Entrepreneurs seeking funding in the northwest and North Wales have their work
cut out. Banks are far more circumspect about how much they lend and to
whom, and there is no new money available from the partly government-backed
regional venture capital fund until next year.
Despite these significant gaps in funding, active backers are out there. Ian
Currie, an adviser to the £60m Rapid Realisations Fund, which typically
injects £2m-£3m into companies that are two or three years from flotation,
is on the hunt for new investments.
In the past year the AIM-listed fund, based in Haydock, Merseyside, has looked
at about 250 deals, at least a quarter of them in the northwest. Seven of
the 14 it selected were in the region.
Even sectors that seem vulnerable to the economic cycle, such as hospitality,
can secure backing, says Currie. “Businesses that rely on people spending
what they have in their pockets are actually doing quite well. Businesses
that sell larger-scale consumables, on the other hand, are not doing so
well.”
Private investors as well as funds are still eager to find good prospects,
says Currie. “Angels are a huge source of finance in this area and more
high-net-worth individuals have started looking for investments .” The
prospects for securing investment and using it effectively should improve in
the new year, says Currie. “With interest rates coming down we may be
getting close to the bottom. Next year will favour the brave.The funds will
be more active.
“Restaurants we’ve funded are getting deals on sites they would not have got
previously. It’s also a time when you can renegotiate your costs down.”
Mark Hughes, executive director for enterprise and skills at the Northwest
Regional Development Agency, agrees that funding should pick up in 2009.
North West Equity Fund, the regional venture capital fund, completed its
five-year investment life this year but the next-genera-tion fund will begin
looking at deals in April. It will invest £140m over five years in the
northwest, in sums from £250,000 to £2m.
For those seeking funding more urgently, creativity about how you put together
a deal is more important than ever, says Hughes. “Networking can help you to
identify the private individuals with the money and the inclination to
invest. It will also help you to find out which managers and which banks are
still doing deals. That kind of knowledge is important right now.”
It may also pay to revisit the criteria of regional grant, loan and investment
schemes. In some cases these have been or will be relaxed to take account of
the tougher funding environment, says Hughes.
“We’ve put more money into some loan and grant schemes and we’ve been able to
increase the size of loans we can allocate; for example, the maximum for the
small business loan has increased from £30,000 to £50,000.”
Businesses seeking investment still have to work hard to win it, however,
according to Tim Rigg, head of commercial business northwest at Bank of
Scotland Corporate. “Funding from all sources has become much more difficult
this year and there’s not a lot of new business going on with any bank at
the moment.
“Don’t just put 10% on your sales plan for next year and hope that will work.
Be realistic,” Rigg advises entrepreneurs. “Looking at your funding plans in
the light of best, medium- and worst-case scenarios for your business shows
you’ve thought about your plans, that you are capable of forward planning,
that you have a realistic view of the business and that you still believe in
the decisions you’re taking.”
Well-run companies in recession-proof sectors will be able to find funding but
the way the deals are done has changed, says Rigg. “Leverage got out of
hand. Investors will be looking for shareholders to put in more money to
demonstrate that they believe in the business.”
A good track record is crucial to inspire confidence in potential investors,
says Mark Fuller, managing director of Liverpool-based Alliance Fund
Managers, which has £141m of funds under management and mostly invests in
technology firms.
“The quality of the people, their experience and knowledge have always been
important but, boy, are they more important today. We look for propositions
that are well articulated, have significant growth momentum and demonstrate
a business model that is revenue-generat-ing. We also look for entrepreneurs
smart enough to have people around them to deliver on their plans.”
There is no shame in deciding that your timing may not be quite right, adds
Fuller. “Don’t be afraid to seek others’ opinions or to ask yourself if your
plans can be put back on the shelf for more confident times.” Waiting a few
months could make all the difference, Rigg agrees. “It might be better to
demonstrate that you can batten down the hatches now and benefit when the
recovery starts by taking market share from failing competitors.”
OPEN FOR BUSINESS
The Northwest Regional Development Agency provides grants for business
investment and research and development. Visit www.nwdabusinessfinance.co.uk
Northwest Business Angels (www.nwbusinessangels.co.uk
) connects SMEs seeking up to £500,000 with private investors
Merseyside Special Investment Fund provides loans and equity packages. See www.msif.co.uk
Finance Wales (www.financewales.co.uk
) assists growing Welsh firms. See also www.business-support-wales.gov.uk
SALES TONIC
The global slowdown did not deter Chester-based IS Pharma, which makes
specialist medicines for hospitals, from applying for the funds it needed to
expand.
With a turnover of £7m in its last financial year, the AIM-listed firm sought
£10m from investors and an £8m facility from Bank of Scotland Corporate. It
wanted the money to fund organic growth and to acquire the Swiss firm
Speciality European Pharma International.
The strength of the management team was an important factor in securing
funding, chief executive Tim Wright reckons. “Trust and communication are
important to investors and banks alike. We were backed by some of the
original shareholders.”
The company this month released interim figures showing an 87% increase in
sales to £5.8m in the first six months and profits up from £500,000 to
£1.8m. “There’s always a market for the right business,” says Wright. “It’s
about demonstrating how risk can be managed. If you have the model right, be
confident.”
