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Sources of funding: Grants (MAS. UKTI), FF&F, Banks, Angels and VC’s
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www.connectmidlands.org
Funding for Entrepreneurs and
How to Raise It
John Griffiths, Director, Connect Midlands
WBS Entrepreneurship Mentoring Programme 28 July 2011
www.connectmidlands.org
Objectives
• Options for funding your business
• What funds are best for you at the time
• Understand mindset of funder or investor.
• How to create a winning plan and pitch
• Understand how to raise money !
www.connectmidlands.org
Agenda• Connect and our track record• Types of finance: grants, debt, angels, VC• What do investors look for? • Are you investment ready?• Connect model • Strategic & Business cases• Interacting with investors• Summary
www.connectmidlands.org
Leading technology and growth network providing access tofinance, innovation, professionals, successful entrepreneurs.
Helps build route to market, management capability,
and commercialise innovation
www.connectmidlands.org
BUSINESS PARTNERS
CORPORATE MEMBERS
PRIME PARTNERS
www.connectmidlands.org
£200m to date!
Connect Midlands is recognised as market leader in helping innovative,technology & high growth businesses become investment ready
InvestmentReadiness
....then showcasing them to the investment community to raise money they need to grow
….and assisting them to grow shareholder value, create jobs,become world-beaters .
Growth
www.connectmidlands.org
From idea to market – the rocky road of realisation
Ideas + concepts
The Goal. Growth & Profit
† † Graveyard for start-ups & businesses † †
fundingmanagement
market need
Time Growth
Potential for growth
www.connectmidlands.org8
Types of Finance
Main Stock Market
AIM
Plus
VentureCapital
BusinessAngels
Size of Company
Ava
ilabi
lity
of F
unds
3 Fs
DebtGrants
www.connectmidlands.org
What do investors look for ?
• Experienced & ambitious management team• Sound business case & plan
• High growth prospects
• High market share potential
• IPR
• Sustainable competitive edge & USPs
• Sales already or close to market ?
• Shares & enough to be attractive
• Exit route – money out in 3-7yrs ?
www.connectmidlands.org
Management ?
investors back the jockey - not the horse
www.connectmidlands.org
The basics – Your Turn
a). 5 minutes discussion in pairs on:
• What is the vision of your business?
• How much £ do you require?
• What do you need it for ?
• What type of funding & when?– Grants; Debt and Banks; Equity, Angels, VCs
• Who might you sell to ?
b). 2 minutes feedback each
www.connectmidlands.org
GrantsUpsides:• Free Money• Don’t have to pay it back• Great way to kick start business• Some validation for matched / follow on funds
Downsides:• Beaurocratic• Don’t chase unless fits your growth plan• Targets and outputs and outcomes
www.connectmidlands.org
Grants• TSB – Grants for R&D
– Proof of Market: is there a market ? 60% grant to £25K
– Proof of Concept : NP & PD, 60% grant to £100K
– Development :to pre-production,35%-45% grant to £250K
• MASWM–Manufacturing & NPD Reviews / Projects– Short tem improvement or strategic change– Reviews, free
– Projects, 50% grant to £10K by no money left until 2012 ?
