Business Link Finance Guide

last updated: SEPTEMBER 2010
No-Nonsense Guide
to Finance for High Growth
and Innovative Businesses
Business planning • Finding the right adviser • Bank debt
Venture capital • Funding innovation and commercialising IP
AIM and PLUS • Angel Finance • Invoice and asset-based finance
Sale and leaseback • Managing investor relations • Grants and business support
This guide contains active links, and is accessible on the Business Link website, www.businesslink.gov.uk
What’s new...
No-Nonsense Guide to High Growth
and Innovative Businesses
New and updated information:

n I ntroduction:
Business Link videos, page 2
nF
ind the right solution: Updated information on
PLUS Markets fees, page 8
nB
ring in the experts: *NEW* Health Check for
Growth initiative, page 11
nA
business plan to raise finance: *NEW*
Compose a Business Plan tool, page 19
nB
anks and specialist lenders: Updated details
on Enterprise Finance Guarantee, page 20
nS
hould you buy or lease assets: *NEW* Annual
Investment Allowance scheme, page 29
nV
enture capital: *NEW* UK Finance for
Growth, page 29; Updated details on Enterprise
Investment Scheme, page 38
nG
overnment resources: Updated details on
Regional Development Authorities, pages 51, 53;
Updated details on Enterprise Finance Guarantee,
page 54; Updated details on R&D tax credits, page
55; Updated details on SBRI, page 55; *NEW*
Carbon Trust Entrepreneurs Fast Track
Links to relevant websites have been updated

throughout the guide to get you access to the most
up-to-date, relevant information.
Contents
This guide is divided into five parts: 0 introduction
1. Preparation High growth and innovation�� 2

Before you approach anyone for funding, 1 PREPARATION
you will need to work out where your
business is, where you want it to go, and Why do you want finance?�� 4
how much you need to take it there Bring in the experts�� 10
Intellectual property�� 12
2. Funding options and process
A look at the various types of finance Calculating what you need�� 14
available and how to secure them Attracting equity investment�� 16
A business plan to raise finance�� 18
3. After the event
Advice on getting the most out of your 2 FUNDING OPTIONS AND PROCESS
relationship with your investors, once
you have secured funding Banks and specialist Lenders�� 20
Borrowing against your invoices�� 24
4. government Resources Making use of your assets.................. 26
The schemes available to encourage
innovation, best practice and growth Should you buy or lease assets?�� 28
Angel finance�� 30
5. non-government Resources Venture capital�� 36
Additional sources of funding support
from the private sector Should I float my company?............... 42
Making the perfect pitch..................... 44
For more on all these issues, visit Agreeing the terms of the deal�� 46
the Business Link website at:
www.businesslink.gov.uk/growth 3 after the event
Managing investor relations�� 49

4 GOVERNMENT RESOURCES
Help for growing businesses�� 51

Getting a grant�� 52
Types of grant�� 53
Other sources of government finance �� 55
5 NON-GOVERNMENT RESOURCES
Additional funding opportunities�� 57

Welcome
The right finance is key to delivering
high growth and backing innovation, but
securing it can be a challenge. This online
guide has primarily been prepared with
small and medium businesses in mind, to
help your quest for funds by providing you
with a better understanding of:
n Assessing your specific funding needs
n Where and how to get the right advice
nV arious funding options
n Pitching to and dealing with investors
Drawing on the experiences of businesses

like yours and advice from industry
experts, this guide aims to provide
practical business advice. Based on a
review of the previous No-Nonsense
guide for High Growth Companies, this
publication has been created to reflect the
specific needs of innovative companies.
Furthermore, with Business Link, the
government-backed business support
service, at the helm, there is no product
sell or bias – just objective guidance on
what’s available in the marketplace.
This guide is only a starting point. We hope

that, as a result of using it, you will feel
better positioned to access the support
you require. Should you need to talk to
someone, our Business Link advisers will
be only too pleased to help. To find your
local Business Link, call 0845 600 9 006 or
visit www.businesslink.gov.uk
Finally, if you are a new or early-stage

