vfb2012 funding your startup jerry davison
DESCRIPTION
Venturefest Business Masterclasses - Funding Your StartupTRANSCRIPT
![Page 1: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/1.jpg)
Access to Finance and Investment Readiness
Jerry Davison, The Mill Consultancy and SouthWestfd
![Page 2: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/2.jpg)
Introduction
![Page 3: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/3.jpg)
What’s most finance for?
Investment Start up or early stage Expansion capital Acquisition funding Management buy outs
And/or
Cash flow/working capital e.g. funding stock, debtors
![Page 4: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/4.jpg)
The funding landscape
Drag picture to placeholder or click icon to add
Pre-2008, sweetness and light, Finance Cornwall, South West Ventures, plenty of bank credit etc
Then…
Sub-prime securitization
Credit crunch
Lehman Brothers
Sovereign debt problems
Credit crunch, again
When will it ever end???
![Page 5: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/5.jpg)
Funding structures
Most entrepreneurs are likely to use a whole mix of finance Equity Debt Grants Tax breaks
![Page 6: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/6.jpg)
Understanding risk and reward
Time >
Capitalneed
Growth
Seed Start up Early growth stage Sustained growth
Risk
Flotation
VCs/private equity
Business angels/small VCs equity and loans
Friends and family
Bank finance - with security
![Page 7: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/7.jpg)
Access to finance - some metrics
Only 6% of private equity is invested in start-up or early stage companies - most equity is invested in more mature, larger companies
Success rates with applications for equity funding = 1% with VCs and ~5% with business angels
Less than 5% of SMEs demonstrate the > 20% per annum growth potential, which makes them investment attractive
Bank funding is virtually impossible for any companies that do not have a very strong track record and some robust security to offer
Alleged ‘Funding gap’ in the £50k to £2m range
So it’s not that easy to get funding!
![Page 8: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/8.jpg)
What does ‘equity’ look for?
It’s all about FINDING excellent entrepreneurs with great IDEAS that can be converted with FUNDING into a high growth business
For the best entrepreneurs, with the top 1% of propositions, there is plenty of funding out there
What about the next 5% or so who have a really good chance of building a worthwhile business?
Most of them need ‘investment readiness’ to help them successfully raise finance – faster, better, cheaper
Most will require a minimum of £250k in the early growth stages
![Page 9: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/9.jpg)
Finding Equity
Sources VCTs, Venture Capital, private equity’ Business
angels How do you find them? Google, advisors, BVCA and NBAA Ensure they’re a good fit Other equity - friends, family, staff Crowd funding e.g. Crowdcube
Tax incentives - Enterprise Investment Scheme
![Page 10: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/10.jpg)
Example - MMC Ventures
What we look forStrong teams
Our model is to back dynamic, smart entrepreneurs who have built up a team of fantastic individuals - we have to be confident that a team can deliver. Often we will work with a portfolio company to recruit senior members of the management team and over time to build a strong board.
We invest in great entrepreneurs with compelling business models.
Compelling business models
We look for capital efficient, highly scalable business models where we can see a route to profitability. We value recurring or transactional revenue models where there is either a short lead time or large transaction value.
Strong growth prospects
We back companies that have the ability to be market leaders or gain significant share of a large market. To deliver that growth to exit and beyond the proposition needs to be defensible.
![Page 11: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/11.jpg)
Other sources of finance - debt
Bank overdrafts and loans
Enterprise Finance Guarantee – only £170m 1 Jan – 30 June 2012
Factoring and invoice discounting – and new models on the web
Leasing, other asset finance, trade finance and Letters of Credit
Peer to peer lending e.g. Funding Circle and Crowdcube
Regional sources – SWIG and FC Fund Managers
Mezzanine loans
![Page 12: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/12.jpg)
Other sources of finance - Government initiatives
Grants generally e.g. GBI, R&D, Nesta – note matching requirements
Enterprise Finance Guarantee
Business Growth Fund e.g. PWGF
Regional Growth Fund
Funding for lending
Enterprise Capital Funds and Angel Co-Fund
R&D tax credits
![Page 13: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/13.jpg)
The business plan
Aim it at the right audience e.g. Banker – repayment, credit history Investor – valuation, exit timing, potential for growth, EIS
The market – who is going to buy and how are you going to get it to them
Management team
A credible set of financial projections and assumptions
The compelling reasons to invest
Ultimately, the amount of depth will depend on the type and amount of finance needed
![Page 14: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/14.jpg)
Funding process
Manage the funding process and costs How long it takes to raise debt or equity Negotiation of terms Due diligence - lots of questions Legal documents – far more if you are raising equity Costs - manage them proactively
Promotion – FSA rules – FSMA penalties
![Page 15: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/15.jpg)
Avoiding common errors
Quality of the management is questionable
Lack of commercial reality
Lack of credibility in financial projections
No real customer need or benefit established / lack of USPs
Route to market unclear / vague on market drivers
Insufficient evidence of demand
Competition complacency and not properly identified
Unclear on the need and level of funding
![Page 16: Vfb2012 Funding your Startup Jerry Davison](https://reader034.vdocuments.site/reader034/viewer/2022052522/54b4f5834a795994458b4868/html5/thumbnails/16.jpg)
The End!