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Money,
that’s what I want
By Robert Colquhoun
A basic guide
Small Firms Loan Guarantee Scheme. Under Most, however, prefer to look at mid- or later-
the scheme, which is administered by the stage funding. The best VC groups bring a raft
banks, 75 percent of loans of up to £1 million of benefi ts and expertise to your business along
to identifying
are guaranteed by the government, with the with their money. It is important to recognise
banks covering the remainder (in some cases that VCs have to be commercial; their business
supported by personal guarantees) for eligible is to invest on the best achievable terms and
funding
businesses of up to £25 million in turnover. then to sell their investment.
You will need to provide all the information The terms of investment can be tough.
normally required by a lender in connection Typically taking majority stakes, VCs often place
sources
with a loan application, which will generally their investment as an early-paid business debt,
involve completing an application form and leaving their “free” equity stake to multiply in
offering supporting information; this typically value as the business matures.
t’s a rare business that does not includes a business plan, fi nancial projections, Business angels and private individuals are
I
require external fi nance. Even the trading fi gures, and accounts. For more the biggest source of early-stage investment in
very best managed cash fl ows suffer information, type Enterprise Finance Guarantee the UK, investing up to £1 billion each year.
stretch and headroom issues. The into the search box at www.businesslink.gov.uk. Angels can be individuals or networks. The
most carefully nurtured organic British Business Angel Association (www.bbaa.
growth strategy is likely to require a A private matter org.uk) lists 22 networks and gives guidance on
trading overdraft. Ambitious growth strategies Private equity fi nance is provided by specialist how best to go about attracting private investors.
invariably require something over and above venture capital (VC) organisations, business As in all deal making, the trick, for you the
the day-to-day overdraft. angel groups, or individual investors. Venture business owner, is to achieve leverage at the
You need new money. Where can you get it? capital organisations can be split into two broad initial investment. Work hard to get more than
The basic answer, for start-up, small, and midsize groups: those using public money and those one potential investor interested. Work hard to
direct businesses, is either banks or investors. using private money. The fi rst group is generally see it from the investor’s perspective and aim
regionally focused. The second is signifi cantly to derisk your business case. Like banks, private
Bank on it larger in number, has greater available funds, equity investors are wary of risk, although
Banks argue they are fi nanciers of day-to-day and tends to have sector specialists. unlike banks, they are willing to take on higher
trading, providers of low-risk fi nance in loan The regional organisations are funded risk, but they require a reward for doing so.
or overdraft form, for which they charge by government through the Department for Always seek to demonstrate that the proposition
commensurately without taking a stake in the Business Enterprise and Regulatory Reform is thoroughly researched, proven, and
business. Finance required over and above the (which replaced the Department of Trade compelling. This is especially the case in this
ebb and fl ow of daily trading and low stretch and Industry in 2007). For more information, climate, when investors with cash are snapping
loan repayment is what the banks term core enter early growth funds or regional venture capital up deals like children in a sweet shop.
fi nance: the higher-risk investment to launch or fund into the search box at www.berr.gov.uk. The fi nal word goes to ubiquitous Google,
expand a business, which should be provided by Regional funds focus on local start-ups and which recently announced its own investment
equity or similar sources in exchange for shares business expansion. Generally taking minority initiative: “Google Ventures seeks to discover
in the business. equity stakes and with reasonable legal and and grow great companies—we believe in the
In this economic climate the essential investment criteria, they are perceived as being power of entrepreneurs to do amazing things.
nature of the funding process has not changed. owner friendly and not constrained by sector. We’re studying a broad range of industries,
Availability and terms have become tougher. Private VC organisations are represented including consumer internet, software,
But the basic criteria and sources remain the by the British Venture Capital Association hardware, clean-tech, bio-tech, and health care.
same, and banks remain the fi rst port of call. (www.bvca.co.uk), which has more than We invest anywhere from seed to mezzanine
Banks assure us they are lending again 450 members. Access to the BVCA member stage and embrace the challenge of helping
and want to do business. Their view of risk, directory was free until mid-2008, but it now young companies grow from the garage to
and their appetite for it, almost certainly has costs £75 for a hard copy or £150 for an annual global relevance.”
changed, which infl uences their lending scope website subscription. The website is searchable
and charges. Then again, it is probable that by amount of fi nance, investment stage, sector,
your own view on risk has also changed and and location. Libraries might have a hard copy Robert Colquhoun is a director
maybe matches the caution shown by the banks. of the directory.
of Direct Consult, a multichannel
Offsetting, to some degree, the recent Start-ups struggle to obtain VC investment
marketing consultancy. He wrote
restraints in bank lending is the newly for reasons of risk and cost of management.
introduced Enterprise Finance Guarantee Some VCs offer early-stage—in other words,
about how to put together a
Scheme (EFGS), which has replaced the early-expansion—but not start-up funding. business plan in the March issue.
ceb 170.indd 23 26/10/09 19:19:32
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