business looking to raise small amounts
or start-up funds, you may be interested in
our No-Nonsense Guide to Small Business
Funding, also available online, on
www.businesslink.gov.uk
Introduction
Introduction
To drive innovation and rapid
growth in your business,
you need clear, jargon-free
advice on securing the
image: iStock
necessary financial support
W
hen you are searching for funding developing an innovative product and
to take your business to the service can take a lot of time, during
next level, whether that’s to which suppliers and staff have to be paid.
accommodate expansion, or develop a new Funding is an essential part of innovative
idea (see the Route to Market box on the and high-growth businesses, and the
opposite page), it’s important to get sound Government is keen for such companies to
advice that can help you decide on the get access to both the money and support
appropriate source of finance, and how to services they need.
go about securing it.
This online No-Nonsense Guide to Simplifying government support
Finance for High Growth and Innovative The Government’s support schemes for
Businesses includes the relevant contacts businesses have been streamlined into
and links to enable you to find approximately 30 products under the
out more. Solutions for Business banner.
For more information, visit
The importance of innovation www.businesslink.gov.uk/solutions
You don’t have to be the most innovative Please note that the Solutions for
of companies to achieve rapid growth, Business portfolio is only available to
but you must have a service or product English businesses.
that excites people enough to keep them
buying from you. Business Link videos
Innovation means creating something Business Link has developed three new
new or delivering a product or service videos containing help and advice for those
in a way that has not been done before. businesses that are on the look out for
Companies that can do this are able to investment.
gain a competitive edge and generate more The videos are available free of charge on
customer interest. the Business Link YouTube channel, or you
Such businesses play a key role in can click on the links on the following page to
supporting the UK economy. However, watch them:
2 www.businesslink.gov.uk/growth
Introduction
n I dentify
finance options for your business The route to market:
Click here to view video SOURCES OF FINANCE FOR
INNOVATIVE COMPANIES
nP
reparing to attract investment
STAGE 1
Click here to view video The business begins with just its intellectual
property and a growth strategy. However,
nP
itching to potential investors as an innovative company, it must persuade
Click here to view video the established industry of its worth. A small
management team with sector knowledge is
To find these videos on the Business Link recruited, a business plan written and seed
YouTube channel, visit www.youtube.com/ funding accessed.
BusinessLinkGov and search for
the relevant video. STAGE 2
The company uses the funding for early-stage
Understanding the opportunities trials and develops a prototype. The successful
Finding the right funding is about identifying prototype enables the company to get more
the exact needs of your business at its funding, and it aims to get market ready.
particular stage of growth, and tying your STAGE 3
business plan in with an appropriate type With “proof of concept” behind it, the business
of investment. must find a route to market. This may be
Some businesses need more cashflow, through licensing, or directly by the company
others require a large single investment, itself. Discussions with partners, potential
even if it has to be exchanged in return for clients and suppliers are advanced, and the
a share in the business. commercial value of the product can now
For more information about calculating be assessed. Angel investors or venture
what you need, see pages 14 and 15. capitalists invest in business as they feel the
Whatever your requirements, you should company is close to full trading.
be aware of your options and what’s
available. If you have a good business case, STAGE 4
there’s probably a package that will meet As the business begins to grow, it’s likely
your needs. additional investment will be needed to fund
This guide helps you decide on how areas such as manufacturing, sales and
much you require, the most appropriate marketing, branding and additional staff.
type of funding and how to secure it, backed Further funding would be supported by venture
by case studies showing how companies capital, but business angels may also co-invest.
at various stages of development have STAGE 5
accessed finance. It also offers advice on The company has begun trading in the
what this will mean for your business marketplace. However, it could be many
going forward. months or years before it achieves an outright
For more information on finding the profit, and even when profitable it will have to
right finance for your business, visit overcome cash shortfalls. Money from sources
www.businesslink.gov.uk/righttypeoffinance such as invoice finance or further equity
investment may be considered here.
For advice on grants, see pages 52-54
section
1 Preparation
Why do you
want finance?
image:iStock
If you need funding to take your business to the next stage of growth, you
need to determine how much to raise and the most appropriate source
I
f your business needs a cash injection, Whatever the situation, it’s vital to find the
should you go for a debt option – a bank right funding. That means focusing on the
loan, asset-based lending or invoice finance options that not only align with your
finance – or equity investment, where you aims, but also your stage of development.
trade shares for funding? By analysing what
stage your business has reached and where Debt and equity
you want to take it, the most appropriate way Broadly speaking, you can raise money for
to fund growth should become clearer. your business either by incurring debt or
If you’re seeking finance, your business selling equity. There are several fundraising
has probably reached a critical point. For solutions to consider within these two
instance, a start-up technology company camps. Forms of debt go beyond the familiar
may need funding to pay wages and rent concepts of borrowing, overdrafts and
until its first product comes to market. Or leasing, and include very specific solutions,
perhaps, a consumer goods producer on the such as invoice discounting. Whatever
verge of securing its first contract to supply a the debt arrangement, you are effectively
multiple retailer, might need cash to expand purchasing money, usually by paying interest
production and distribution. Alternatively, on credit extended to you, often on the basis
a social enterprise may require funds to of being able to provide sufficient security.
expand nationally, following local success, For equity finance, investors will want a
or, on an operational level, a business may stake in your company based on the sum on
need a cushion against cashflow fluctuations. offer, measured against the value of your
business. Rather than lending, the backer is
IN BRIEF the right funding buying into your business. They will make a
return through dividends and, ultimately, the
l Determine what you’ve achieved and sale of shares. Investors tend to structure
where the company is now deals with an element of debt, too. This
l Ask yourself how appropriate your ensures some payback over the investment
sector is for various types of finance period, prior to eventually selling the stake.
l Allow a time ‘buffer’ in case Giving up a share of your business can be
fundraising takes longer than expected daunting. Fear of losing control, the expense,
l Focus on the types of finance the timescale and worries over complex deals
appropriate to your growth plan deter some businesses from using equity
l Seek specialist advice finance. But equity investors can improve your
business’ long-term prospects by offering
section
1
key skills and expertise. In fact, the profile of Case study

