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Finance Yorkshire Welcome www.finance-yorkshire.com Finance Yorkshire SME Fund Raising – do’s, don’ts and gotchas • Graham Davies – Investment Manager – Finance Yorkshire Seedcorn Fund – [email protected] – 01226 323743 www.finance-yorkshire.com Finance Yorkshire Agenda • • • • • • • The Funding Environment Intro to Finance Yorkshire Funds Types of Funding Attracting Funding: Do’s and Don’ts Business plans What FY looks for Questions www.finance-yorkshire.com Finance Yorkshire The Funding Climate has Changed www.finance-yorkshire.com Finance Yorkshire The Funding Gap has Widened • Breedon Report (March 2012): – Heavily regulated market – EU, FCA etc – Funding demand from SME businesses massively exceeds supply – Funding “gap” estimated to be £26bn - £59bn for SMEs – That means £1bn - £1.8bn per year in Yorkshire • New suppliers of funding supposed to enter the void left by the mainstream Banks… www.finance-yorkshire.com Finance Yorkshire FY Funds Bridge the Funding Gap • Commercial fund providing funding to SMEs based in Yorkshire and the Humber • Launched 2010 with £90m to invest by end of 2014 • Can also support inward investors to the region • Funding is available for growth situations where there is a gap in the projects funding requirement • Does not compete with the funds available from the commercial marketplace www.finance-yorkshire.com Finance Yorkshire The FY Funds • Seedcorn - New and early stage businesses with high growth potential – normally technology or knowledge-based • Equity – established companies looking for mezzanine and equity linked funding packages greater than £100k • Business Loans - £15k to £250k for established businesses with funding gaps www.finance-yorkshire.com Finance Yorkshire Case Study: Xeros Ltd • Formed 2007 • FYSC invested Oct 2010 and continued to support • Julian Viggars Investor Director • Raised £10m round in 2013 • Now employs 20 scientists & engineers • First product designed and proven for launch (inset) • Presence established in the US www.finance-yorkshire.com Finance Yorkshire Loans Case Study – BCT Outdoors The Company – manufactures tents for youth groups, tour and adventure holiday operators as well as garden marquees and soft play equipment for individual as well as large international clients. The Solution - The company has used the investment to print new brochures and catalogues, purchase a branded vehicle for deliveries, and improve its website by adding an ‘e-commerce section enabling customers to buy direct from the online shop. www.finance-yorkshire.com Finance Yorkshire Choose the Appropriate Type of Funding 80% Crowd Funding Desired • Uncertainty Return IRR • Amount • Product 10% Loans • Security • Payments • PGs • Liability • Use of funds Venture Capital Private Equity FY Seedcorn Angel Investors FY Equity Mezz FY Loans Friends Crowd & Family Funding? Banks Grants 0% Investment Risk Established Early stage Start-up Equity / Debt • Potential • Control • Reporting • Pressure • Exit Grants • Time • Uncertainty • Match • Distraction • Fees www.finance-yorkshire.com Finance Yorkshire Attracting Funding: Be Prepared Do • Mentally – – • Company Structure – • • – • Warranties, Disclosures Valuations pre- / post-money Business Plan Apply unless necessary – • Is there another way? Produce long tedious plan – Executive summary key – Get in touch early • “We only need 2% of …” – Chairman, NXD, FD, Sales, Advisory, Marketing, Development, IP Short term contracts! Understand the process – – • Ltd new-co, Groups, Liabilities Commit time – 3-6 months Build the team – • Long, painful, tedious Dilution Don’t Preparation • • • Need proper analysis or better actual data / pilot / independent forecasts Apply when cash out Miss restrictive covenants Give away all your IP www.finance-yorkshire.com Finance Yorkshire Attracting Funding: Make Contact Wisely Do • • Approach Multiple Funding Sources – Syndicate reduces risk – Competitive pricing – BVCA / Angel groups • Get introduced – Via Advisors / NXDs / Other funders • • Forewarn References – Professional – Customers – Suppliers Chase appropriately Don’t Preparation Contact • • • • • Insist on an NDA before speaking Try doing everything by email Insist on a meeting before revealing any details Send plans / CVs full of errors / poor grammar Underestimate gate keepers Abandon www.finance-yorkshire.com Finance Yorkshire Attracting Funding: Get the Pitch Right Do • • – Market data, Financials, Funding required, Team, Risks Know your subject! Sell the vision / story – • • E.g. Powerpoint / pack Send before if possible Anticipate lots of questions – • • Ask what is expected – – Energy, enthusiasm, relevant experience, realism, dry run Bring a demo / prototype Demonstrate commitment – – Time, emotion “Skin in the game” Don’t Preparation – – Contact Pitch Be vague / bluff / inflate • “We only need 2% of …” – • Need proper analysis or better actual data / pilot / independent forecasts Get offended by questions – – • • Comes out in D/D Revenue model, Route to market are critical Might be a test Resilience Look bored / sleep! Forget the cable… www.finance-yorkshire.com Finance Yorkshire Attracting Funding: Avoid the Long Slow No Do • Assist, suggest, chase Legals – find a trusted lawyer – – • Request early or ‘No’ What is legally binding Negotiate don’t run Expect and inspect Warranties, Disclosure letter is critical Be realistic about valuation – Understand if pre- / postmoney Fail to disclose – – – – Contact Pitch • D/D – Rejection • Offer • Previous funder, boss, customers, suppliers, previous rejections Will seek out… Refuse to negotiate – Completion Lots on public record Disqualified director Bankruptcy Liquidation / administration Risk bad references – Due Diligence – • Decision makers Timeline: this Quarter? Offer Letter / Term sheet – – • • Ask about the process – – • Don’t Preparation Be pragmatic about legals – some things can’t be conceded – understand Anti-Money Laundering – Passport, Utility www.finance-yorkshire.com Finance Yorkshire Attracting Funding: Surviving Investment Do • Maximise value Sounding board Support Further funding Contact Pitch • Use investor network – – – – • • • • Expect an Investor NXD – – – – • Don’t Preparation Funding Portfolio contacts Chairman / NXDs Analytical support Use reporting and board meetings wisely – Time to step back, plan – Monthly Accounts D/D Rejection Breach Investor Consents Pay fees late Set overly ambitious targets then miss them Hide bad news • • • Offer Completion Be alienated by their introductions Be afraid to ask for help Ask for more money just before cash runs out Monitoring www.finance-yorkshire.com Finance Yorkshire What should go into your business plan? • Less is more. Simplicity. Readability. 10 pages • You & the team • Product / service, USPs, barriers, current status • Route to market, customers, market segment size • What are you using the £ for? • Financials – historic, forecasts, sensitivity analysis www.finance-yorkshire.com Finance Yorkshire What do FY Loans look for? • Your stake & commitment in the venture – is it appropriate? • Any historic performance - trends are important • Your assumptions & forecasts – do they stack up? • Your funding requirement /purpose – is it appropriate? • Debt serviceability – cash flow controls your ability to repay – not profit • Key business risks – what might affect your ability to repay • Is your Bank/other funder supporting the business further? www.finance-yorkshire.com Finance Yorkshire Does your business look viable for a loan? o Key distinction between viable and unviable businesses o Unviable businesses – lender unlikely to lend at any level o Viable businesses – a lender may be unable to lend the full amount due to: Lack of security Lending Criteria / Policy Account operation Current trading Poor credit rating Uncomfortable lending 100% o Bank may take comfort from additional funding for headroom / contingency www.finance-yorkshire.com Finance Yorkshire Thanks for Listening www.finance-yorkshire.com