Investor confidence can be a fragile creature, not least in times of financial
turbulence. For businesses in the Midlands and East Anglia looking to raise
finance, the message is: be practical, be professional and be patient.
Funding is available - although it is harder to find since the credit crunch
bit - for enterprises that want to invest in equipment and premises or make
strategic acquisitions. Canny investors emphasise that they are on the
lookout for solid businesses with strong management teams.
Both the Midlands and East Anglia, while still supporting traditional
employers such as the automotive industry and agriculture respectively, see
newer sectors gaining ground: media, IT and pharmaceuticals. The two areas,
grouped together as a region for this heat of the Entrepreneur Challenge, do
have some common factors, including strong collaboration between academia
and business investors, which provides a tried and tested route to take
innovation into the commercial sector.
David Clark, investment manager of the Central England Business Angels
network, says that about 20% of its 400 members are still investing. “Some
business angels have gone home to roost, but others are still quite active.”
The ones that are still in the market “tend to be looking for a bargain”, he
adds.
Investors are looking for businesses that have been trading for at least 12
months rather than start-ups, according to Clark. They are avoiding IT
companies that don’t own intellectual property and some service sectors,
such as recruitment, but manufacturing and automotive firms are in favour.
For Mark Peyton, fund principal of the Mercia Technology Seed Fund, which
invests up to £750,000 in businesses with a technology base, the downturn is
throwing up opportunities. “The current environment is tough in general but
for us it has been extraordinary,” he says.
“Six to 12 months ago we were competing for deals with venture-capital funds
and other investors, but in the past two months that’s completely gone. The
others have withdrawn and so we’re getting to look at a lot more companies.
We have never been so busy.”
The downside is that a lot of businesses are competing for a smaller pot of
capital, and organisations such as Mercia are having to spend more time
supporting existing companies, which, says Peyton, detracts from the new
deals coming through. “IT and software are probably half of all the
potential deals that we see,” he says, “but they are risky as people have
stopped buying nonessential software. We do a lot, instead, with life
sciences, service provision and medical devices.”
Advantage West Midlands (AWM), the regional development agency, offers a range
of equity funding, loan finance and grants for businesses to support
research and development and capital expenditure projects. It also works
closely with venture capitalists and business angels.
Patrick Palmer, head of access to finance at AWM, says: “We’re here to help
small to medium-size enterprises in particular, which find it difficult to
raise finance. We’re about bridging the equity gap.” Of the various funding
options available to entrepreneurs, he adds: “You could draw the conclusion
that people are looking to invest despite the difficulties, or you could say
that funding is becoming slightly more difficult to come by and you may not
be able to go to your usual sources.”
Commercialising business ideas generated from academia has its own set of
challenges, according to Palmer. “The talents of people in academic
institutions are for spotting a good thing in the laboratory, but that’s not
necessarily going to help with taking a product to market. We tend to put a
management team around university spin-off ideas to make them commercial.”
Richard Ellis, chair of the East of England Development Agency, says that the
region has the highest concentration of research and development activity in
the UK and one of the highest in Europe. “The challenge is to turn those
ideas into commercial realities. The focus of a lot of our work is in
innovation finance, getting companies to realise what support there is
available for them.
“We all know that businesses that take advice do better, but only half of
businesses actually get that advice. We want more to take advice now, rather
than leaving it until it’s too late.”
Ellis says that companies are “cautiously optimistic” about the times ahead,
with 57% of those attending the agency’s recent business boot camp saying
they thought that the credit crunch would present opportunities for them.
However, his message echoes those of other investor groups: “The investment
community is still willing to invest; there’s no question about that. But it
is more cautious, looking for better deals, and the process is taking
longer.”
Martin McEachran, area director of Bank of Scotland Corporate in the Midlands,
says that as credit grows increasingly scarce, “cash is king, and cash
management is queen. It is important that companies manage their lines of
credit, plan their access to cash, whether in the instant, short or medium
term, and manage risk not just with regard to sales but all the way down the
supply chain”.
He recommends that companies consider invoice financing as a way to manage
cash flow. Under this system, a business outsources its invoices to another
company, such as a bank, which pays most of their value immediately and
takes on the burden of chasing up payments.
McEachran believes that companies in naturally competitive sectors are better
prepared than those that have enjoyed “fatter” times. “Businesses in haulage
or manufacturing have always had to compete with offshore competition and
have become leaner and more flexible as a result,” he explains. “There will
be winners and losers across all sectors, but the ones that are used to
tough challenges may be better suited to the leaner times ahead.”
FINDING FINANCE
Grants for research and development ranging from £5,000 to £500,000 to support
SMEs can be accessed at Advantage West Midlands (www.advantagewm.co.uk).
See the same site for grants of £10,000 upwards to support capital
expenditure projects, and other finance options
The East Midlands Development Agency in Nottingham offers advice on options
including equity finance, European funding and loans. Visit www.emda.org.uk
Business Link, which has a network of regional offices, can help firms to find
finance. Visit www.businesslink.gov.uk Business mentoring services in the
Midlands include Minerva Business Angel Network (www.minerva.uk.net),
located in Coventry, and Central England Business Angels (www.
centralenglandbusinessangels.com)
Mercia Technology Seed Fund (www.merciafund.co.uk)
is a £12.8m Birmingham-based fund that invests up to £750,000 as seed
capital for firms with a strong technology base
Small and medium-sized enterprises in the West Midlands can apply for business
loans from Fair Finance Consortium (www.fair-finance.net) and the Arrow Fund
(www.arrowfund.co.uk) Companies in East Anglia can seek help from
Foundation East, a not-for-profit organisation that lends money to
businesses that cannot obtain a bank loan or need additional funds to match
bank lending (www. foundationeast.org). The East of England Development
Agency (www.eeda. org.uk) offers a range of assistance, including research
and development grants. For more information about what is available in the
region, visit www.bizmapeast.com
Information about business angel financing can be found at Norfolk First
(www.norfolknetwork.com), a forum for entrepreneurs