equity investment has risen in some quarters After making initial
in line with the lack of available funding equity investments, the
in the debt market, particularly among founders of London-
innovative businesses with potentially valuable based Fairtrade hot
intellectual property. drinks company Cafédirect managed
to secure additional external funding
Operational issues for growth. This was achieved through
Businesses often choose debt finance to preference shares and shareholder
address an operational problem that may loans, as former non-executive director
or may not be growth-related. For instance, Andy Redfern explains.
cashflow fluctuations caused by seasonal “A lack of assets meant we couldn’t
factors, or late payment by customers are extend our overdraft or credit facilities.
frequently smoothed over by an overdraft. Concerned about the commercial nature
Alternatively, invoice discounting, where a of venture capital, we decided to raise
lender will pay you when an invoice is raised money through a public share issue to
(so you don’t need to wait for the customer invest in our brands, develop markets,
to pay), may help keep you in the black. If the repay debt, fund working capital and
aim is to preserve working capital, leasing improve IT. We raised £5m in this way
rather than buying equipment can help, while with sponsorship. Rather than being
larger one-off outlays can be met by a loan. listed on a conventional stock market,
buyers and sellers are linked up through
Funding growth a matched bargain system run by
Debt-based solutions may be flexible, but broker Brewin Dolphin.”
there will be times when it’s necessary to
12 QUESTIONS TO ASK YOURSELF
1 What are my business finances like? 8 What factors affect the type of finance I
Lenders and investors are more likely can seek? For instance, your company’s
to release the funding you are looking growth potential may be too low for a
for if your finances are sound. venture capitalist, or your sector may not
2 How much is my business spending and interest investment houses on your list.
how much will the growth plan cost? 9 What contingency funds could I access,
3 How much do I need to raise to fulfil my if fundraising takes longer than
business objectives? expected or if I fail to secure funding?
4 How much is it feasible to raise from 10 When does the backer need to be paid
the various possible sources? back, or when will I need to find an exit?
5 What is the business worth? 11 Will I be able to raise further funds?
6 What will finance cost in fees or equity? 12 Should I be looking for one lump sum,
7 How quickly do I need the money? or staged payments over several years?
section
1
IN BRIEF BUSINESS INCUBATION consider equity finance. In the early 2000s,

