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Getting value beyond capital

Thursday, 7 June 2018 08:33 AM | FINANCE

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With so much money looking for so few scaleups, founders can afford to be choosy. But with so many options, how do you make the right choice?

“The scale of a business should only be limited by the ambition of its founder”, said Small Business Minister Andrew Griffith MP, speaking at the launch of 100 Stories of Growth – a campaign to show the impact of different forms of capital on scale. But what truly limits a founder’s ambition?

Attitudes to investment are one of the psychological barriers for founders. Almost 60 per cent of those surveyed by the ScaleUp Institute for its latest report cite fear of losing control as an obstacle to taking finance. Yet, according to research by Intelligent Partnership for 100 Stories of Growth, companies which have deployed external funding have grown their turnover by over 20% in the last three years.

The UK funding industry is often compared to the US, where capital is not only more abundant but more patient and prepared to take bigger risks. Celia Francis, CEO of Rated People, observed that she has had to adjust her funding pitch to be more ambitious to meet the expectations of US investors. In contrast to the go large or go home attitude in the US, British founders have been conditioned for careful profitable growth by UK lenders and investors.

But pressure to compete with foreign investors for UK scaleups is transforming the industry. The Supper Club, BGF, finnCap and Octopus Group recently called on the government to remove tax barriers and allow more private investment into high growth SMEs to grow more unicorns.

VCs and PE houses are sitting on a lot of dry powder, looking for great SMEs in which to invest. The question now is not so much about making sure that you have access to enough capital, but rather that you have access to the right kind of capital which is best suited to your equity story.

Sam Smith, CEO, finnCap

The Supper Club has seen how peer learning can help founders overcome these barriers over the last 15 years, with members sharing their experiences of different funding options to scale. The average growth of our members is 34% year on year.

Both Intelligent Partnership and the Scale Up Institute identified a lack of understanding of the range of funding options available and how to use them. To address this, The Supper Club has published a guide to help scaleup founders and CEOs navigate the funding landscape, with members sharing their experiences of taking different types of finance at all stages of scale.

What stood out most from these insights is the value beyond capital that made it smarter money, and how this helped members choose the right funding partner.

Growth capital helped Tom O’Hagan, founder of Virtual1, win bigger clients from larger competitors because they were reassured by the backing of BGF’s 2.5 billion fund. Simon Hay, founder of Firefly, chose BGF and Beringea for the board level talent that came with investment - which included Simon Calver, former CEO of LOVEFiLM. Christopher Baker-Brian, Co-founder & Chief Technology Officer of BBOXX, chose a VC that was able to provide a specialist in running micro finance which supported its growth plan.

Members with a clear understanding of the funding options, and how to use them, scale quicker; but don’t limit your ambition or your runway. “Whatever kind of finance you’re raising, what we all know in hindsight is that the most optimistic business plan proves to be just that; so allow a bit more time and try to raise a bit more money than you need,” says Adam Blaskey, CEO & Founder of The Clubhouse. “We all have high expectations for our businesses and what we can achieve, but it usually takes a bit longer and costs us more.”

The Supper Club’s guide to raising finance for all stages of the scale up journey is available to download now. To find out how members including Alex Cheatle of TEN Group and Kate Lester of Diamond Logistics have used different types of capital to scale, visit 100 Stories of Growth

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