Finance for small businesses – problems

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Better financial support for hi-growth ventures In identifying finance issues faced by hi-growth young businesses, new research has set a number of targets for the British Business Bank, for which it faces immense difficulties.

 The government’s British Business Bank, established in 2014, is focused on smaller businesses, and its main remit is by working with and through private sector delivery partners to increase the supply of finance available in areas where markets do not work effectively.

It reports that over 10,000 smaller businesses are now benefitting from finance supported by the bank compared with a year ago, and from a wide range of sources, but with no specific focus on hi-growth businesses, where there are evidently significant problems.

The recent Scale-up Report, sponsored by Barclays and the work of the Judge Institute in Cambridge and the Said Business School in Oxford has identified six major needs for smaller businesses with hi-growth potential:

*         increasing the number of large VC funds

*         growing the number of experienced investors with sector experience and         international networks

*         developing a venture debt market

*         establishing the LSE as the leading stock market for scale-ups

*        developing new approaches for creating liquidity in private company shares, and

*         collecting systematic data about financing scale-ups.

Many of these fall into the lap of the Bank.

Its CEO feels that London is now well supplied and the bank has recently started to focus on the less well supplied areas of the country such as the ‘Northern Powerhouse’. It is currently aiming to set up funds there for which it is seeking tenders for fund managers, who will bring with them their own local ecosystems of supporters (on the lines typically found in Cambridge.)

Secondly it has sought to bring together under a single head the dozen or so sources of financial information that growing businesses need (in a publication entitled the Business Finance Guide).

And it is now giving growing attention to the complementary need for mentors/advisers to give specific help and advice on finance to early-stage ventures. At present experienced finance mentors for hi-growth businesses are not easily found. The source booklet, just published, is very different to good advice being on tap just when it is needed; small businesses have neither time nor inclination for research.

The bank already seeks to ensure that its startup loans are also accompanied by the appointment of mentors (as it does loans made by the Angel Co-investment Fund – which it funded.) It is seeking to do this on a national basis and in an enduring way – with organisations like the UK Business Angels Association and the Institute of Chartered Accountants.

It has a challenging task in that while its aim is to enhance the more entrepreneurial part of the economy, it seeks to do so through other organisations, and through a number of them.

In working with small businesses the bank also faces a disconnect: it exhibits all the trappings of a major financial institution, while its direct links with small business are tenuous.

The Barclays Scale-up Report has identified some very specific targets for the British Business Bank. They depend very much on the influence it can bring to bear. As a brand new organisation, it has a mountainous challenge.

John Whatmore, July 2016

A new Accelerator Lab by Accenture

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A revolutionised Accelerator Lab Helping corporates to work with innovative young companies to introduce innovations in the fast-changing retail field.

Nesta’s work with P&G in 2010, where Nesta acted as the confidential intermediary for half-a-dozen startups, was a door-opener into the field of Open Innovation.

The latest such opening is a dramatic evolution of Accenture’s Fintech Lab Accelerator, where a dozen banks each provided a chaperone whose role was to help the half-a-dozen young ventures that had been brought together at Level39, to introduce their products to the relevant managers in these banks.

Where the banks faced major threats arising from new ways in which financial transactions could be made, the retail trade and brands are fighting a rearguard action to counter Amazon’s lead in online retailing; and they are doing this by majoring on

  • individualisation,
  • sophistication and
  • personalisation

In Accenture’s latest version of the Accelerator Lab, launched with a razzmattaz of a major conference on the future of retailing, complete with a store of the future, innovative businesses had been invited to enter a competition, whose winners and runners-up were then offered eight weeks together at The Trampery co-working space in Shoreditch; and the dozen major retailers (Argos, Sainsbury’s, Kingfisher, Specsavers, Dixons/Carphone – among others) who participated in the programme were invited to presentations and discussions with them over the period of their residency.

Millenial 2020 (millenial20-20.com)is a process created by Accenture for corporates in retail. It kicked off with a two-day conference – a grand gathering of over 3,000 startups, brands, retailers, and corporates encompassing four industry sectors, at which Accenture set up a store of the future, entitled The World of ME: Millenial Expectations: an inspiration playground for the consumer experience and store playground of the near future’, ‘an immersive experience that brings together a curated selection of start-ups and brands to explore millennial-driven products and services expected to influence the retail and consumer landscape of the near future.

 Will the store no longer be solely a place to purchase things, but a port of call for expertise, unique brand stories, immersive experiences and even a place to learn, create products and connect with like-minded individuals?