debt was cheap and many businesses
Many early-stage companies improve funded growth with a large amount of help
their chances of achieving rapid growth from their banks.
by joining a business incubator – or However, in the wake of the sub prime
business innovation centre. This provides mortgage crisis, credit may be more
an environment where young companies expensive and harder to find, with many
can flourish, drawing on resources lenders wary of backing ambitious growth
shared with other businesses, such as plans, due to the level of risk. This has
premises and management services. emphasised the importance of equity finance.
Crucially, a good incubator will Rapid expansion from a turnover of
also offer advice on, and access to, £500,000 a year up to £10m, for example,
funding by banks, business angels may call for increasing production, opening
and venture capitalists specialising in an office overseas or employing a bigger
early-stage companies. Some are sales team. You could, of course, fund this
privately run and established as by borrowing against assets, but even if
businesses in their own rights, while lenders are forthcoming, repayments will
others are sponsored, at least in part, be a drain on the business.
by public sector agencies or universities. Under these circumstances, equity
There are also a number of incubators investment can provide upfront cash without
that began life as investors, and over the burden of regular repayments. This
time began to add a range of business means reducing your stake in the company,
services. Travelling in the opposite as the investor buys in, but if all goes to plan,
direction, a number of incubators began the real value of your holding will grow.
life as providers of business services, It’s also important to recognise that private
adding an investment capability at a later investors can actively help you grow by giving
stage. Most incubators have premises, advice and recommending executive and
but some offer a virtual service. non-executive directors.
Incubator programmes are not open
to everyone. Typically, a company will Equity finance
have to apply and make a case for being If you choose this route, you’ll be working
given access to the facilities. Nor are closely with your investors, so make sure
they a permanent option. Designed to that you get to know them first, because it’s
accelerate the growth of companies at important that the chemistry is right.
an early stage, the expectation is that Ideally, they should have the relevant
businesses will move out and establish experience and industry knowledge to help
their independence at an appropriate your company grow.
time. Statistics suggest that those that Equity finance can come from a number
do enter an incubation programme have of sources. These include: so-called friends
a better chance of success than those and family investors – essentially personal
that initially go it alone. contacts, who have the money and inclination
For further information, visit Business to back your plans, with anything from a
Link at: www.businesslink.gov.uk few hundred to a few thousand pounds;
business angels – individuals who specialise
section
1
in supporting young, Case study When Essex-based

growing companies; and technology company Lysanda
venture capitalists (VCs). developed a system to monitor
VCs will probably and control vehicle emissions, the
only be interested in owners thought they were onto
investments of £250,000 something big. But, as the original
or more, and will be co-founder of the business, Simon Harris, recalls, there was
looking for a flotation or no certainty that a market existed for the innovative product.
trade sale within three to “For evidence of customer interest and how to get to
seven years to allow them market, we had to rely on a mixture of anecdote, hunch and
to achieve a high return. assertion, as we didn’t have the resources to carry out the
necessary research. However, we received a grant from
Social enterprises the East of England Development Agency, which enabled
Locating funding options us to hire a consultant to test the commercial potential of
that match your business the product, which we called Eco Log. His report identified
objectives is particularly potential customers and partners. Thanks to this research,
relevant for social we are now marketing Eco Log.”
enterprises looking to
expand. Often they will Grants of up to £20,000 to assess marketing potential are
find that the conventional now available from some Regional Development Agencies
sources of growth finance, (RDAs) through the Grant for Research and Development
such as venture capital (GRD), a Solutions for Business product. Success in securing
or angel investors, are a GRD depends on the priorities of specific RDAs. For further
inappropriate, requiring information, visit Business Link at: www.businesslink.gov.uk
them to go against their
core values.
In this situation, a social enterprise should Advisers will also be able to help you
consider approaching a specialist lender, or establish whether you really need to
look at an alternative public offering, which raise finance or if your problems can be
provides funding, while letting the business addressed in other ways. For instance, if
maintain its ethical stance. cashflow is an issue, it may be possible
to resolve the problem by raising invoices
Expert advice more quickly, or by taking a more proactive
Whoever you are dealing with, seek approach in chasing unpaid debts. There
sound advice. While your accountant will are always alternatives. n
undoubtedly help you in your relationship
with lenders, dealing with equity investors For advice on calculating your investment
requires more specialist help. needs, see pages 14-15
A legal adviser should check any deal,
and when preparing to talk to VCs, you
should enlist the help of a corporate finance Where to go next
specialist. Mid-tier accountancy practices For help with choosing the right finance, visit:
with a national presence, are particularly www.businesslink.gov.uk/financetype
strong in this area.
section
1
Find the right finance solution

