finance - the alternative to banks

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Banks may not be lending like they used to so we look at ways of financing your business, raising additional funds to facilitate growth.

Banks may not be lending like they used to so we look at ways of financing your business, raising additional funds to facilitate growth.

Published in: Business, Economy & Finance

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  • 1. 15/11/2013   Access  to  Finance  update   Jerry  Davison,  The  Mill  Consultancy  and  SouthWestfd   1  
  • 2. 15/11/2013   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   Bank finance - with security Capital need Growth Flotation VCs/private equity Business angels/small VCs/ crowdfunded equity and loans Friends, family, employees Seed Start up Early growth Risk Sustained growth Time > 2  
  • 3. 15/11/2013   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   3  
  • 4. 15/11/2013   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   4  
  • 5. 15/11/2013   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   5  
  • 6. 15/11/2013   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 6  
  • 7. 15/11/2013   Deals  successfully  funded   Success so far… £16  million funded  so  far…     £2,500   £250,000     81   >50,000   members   largest  single  investment   av.  investment   >5,000   £1.95  million   biggest  deal     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     7  
  • 8. 15/11/2013   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/   8  
  • 9. 15/11/2013   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   9  
  • 10. 15/11/2013   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   Raising   finance   Share  option   schemes   Business   Development   Marketing   consultancy   Commercial   advisory   services   Business   planning  and   forecasting   Investment   readiness   Exit  readiness   10  
  • 11. 15/11/2013   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?   11