The penultimate Speaker Boutique of 2017 brought together three members of The Supper Club and two investment specialists from BGF and Santander UK to share insights on raising growth capital to scale. Everyone agreed that an explosion of options means that founders need more help to navigate an evolving landscape.
“Raising growth capital is a popular topic for members of The Supper Club because entrepreneurs are often impatient to grow, and it can enable them to scale bigger faster,” said EJ Packe, MD of The Supper Club, who chaired the event. “With over 300 different sources of funding available to founders, the landscape has become more complex to navigate; but this wealth of options also means you can find a solution more tailored to your needs and how you want to grow.
“We help members by helping them understand why they need it and how to find the right option for them; with specially curated events, connections to relevant members, or introductions to recommended advisers.”
“It’s not just about securing finance,” said Darren Hart, Head of Growth Capital at Santander UK, which provides growth capital loans to firms with annual sales of between £2.5 and £50 million and growth of approximately 20% in a combination of turnover, profit or employment. “There are big differences between debt and equity solutions, and it’s important for the entrepreneur to know what is important to them. What is the value that they are going to create from this investment? Until they know that they can’t know what an appropriate cost is to look at the payback.
There are big differences between debt and equity solutions, and it’s important for the entrepreneur to know what is important to them. What is the value that they are going to create from this investment?Darren Hart, Head of Growth Capital at Santander UK
“They might be focused on avoiding dilution, but an equity investor can bring a lot of value at board level; debt might be appropriate because it can be repaid without interfering with the equity structure, but it will come with other conditions and financial covenants. Entrepreneurs should talk to as many sources of finance as they can.”
Adam Blaskey, founder & CEO of The Clubhouse, has raised finance from a wide variety of sources, from crowdfunding through Seedrs to venture debt from the British Business Bank to private investors from his membership.
Demonstrate the why
Explaining what he has learned from his experience of raising growth capital, he said: “When pitching for investment, you need to present the problem you’re solving, your understanding of your customer base, market potential, your operating model, your revenue streams, and a clear vision, mission, and purpose.”
While The Clubhouse was one of the biggest raises on Seedrs, Adam said it has to be judged in context. “Crowdfunding was great for profile raising and awareness but there are better solutions for higher levels of growth capital,” he explained. “I used an adviser to help me find the right option, as they can help you to explore all options and answer the trickier questions during the due diligence process. My advice to anyone raising money is to build in enough comfort room in your model and raise slightly more at the outset so you don’t have to worry about cashflow as you’re growing. You need to have an optimistic plan which is realistic at the same time.”
My advice to anyone raising money is to build in enough comfort room in your model and raise slightly more at the outset so you don’t have to worry about cashflow as you’re growing.Adam Blaskey, Founder and CEO of The Clubhouse
Supper Club member Jamie Waller built and sold his first business JBW Group to a company that invested in his second venture, Hito, which he has since sold. Having learned from the experience of raising investment through both debt and equity, Jamie has founded Firestarters to invest in high potential businesses.
“Raising money can help you to scale faster and £22billion has been invested in venture capital and private equity in the last year. Having sourced investment, and now an investor myself, I look for people who know what they want and why they need it. It inspires more confidence if you are looking beyond the investment and asking for sector experience, contacts, access to talent, or chairman support.”
Working with Private Equity
Alastair Stewart, CEO of etc.venues, opted to take private equity (PE) investment for a management buy in and buy out. He observed that a corporate background helped him to manage the relationship with his investor. “It can be difficult for a founder to share their business and work with others, so these are key questions to ask before opting for PE.”
The Business Growth Fund (BGF), a £2.5 billion fund formed from five high street banks in 2011, specialises in minority equity stakes where the management is still in control. It has completed over 160 deals since it was formed and now has 70 investors across the UK. “Chemistry is important,” said Alistair Brew, an investor at BGF. “The founder should feel that the investor has empathy with their vision for the business. Hopefully, the entrepreneur in turn understands that a little bit more structure as it grows is going to help with that journey.”
Explaining what BGF looks for in an investee company, Alistair added: “We’re looking for a business that has something special in its product or service that gives it a sustainable competitive advantage and a team with the vision and self-awareness to be able to execute on the growth plan.”
Alastair Stewart reiterated the need for good legal and corporate finance advice when considering PE or any form of growth capital. “Looking back over my experience of working with PE, my advice is that due diligence works both ways so look at their track-record with investments. Two key questions to consider are: can you deliver against a sensible business plan, as over-promising and under-delivering leads to trouble; and can your business grow top and bottom-line by more than 5% ahead of plan? Be conservative, as getting ahead of plan is key to good relations.”
Knowing why you need funding, how you will spend it, and the impact it needs to have is an important step before seeking it and will help you find the right option.