Every week Insider invites readers of the
Insider Daily newsletter to submit their questions about deals, corporate finance and funding to top professionals from the North West dealmaking community.
This week
Andy Brown, managing director at Liverpool-based consultancy The Delivery Practice, answers your questions on sourcing start-up and growth funding.
All answers are for general guidance only. Each case must be handled on individual facts.
Q: I have recently started a new IT consultancy business using my own funds. I only employ one other person and am keen to grow the business fast. But where on earth do I start looking for external funding at a time like this?
A: “It certainly is a challenging time for small and new businesses, and external funders appear to be even more cautious than normal. However, for well-run, profitable businesses which have a clear business plan funding should always be available.
“As to where that is, well, the answer depends on what sort of funding you are looking for, and how much. The types of external funding can range from equity-type investment to bank facilities, some grant support or specialised lending such as, for example, mezzanine funding.
“Depending on how much you require, the sources can range from friends, through to business partners, to the other end of the spectrum of professional venture capital providers. The key is having a clearly defined business plan which will address all the questions a potential investor would ask. External funders will have many such requests for their precious capital, so if you make their job as easy as possible, it can only help your outcome.
“It is worth exploring what grant funding may be available and companies like ours are able to carry out a search on your behalf. Outside of that, it is always worth looking at the Northwest Regional Development Agency website and also Business Link website.”
Q: Do you think that banks are going to start lending more money to SMEs now that the government is pressuring them to do so?
A: “The answer should be yes – in theory; but I have to add a high degree of caution to a practical answer. Banks have been difficult to approach for many SMEs recently, but schemes such as the Small Firms Guarantee Scheme loan should be back on the radar in the New Year.
“The government has also been pledging further support via the banks, although the terms of this are not exactly known right now. I think that they will be cautious, will look at taking more security and higher margins and fees, and probably take more time in reaching a decision. A key element to your successful request will be in giving them sufficient time and plenty of information about your business and why you need their support.
“If you can demonstrate through recent months trading activity that the business is in good shape and has a sound proposition that will definitely help your application.”
Q: As a medium-sized healthcare business, do you think I would be able to secure venture capital funding at this time? What sort of businesses are venture capitalists (VCs) looking for at the moment?
A: “The healthcare sector is in a good state at the moment. This is linked to a range of powerful factors such as the change in NHS funding, the demographics of an aging population and the reasonable growth in the quality of care available privately.
“My broad answer to your initial question would be a yes, and I would say, as is always the case, that if you have a strong business model, and well-articulated plan, that you will have a good chance of securing the funding your business merits.
“The North West region is well supported by the VC community, and the professions are used to assisting businesses through the whole process of business planning, due diligence, funding structures and legal agreements that are vital to securing a successful outcome. A degree of reliance on the public sector is certainly helpful in the current climate, and with the changes in funding taking place, I would have thought a good growth business in this sector would be attractive to further funding.
“The types of businesses that VCs look for should not change, merely because a recession beckons. Strong, balanced, experienced management together with a good business plan, clear aims and good cash flow will always attract the interest of any seasoned VC. Combine that with a clear growth and exit strategy, and the target return of say 25 to 30 per cent and I’d be comfortable of your chances, even in these unusual times.”
