roundtable Differing attitudes to risk


With his company based in the UK and US, David Griffiths queried why he received “a hundred emails from US PE houses, for every one from a UK PE house.”


Differing risk mindsets, explained White. US financial backers had a greater appetite for investment risk than the UK institutions backing UK PE houses.


The prosperous commercially-active Thames Valley readily attracts available liquidity, said Milne: “But what’s still difficult is satisfying the entrepreneur wanting to set up and grow a business. It always seems too small for bank debt or PE, and more suitable for VC, which we don’t see much of in this region.”


Without government help, the lack of UK lower level venture funding was unlikely to change, White felt.


Jocelyn Lomer: “If people don’t take that risk then we won’t have any companies to invest in, because it probably costs half a million to create a product-ready business from zero.”


Susan Elliott agreed: “In terms of the risk, you need enlightened investors with personal understanding of the technology who can make their own funding decisions.”


Gamil Magal: “Entrepreneurs see opportunities but the bank funding committees are risk averse, because they don’t visit or understand the companies. This is the hurdle.”


Magal Engineering was self-funded then took bank debt to grow internationally. Magal discovered his company could get five to six times the debt funding in countries like Turkey, USA, France and China.


Elliott and White pointed out that funding of certain business sectors was largely influenced by low-risk criteria, notably set by UK institutional investors.


“The world of technology is moving so quickly that the institutional investors don’t understand it fully, and they are naturally cautious,” Elliott commented.


Investors may not fully understand the technology, but if they are fully informed about the market and the commercial potential, they can make investment decisions, said White.


Early years funding and a seven- year hitch


“There is still a massive UK funding gap pre-sales – from idea, research, product creation, marketing etc,” noted Lomer. Gaining start-up or growth funding under £1m is difficult or costly “and without it new businesses can easily wither and die.”


Pete Doyle: “Zero to £100,000 funding is the hardest. It’s like the first mile of a marathon.”


Entrepreneurs often rely on funding from


business angels, enlightened high-net- worth individuals, and tax-driven incentive schemes – which can be restrictive, noted White.


He exampled Enterprise Investment Schemes. Companies involved can’t be more than seven years old. “It’s surprising how many ‘young’ SMEs have been registered longer than that.”


Entrepreneur Doyle had been stymied by that EIS seven-year hitch. “It took me eight years to build traction in the retail enterprise world, funded entirely by my own working capital – ‘selling to eat’ in other words.”


Funding options: Share your business, join the crowd ...


Robert Lamden’s company, currently launching CityFibre in the Thames Valley, recently took on bank debt to purchase commercial premises. “I don’t want to give up company control, so won’t take on equity debt.”


Lomer suggested that government and commercial requirements for matched funding can give rise to a lowest common denominator effect if the requirement is to match with business Angels with its low success rate and hugely time consuming effort.


Griffiths: “When you reach over £5m in revenue, I think the BGF can be a good way forward.”


Debt-based peer-to-peer lending, up to £1m, could be gained in days rather than months, but personal guarantees are normally required, Lomer mentioned. Debt crowdfunding, also a useful resource, had “saved our bacon once or twice along the road.”


Elliott advised, “Knowing ‘who’s who’ and what their funding truly involves is necessary.”


Griffiths: “Crowdfunding can be a good option, but it’s a funding market that still needs to mature.”


White: “Crowdfunding is just another private investor.” The large crowdfunding investor base needs to see investment options, so volume is needed and many businesses introduced will be untried. With PE funding there is greater funder involvement after the investment.


Doyle: “I’m completely switched off by crowdfunding. I like face-to-face and a trusting handshake.”


... or gain trade support


Griffiths suggested large cash-rich corporates could do more to help fill the early-stage funding gap, by investment in mutually beneficial projects with small developing companies. Doyle and Elliott agreed.


Continued overleaf ... THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2017 businessmag.co.uk 53 Ian Milne Susan Elliott Jonathan Caswell


Alex Snodgrass


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