Access to Finance Update for South West Businesses
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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.
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Access to Finance Update for South West Businesses
- 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