• UKTI – Advice and help with exporting– Advice, strategic reviews, info from Trade Advisers– Market research and visits, 33% to 60% grants
www.connectmidlands.org
Debt
Many types eg:• Loans & Overdrafts• Factoring / Invoice Discounting• Asset Finance• EFG – up to £1m, 75% Govt guarantee
Alternatives to banks egs:• CDFI, to £50K (ART/ BCRS/CWRT..)• Thin cats, £50K - £3m• Funding Circle, £5K - £50K
www.connectmidlands.org
Banks and Debt
• No share of ownership• Always repayable• Carrier interest payments• Availability depends on
– Viability– Serviceability– Security
• Balance sheet & trading history
www.connectmidlands.org
What Banks look for• Strong management team• Sustainable competitive advantage• Decent scale • IPR and or USPs• Growth sectors often favoured• Business growth
PLUS :• Regular interest/capital repayments• Trading business• Security- debentures, personal guarantees• Interest cover
www.connectmidlands.org
Business Angel Finance
• Risk money (unsecured) invested by individuals
Exchanged for a share of the business
Reduces risk for other providers of finance
Often accompanied by investors skills / knowledge
Typically invest in range £20K to £1m+
Often in networks and syndicates but can be alone
Tim Powell – Minerva, later
www.connectmidlands.org
Angels in the West Midlands
• Networks:– Minerva– Beer & Partners– Central England Business Angels– Advantage Business Angels
• High-Net Worth Individuals
• BBAA www.bbaa.org.uk
• See www.westmidlandsfinance.com
www.connectmidlands.org
What Business Angels look for
• Strong management team (which they can strengthen)• Proposal with sustainable competitive advantage• Decent scale• IPR (sometimes)• Growth sectors (sometimes)• Capital growth & exit
• More from Tim later
PLUS:• Fun, stimulation, involvement• Sector they know & understand• Non Executive Director
www.connectmidlands.org
Venture Capital
• Money at risk• Mostly shares – sell a percentage ownership
for a cash investment• Money does not need to be repaid• Investor objective - capital gain• An exit has to be planned
• £100K to £5m+ for early stage, (5-10x)• West Midlands: Midven, Mercia Technology• National: many more
www.connectmidlands.org
What Venture Capitalists look for• Strong management team • Proposal with sustainable competitive advantage• Decent scale (essential)• IPR and or USPs• Growth sectors • Significant capital growth, (5-10)• An exit
• PLUS• Shareholder• Board position or appoint Director• Take a business from platform A to B• Exit agreed as part of investment
www.connectmidlands.org
Differences between grants, debt, equity
• What are they ?
www.connectmidlands.org
Be Prepared – Get Yourself Ready to Raise Finance and Investment!
Proof Points CompellingBusiness Plan
FocussedPitch+ + = £
Strong Proposition
+
www.connectmidlands.org
Key areas for business development and “investability”
Route to Market
Access to Finance
Management
VISION
Emerging High Growth Businesses
www.connectmidlands.org
Strategic & Business Case
Strategic Case:• Exec Summary (2 pages)• 10 slide presentation• Does the investor like you & your proposal?
Business Case:• The business plan (BVCA guidelines)• Further due diligence• Can you defend your assumptions?• Does the investment case make sense?
www.connectmidlands.org26
Connect Midlands’ investment readiness programme, InvoRed
CMICSpringboardRoundtable
Green
Coaching Pathfinder Workshops
Corporate Finance Support
Amber
Amber 2 day workshops Assessment Panels
Networking
Right Funds for You, Events, Presentations
> Showcasing> (Pitching to investors)
> Preparation
> Education
> Awareness
www.connectmidlands.org
Pre-Start Existence Survival Success Take-off Maturity
Sustained Growth
Early Growth
Start-up
Seed
FU
ND
ING
STA
GE
LIFE CYCLE STAGE
Springboard
SMEs seeking up to £500k pitch to an audience of investors and support intermediaries
Investment Conference
SMEs seeking up to £5m to pitch to an audience of investors and intermediaries
Roundtable
SMEs seeking early stage finance to present to target investors over an exclusive lunch or dinner
InvoRed
Supports SMEs to help them shape propositions and become investment-ready
LIFE CYCLE STAGE
www.connectmidlands.org
Timetable for Equity• Draw up plan/pitch: 1 month
• Approach VC and get a meeting: 1-3 months
• Further meetings: 1-3 months
• Due diligence: 2-4 months
• Final negotiations/legal's: 1-3 months
• Conclusion: min 6 months,can take 12 months
• Connect Investment Conferences: great way of
meeting many investors at once – 22 Nov
London
www.connectmidlands.org
Interacting with Investors• Be Realistic
– getting it wrong loses credibility – about valuation
• Be Honest– trust is a big part of the financial industry; it
is a deal breaker
• Be Prepared– you might only get one shot at fundraising– you will be challenged!
www.connectmidlands.org
£2.8m since 2005
£4.72m since 2003
£88K since 2004£1.04m since 2004
Monica Healthcare
Prime Principle
Haemostatix
FDAS
£5m +
Some Successes !
www.connectmidlands.org
Review Session Objectives
• Options for funding your business ?
• What funds are best for you at the time ?
• Understand mindset of funder or investor ?
• How to create a winning plan and pitch ?
• Understand how to raise money ?
• Have we done these ?
www.connectmidlands.org
Summary and ConclusionsConnect Midlands and Connect InvoRed
• Understand finance options and best for you• Strong Proposition, Proof points, Plan, Pitch• Think like an investor !
• Connect worked with 2,000 SMEs,
• Assisted >1,000 on investment readiness (IR)
• Over 300 entrepreneurs raised £200m
• Used by BIS to set national IR framework