Securing investment funding for a keen but hungry enterprise can be
challenging at the best of times, but the good news is that the current
economic uncertainty needn’t hinder entrepreneurs’ growth plans. Advisers,
banks and equity providers agree that for the right business plan and
opportunity, investment is available.
London’s entrepreneurs are responding to market pressures in two ways,
according to David Rawlance, Bank of Scotland Corporate area director for
London City. Some are battening down the hatches and modifying growth plans.
Others are looking for the opportunities that a dip in business confidence
often brings: the chance to pick up business from or acquire struggling
competitors, the possibilities for offering broader and better-value
services to existing customers or even for pressing ahead with new product
lines.
“True entrepreneurs are likely to be looking for opportunities rather than
hiding under the desk,” says Rawlance. “This is not a dead market by any
means. Life feels difficult, but there is still a lot of ambition out there.”
Private-equity providers are similarly upbeat. Martin Kitcatt, partner at
corporate finance boutique Wyvern Partners, argues that the capital’s
smaller entrepreneurial businesses of about £5m in turnover and upwards will
probably find it easier to secure finance than larger ones.
Businesses seeking amounts less than £25m for small acquisitions, or for
building factories or other facilities, will probably find borrowing more
expensive than this time last year, he warns. Margins are likely to be
higher and repayment holidays hard to come by, but securing this level of
funding from a single source is still achievable.
Ash Mehta, CEO at Orchard Growth Partners, which places part-time directors in
growth businesses, says that clients of his are finding the process of
securing bank funding slower and more difficult than a year ago. “When they
go and talk to their lending manager, we’ve found that those managers have
not got as good a handle on how their credit committee will respond as 12
months ago,” he says. These days they often have to go back to entrepreneurs
to seek more detailed information, which stalls the process. Mehta has also
seen examples of annual banking reviews becoming six-monthly reviews and
large overdraft facilities being withdrawn.
Private fund managers and equity houses, meanwhile, are positive about the
opportunities. Jenny Tooth, business development manager at the British
Business Angels Association, says that technology enterprises – digital
media, medical and diagnostic technology and web 2.0 innovations – are still
attracting the attention of angel investment. “In London, there is a large
number of angels with a strong appetite for this sector,” she says.
Attracting a high net-worth individual as an investor is a good option for
entrepreneurs, says Tony Cohen, head of the entrepreneurial business team at
accountancy firm Deloitte and a regional judge for the Entrepreneur
Challenge. If they can interest an investor who is an entrepreneur
themselves, there are huge advantages – they are likely to understand the
business and to become an asset as a board member. However, this comes at
the price of sacrificing equity, he points out. “In the current climate,
it’s going to be easier for an individual to commit their own money than for
an employee of a bank to commit their employer’s money.”
Cohen says that in London, telecoms, media and technology companies are very
much in the forefront when it comes to attracting lenders and investors if
they can show new ideas and direction.
And while the retail sector overall may be facing faltering consumer
confidence, there is scope for niche enterprises. Andrew Garside, a director
at investment group Isis Equity Partners, says these businesses should be in
a good position to acquire sites if they are looking to expand and are
likely to be able to secure those locations on good terms.
“I would strongly encourage entrepreneurs not to lose confidence,” he says.
“More challenging times can create real opportunities for entrepreneurial
businesses. If a company is well managed and has a sensible strategy, it
probably has a good chance. The next couple of years could be a smart time
to make acquisitions.”
Buying up other businesses during a downturn does not always require huge
amounts of capital, says Kitcatt, but it may involve protracted negotiation
at present. “At the moment we are in transition,” he says. “Buyers tend to
reassess what they will pay, whereas vendors take a lot longer to adjust.”
Picking up competitors does have implications for working capital, he points
out, as entrepreneurs square up to the challenge of integrating two
businesses and servicing an increased order book.
Private-equity specialists are making it clear that credible management and
planning will help business win out in funding rounds. “The private equity
community has ample liquidity and lots of appetite,” says Garside.
The big smoke
Lance Forman is no stranger to making the most of challenging times. For four
years the owner of H Forman & Son, a fourth-generation smokery and
artisan food company, battled the Mayor of London’s office following a
compulsory purchase order on the business’s original site in the heart of
east London’s Olympic Park. However, the resolution of the dispute has
worked in his favour, giving him the funds, in compensation money, to make
dramatic changes to his business and turn it into a more modern and
consumer-focused enterprise.
In 2006 he found a new site for the firm, which supplies some of London’s top
restaurants and hotels with smoked salmon, caviar and other fresh and smoked
fish. It was only a short distance away, and he set about creating a
building that would accommodate the smokery, a visitor centre, space for
corporate hospitality and a kitchen for new products and recipes, which the
company markets via its mail-order business, Forman & Field. He also
plans to open a restaurant to take advantage of the increased numbers of
contractors and officials coming to the Olympic site.
The new building was designed in one month and erected in 10. Now up and
running, it represents an investment of about £8m from the undisclosed
compensation sum and a bank loan. “It has been an extraordinary pace. We’ve
had to be very bold in our decision-making," says Forman.
Turnover stands at £8m, and Forman expects it to reach £10m next year. The
core of the business remains London’s high-end restaurants. “That represents
the best judgment of quality,” he says. “If you can supply them
consistently, then you will have longevity."
Finding funds
The London Technology Fund helps tech-based businesses seeking development
capital. LTF (www.londontechnologyfund.com)
awards up to £1.5m to qualifying companies, which can be matched by outside
investors, giving a potential total of £3m per business
Gateway2Investment (www.g2i.org) has a focus
on London’s technology firms and assists entrepreneurs by reviewing their
business model and helping them present their case to potential investors.
The final stages of the g2i programme require a contribution from the
company of up to £1,100 The London Development Agency operates a loan fund,
awarding £7,500-£250,000 to businesses that have difficulty securing
funding. The loan service is aimed at businesses in disadvantaged areas of
London, including Dagenham, Hackney and Tower Hamlets. Visit www.lda.gov.uk
and www.one-london.com
Business angel investment can be used by enterprises seeking investment for
new ideas and growth. Firms may be charged a fee. Networks in the capital
include the London Business Angels (www.lbangels.co.uk)
and Envestors (www.envestors.co.uk
). For more details, visit www.bbaa.org.uk