Finance Amount sought: Typical uses of finance Time Typical charges, fees
option required and interest rates
£100k to £500k to £1m to arrange
£500k £1m plus
New premises, rolling out chains, 1-3 months Interest depends on lenders – can be
Bank loans 4 w w marketing, working capital, low-end more than 2-4% over base rate charged
acquisitions before downturn. Typical fee is 1.5%
Primarily a tool to maintain positive 1-4 weeks Service charge 0.1-0.5% of turnover for
Invoice cashflow and provide working invoice discounting, 0.75% to 2.5% for
finance 4 4 4 capital. Can finance less costly factoring. Daily Interest around 1-4% over
growth plans base rate, has increased in downturn
Provides working capital and 4-6 weeks Interest of 1.75-2.5% above base rate,
Asset-based finance for a variety of reasons, plus a lending fee of 0.5-1.5% of the loan
lending 4 4 4 including growth plans, refinancing,
mergers and acquisitions
Can be used to acquire a range of 1 month Deposit of 5-30% and a finance fee
assets to avoid paying out large of 1.25-10% above the base rate.
Leasing 4 4 4 sums upfront, freeing up working Due diligence charge of 0.25-1% of
capital to fund less costly plans total advanced
Funding moderate to high-risk, 3-6 months, Legal and accountancy fees up to 5%

high-growth plans, including product but could be of funds raised, capped around £10,000
Angel finance 4 w 8 or service launches, marketing and up to 1 year – may be more for larger sums (presently
technology development – typically less). Private investors will take equity for
post proof of concept cash. Networks charge success fees of 5%
Funding moderate to high-risk, 3 months Corporate finance fees of 5%*, plus 5%

high-growth plans, including to a year equity options. Legal costs up to £30,000.
Venture funding acquisitions, product or Accountancy fees. Around 20% or higher
capital 8 w 4 service launches, new premises, equity stake. Membership list no longer
national or global expansion freely available
Funding moderate to high-risk, 3 to 6 months, 7.24%* of funds raised on average,

high-growth plans, including but could including advisers’ fees. Average
funding acquisitions, product or take longer flotation cost is £150,000, but can be
PLUS market 8 4 4 service launches, new premises, as much as £200,000
national or global expansion
Funding moderate to high-risk, 3-6 months, 10.5%* of funds raised on average,

high-growth plans, including although including advisers’ fees. Often as much
Alternative w funding acquisitions, product or preparation as £300,000 to £400,000
Investment 8 8 Only
service launches, new premises, can take
Market (AIM) if over
national or global expansion far longer
£5m
Funding moderate to high-risk, 6-12 months 10.5%* of funds raised on average,

