Finance for small businesses – problems

Aside

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

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Angels Association meets to discuss achieving successful exits

Aside

Exits was the focus of the UK Business Angels Association’s recent Winter Investment Forum. Nothing matters more to most startups than refunding at the next milestone; to most angels, how they will succeed in selling on their stake; and to many SMEs how they will fund their growth or sell the business to some larger organisation.

Sir Nigel Rudd, chairman of the Business Growth Fund as well a of UKBAA, and a man with a great deal of experience in selling businesses made six points:

*         Identify likely buyers, their reasons, and their prospects as buyers

*         Choose one or more advisers who know the market for your business

*         Align board and managers alike to sale as well as to ongoing growth

*         High-light your weaknesses early

*         Don’t be too greedy!

*         Expect a last-minute hiccough!

Other speakers emphasised the importance of:

  • Alignment between the managers of the business and their angel investors eg over objectives (angels may well expect to get out within three years).
  • Yes, focus on growth first
  • Consider how it might be possible to structure a sale differently that would make it more attractive
  • Recognise that it takes a great deal of time and effort to arrange and complete a sale
  • Enjoy the ride!

Among speakers were representatives from the Angel Co-fund and the Business Growth Fund, both of whom seemed to stress how accessible were their funds and how relatively small their investments might be, together with the British Business Bank, and Angel Funds ECI partners, Sussex Place Ventures and Avonmore Developments.

Jenny Tooth, CEO of UKBAA who has steered it along a clear path with enormous energy and drive, outlined the ways in which the organisation is approaching four objectives:

  • supporting standards and good practice in Angel investing
  • creating mechanisms for enabling Angel Funds to complete investment rounds by deal-sharing
  • building the Angel market-place – by blowing the trumpet – in various locations, to new audiences and with other organisations
  • research and market intelligence: data, impact of investments and the pulse of the angel market.