Accenture had invited companies to pitch their ideas for innovation to judges from the twelve participating organisations for the Accenture Consumer Innovation Awards. 170 applied and sixteen were invited to pitch – in four categories:

  • Get me into the store and spending more
  • Get me what I want and when and where I want it
  • Make ME digital on the inside, and
  • Give ME omni-personalisation

 “Ignite your senses Using all five senses, play with products and innovations curated to illuminate future scenarios we see emerging. For example…

– Experience what on-demand personalisation could mean for jewellery by trying on and designing 3D printed pieces from WonderLuk.

– For the Conscious ME millennial, brand values that align with beliefs and identity will become a given. Touch and feel a textile made from citrus peel, brought to you by Orange Fiber, one of 5 winners of the H&M Conscious Foundation’s Global Change Award.

– Experiences will start to become the product. Swipe left or right to determine your preferences and find the right food pairing to match the craft beer you select, all powered by Accenture Customer Genome and Intel.

For Accenture this was an experiment in creating processes that would support major changes in sectors – disruptions or major challenges; and so both enhance and demonstrate to potential customers their armoury of processes in the consultancy business. It is being repeated later in the year in New York and in Singapore.

Corporates, including Barclays, John Lewis, Tesco, and most notably Telefonica, have gone down the path of running their own Accelerators despite disadvantages to the startups involved. In participating in group Accelerators, including in the insurance industry, the food industry, the healthcare industry and the New Cities initiative, startups have accepted the risks that openness involved.

More an opportunity for corporates and early-stage businesses to get thoroughly acquainted than to get engaged, Accenture’s innovative new ‘immersive’ process has played on their willingness to be open and transparent. Only time will tell whether it has facilitated the development of innovations into new products or services.

John Whatmore, July 2016

Incubator evolving into Accelerator

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A small and successful University Incubator developing its support for participants

With basic and low cost office spaces, this incubator is developing into an Accelerator community – by enhancing support and its connectivity with Tech City.

Accelerator out of Incubator? The London Metropolitan University ‘Accelerator’ has spaces for 30 hi-growth SMEs – who are normally allowed to stay for no more than two years (‘it concentrates the mind’); and it provides space for the annual winners of a startup competition. It is regularly full and there is no shortage of new applicants.

The Incubator consists of offices of various sizes on three floors, with a big meeting room and two semi-balcony small rooms. There is a well-equipped kitchen, but no r&r space – for hanging out with other people. The student Accelerator has its own big communal work space.

The Incubator is ten years old. A tenant of Hackney Community College, its key asset is that its low rent enables it to offer well-priced accommodation on the edge of Tech City, and so enables occupants to make use of the connectivity there.

All Scale-ups: chosen for their good prospects – all are computer-based and all engaged in scaling up. Most of them are looking for further funding (though not yet A rounds) and for more customers, many with overseas markets as their targets. (‘Their confidence sometimes leads them to be over optimistic about raising funds; and their hirings – of CMOs – sometimes fail because they attract ‘company men’ rather than ‘hustlers’.’)

Supporting events are held, and there are occasional meetups; however there are no ‘office hours’ (regular reviews of progress and plans) and no cohort of mentors. Occupants include a patent attorney and a PR company – with their services readily available, but there are few links to serial entrepreneurs, the VC community or Angels, though there is said to be some cross-pollination among participants. But they have to make their own connections. Some members of the SMEs in the Incubator act as mentors to the student cohort.

Its success can be measured by the fact that in the last year its businesses added 115 employees, and raised £5.7 million in funding (previous year £1.4mn, and the year before £0.5mn). The success rate on exit from the Incubator is around 80%.

A student startup scheme (subsidised by the University) uses some of the space. Around a thousand students attend workshops and other events in the course of a year; and 150 applied to join this year’s Accelerator, from which a dozen are selected for 12 weeks of intensive development together, and are offered six months of free accommodation thereafter in the Incubator. (A current objective is to find funding that will support their earnings to help participants to get through to a seed round.)

Toby Kress, its cornerstone, and responsible for its direction, operation and management for the last two years, has himself been part of a successful startup. His role includes the selection of participants for the Incubator (for which he uses the help of a couple of Alumni). Approachable and readily available, he meets all the SMEs about once a month to offer help, contacts etc; and he meets his counterparts in other incubators intermittently.

To add to the support it offers, Toby has recently initiated a programme of Funding Days, at each of which one of five VCs/Angel groups gets to meet 4 or 5 of the SMEs, and this should help them to develop their funding strategies; and he is seeking to make firm contacts with well-connected people to whose networks the occupants of the incubator can then get access.

Why is it so successful? Not open-plan, with no r&r space, and few mentors or outside connections, it can only be its boss! A vital role in any incubator.

John Whatmore, July 2016