A literal A to Z of advice for early stage companies looking for equity - event supported by Velocity Hub, SEMLEP, NatWest Spark

1. 0300 01234 35
velocitygrowthhub.com
A to Z of Growth Finance
Park Inn, Bedford
07 Feb 2018, 9.00am - 12pm

2. 9:00 Introduction
9.10 Funding Options
9:40 Debt Finance
10:15 Break
10:45 Equity Finance
11:20 Becoming Funding-Ready
11:50 Q & A
12:00 Close

3. This workshop covers:
• The role of different sources of finance in enabling
business growth
• How to access the right funders and intermediaries
• How to become funding-ready

4. • Initial Funding
• Launch a new produce service or brand
• Organic sales growth
• Hiring a new team
• Expand into new markets
• Expand internationally
• Reduce cost of borrowing
• Need capital restructuring
• Improve cash position
• Acquisition plans
• Invest in a new premises, facilities and equipment

6. Source: Enterprise Europe Network

7. Advice on equity finance
David JW Bailey

8. • Make cash the unrelenting focus of everyone in the
business
• Prepare cashflow forecast scenarios to see effect of
growth
• Agree payment terms with customers and suppliers
• Invoice quickly & make it easy for customers to pay
• Unlock cash trapped in stock and the trading cycle
• Change supplier(s) and / or change supply terms
• People: inside – roles & controls / outside – help &
Business run right without investment

9. Turnover is vanity
Profit is sanity
Cash is reality
…
According to the Office for National Statistics (ONS) only 45% of start-
up businesses survive beyond five years, 70% of VAT registered
business don’t trade past 10 years. A number of other studies also
show that 80% of these business failures are due to bad cash flow
management.
Careful with cash

10. • Debtor days (money that people owe you)
• Stock days (money invested in what you sell)
• Creditor days (before you have to pay for your
purchases)
• Working capital = (debtors + stock + WIP ) – trade
creditors
• Working capital to sales (what cost funds £1 of new
sales)
• Customer lifetime value v. Cost of Customer Acquisition
Don’t forget to manage

11. What is the Founder Objective?
What is the company mission?
What do other stakeholders want?
Can you reach those objectives without external funding?
External funding is always a trade off
between resources, costs, and control.
External funding for what purpose

12. Need £m Stage of Growth Likely Source
0 - 0.1 Start up Angel / Crowdfund
0.1 – 0.5 Trading Angel Net / Referral net
0.5 – 2.0 Recently profitable Seed Funds
2.0 – 10.0 Sustained profits Traditional VC
10.0 – 100.0 Corporate action VC and PE
100.0+ Global expansion VC and PE
Finding what amount

13. Get a balance of equity and debt
Equity helps to support debt, and debt can help improve the return on equity.
Knowing how to balance them and use them both is a key to business success

14. How people think

15. F, F, and F – people you know
Equity Crowdfunding – people seeking to belong
Business Angels – individuals and networks
Private Equity – money looking to make money
Venture Capitalists – money looking to change the
world
Private Offices – ultra wealthy families
Insider guides to each source

16. How many Found where Benefits
Angel 525 BBAA + Angel List Are like you
Crowdfund 30+ Web Hands off
Angel Network 8+ Web Syndicates
Referral network 12+ - Quick
Seed Fund 22 BVCA Focused
VC and PE 220 BVCA Connected
Private Family Office 80+ - Varies
Just big enough to be difficult
For 1,300,000 SME companies with staff in 2015 there were 1,270 equity deals into
with an investment value of £3.5bn. 0.1% of SME raised an average of £2.7m each
- data from ONS and Beauhurst

17. Kings of equity finance
Angels Venture Capital
Individuals (but may syndicate) Organisation
Scale – limited to personal appetite for
risk (smaller)
Scale – published investment range
(larger)
Experience – entrepreneurial or
domain
Experience – corporate finance >
managerial
Involvement – hands-on but limited
bandwidth
Involvement – points of challenge (next
round, exit, insolvency)
No set time limit Limited investment period (5-7 years
typically)
Whimsy & personal chemistry Investment policy and due diligence
Relationship-centric Financial return-centric

18. Look at the video

19. Making a return on investment

20. If trading company takes 6 years to create a return at 20%
IIR means investors expect to sell their shares for 3x what
they paid
So, if they invest £1m for 25% of the company
(Meaning that your company was worth £3m before they
invested)
They want £3m or more for their 25% in 6 years or sooner
So company must sell for £12m, giving you £9m
… You earned £1.5m per year
Noddy guide to investor expectations

21. Other factors affecting investment

22. • Lack of focus
• Absence of comprehensive and credible market information
• Market is highly competitive
• No unique selling proposition
• Product/service doesn’t appear distinctive or superior to competition
• Not clear how any competitive advantage will be sustained
• Entrepreneur lacks experience or track record
• Level of entrepreneur’s commitment is not sufficient
• Upside of the business is not clear or sufficient
• Use to which the finance will be put is not clear
Putting them off

23. • What problem do you solve, for whom?
• Why you?
• Why hasn’t it already been done?
• What benefit for investors?
• How much will it cost them?
• When do they benefit?
Questioning the need for finance
Raising money is almost as much a sales and
marketing problem as it is a financial project

24. Cover, Index & Page Numbering
Executive Summary
Product/Service
Achievements to Date
Market Analysis
Sales Strategy
IPR
Competitor Analysis
Organisational Capacity
Key Personnel CV
SWOT
Risk Management
Financial Information
Refining the plan to the pitch
Vision / elevator pitch
Problem & current solutions
Team & key stakeholders
Market opportunity and size
Product or service: your solution
Market & growth strategy
Traction and speed of growth
Revenue
Costs and KPI
Financials & forecasts
Competition & risk
Investment: your ‘ask’ & use of funds

25. Proof-of-Concept Fund –
£23.0m fund across the whole
of The Midlands for
investments up to £750k. At
least 50% by value will be in
amounts of under £250,000.
Typically:
- Very early stage equity
funding
- Primarily start-up or early
stage businesses with focus
on innovation, R & D and
technology
Source - Midlands Engine Investment Fund
Equity Fund – £34.5m fund in the
East- and South East-Midlands for
investments up to £2m. At least 20%
by value will be in amounts of under
£250,000 and at least 70% will be in
amounts of under £750,000.
Typically:
- Early stage equity funding
- Start-ups with high growth potential
or existing businesses with
ambitious plans
- Example deals include growth
capital, working capital, capital
expenditure or relocation

26. Russell Snowdon
Independent Banking Consultants Limited
61-63 St. Peter’s Street
Bedford
MK40 2PR
Tel: 01234 262620
Fax: 01234 303131
Email: enquiries@independentbankers.co.uk
Web: http://www.independentbankers.co.uk
Users guide to debt

27. Variety of funding types

28. Where funding fits
Source: Enterprise Europe Network

29. X marks the spot – equity or debt

30. Your choices
Debt Equity
Money ‘owed’ by you or the business
(has to be repaid with interest)
Money ‘owned’ by you or the business
(doesn’t have to be repaid)
No ownership stake by lender, but
loans are usually secured against an
asset
Money invested in a business in return
for an ownership stake
Loans are not risk capital Pure ‘risk’ capital
Return to lenders via repayment of
principal, plus interest
Return to shareholders via sale of
shares and/or dividends

31. Zeroing in on motivation