Access to finance - the alternative to banks

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15/11/2013 1 Access to Finance update Jerry Davison, The Mill Consultancy and SouthWestfd

description

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

Transcript of Access to finance - the alternative to banks

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Access  to  Finance  update  Jerry  Davison,  The  Mill  Consultancy  and  SouthWestfd  

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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  

Time >

Capital need

Growth

Seed Start up Early growth Sustained growth

Risk

Flotation

VCs/private equity Business angels/small VCs/ crowdfunded equity and loans

Friends, family, employees

Bank finance - with security

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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  

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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  

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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  

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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

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Success so far…

£16  million  

funded  so  far…    

£250,000  largest  single  investment  

>50,000  members  

Deals  successfully  funded  

81  £1.95  million  

biggest  deal    

£2,500  av.  investment   >5,000  

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    

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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/  

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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  

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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  

Business  Development  

Business  planning  and  forecasting  

Investment  readiness  

Marketing  consultancy  

Raising  finance  

Share  option  schemes  

Commercial  advisory  services  

Exit  readiness  

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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?