Alternative high-growth plans, including including advisers’ fees. Often as much
public offering 4 4 4 funding acquisitions, product or as £300,000 to £400,000
(APO) service launches, new premises,
national or global expansion
section
1
4 Likely
w Possible
8 Unlikely
Pros Cons Social enterprises’ chances of Page
securing funding no.
Loans provide a means to finance Repayments can drain cashflow; you may 20-23
growth without surrendering equity to need to put up security; costs have risen; may 4
a shareholder be harder to secure and rates may be higher
Depending on the lender’s terms A trading record and £100,000 plus turnover 24-25
and conditions, you can receive up may be needed, excluding smaller companies
to 90% of the value of an invoice as and start-ups. Factoring involves the lender 4
soon as it is raised, providing capital chasing debts, which can unsettle customers
Loans can be secured against a The minimum sum may be too high for some 26-27
wide range of items, plus intellectual small businesses. The lender effectively
property. Currently, banks may be more takes ownership of the assets, which are sold 4
willing to lend on an asset-backed basis if the debt cannot be serviced
Very flexible, as almost anything can You will not own your assets 28-29
be leased; gives access to up-to-date
equipment; offers tax benefits, as 4
leasing costs are an allowable expense
Angels tend to be more prepared to Angels can be hard to find; they will seek an 30-35
back early-stage businesses; may offer exit, typically after three to five years, or sale
contacts, advice and skills; less formal on AIM/initial public offering; you will have to 4 Although angels will have
than venture capitalists surrender equity dependent on the valuation exit concerns
of the company
Venture capitalists provide larger Venture capitalists expect rights over your 36-41
amounts than angels; offer expertise business; will seek an exit in three to five
w
Finding an exit strategy that gives
investors a good return and keeps the
and access to top-class management; years, meaning a sale, float or refinancing;
core values of the enterprise can add
will usually have strong industry contacts will want a good deal on equity; will push hard
complexity to venture capital deals
on valuations in current financial climate
Cheaper than floating on AIM or the Success depends on market sentiment and 42-43
London Stock Exchange main list, convincing investors about your company;
w
Investors may be wary of backing
social ventures in the current climate,
but offers similar advantages, notably only a limited pool of investors and liquidity
unless there is a clear prospect of
tradable shares that can be used to (the buying and selling of shares) is restricted;
a return
make acquisitions; profile and credibility; communicating with shareholders takes time
less regulation than other markets and effort; you will have to surrender equity
Profile and credibility; typically raises Many companies find there is little liquidity 42-43
larger amounts than debt, angels (the buying and selling of shares) in their
w
Investors may be wary of backing
social ventures in the current climate,
or PLUS; you can raise more money shares; reporting to shareholders takes time
unless there is a clear prospect of
through secondary issues; tradeable and effort; you give up equity; better suited to
a return
shares can be used to fund acquisitions medium-sized businesses; tough raising new
money in current financial climate
Profile and credibility; offers more Not appropriate to all business types; 42-43
funds than debt and angels, but is still you have to create publicity and make
4 Allows social enterprises to
raise funds, but doesn’t open up the
appropriate for small businesses; less the market yourself business to the full market pressures
regulated than official markets
* Typical amount – fees are negotiable

section
1 Preparation
Bring in the experts

image: Shutterstock
The right advice is essential when raising

funds. But where can you go for help?
S
ecuring finance will be easier with needs and examine their track record. You’re
key advisers on board, who will help looking for advisers who can not only help you
the deal run more smoothly, and spot gain finance, but who also understand your
any funding barriers. For example, they will business. So you need to find out:
know if your business is going in the wrong
direction, or if your management team is nW hat information and advice you will get
weak. They will also help identify alternative nH ow often you will meet and for how long
funding sources and have useful contacts. n I f you will be able to call them in a crisis
Gaining funding will take you away from nW hat areas they will cover
your day-to-day role in the business, with nW hat you will need to do yourself
larger equity finance taking up to six months nW hat results you can expect
to complete. Professional advisers will guide nH ow much they will charge you
you through this complex process, and the
long-term benefits far outweigh their cost. Be clear about how much effort you are
prepared to put into the relationship. To
Finding the right advisers make the most of your meetings, ensure you
Start with your local Business Link adviser, have all the key details to hand. You’ll also
who will assess your needs, and suggest at need to be prepared to act on their advice.
least three options for each position sought. Once you have selected your team of
Also, ask friends and business contacts for experts, agree specific targets. Be honest
recommendations, such as your accountant and communicative. Let them know if you
and bank manager, or go to professional are unhappy with anything, and check they
bodies, like the Law Society. feel you have stuck to your side of the deal.
Select experts who are right for you. Make a
shortlist, then meet to discuss your business Who should you consider?
Accountant: One of the first outside sources
IN BRIEF experts to consult, accountancy charges will depend
on how much you raise (typically 1 per cent
l Businesses that seek expert help build or more of larger sums) and the scope of the
turnover faster than those that don’t work. Otherwise expect an hourly rate of £200
l Accountants and lawyers are essential to £400, or £175 to £300 outside London.
for raising finance. For equity finance
and going public, you may also need a Legal adviser: You can’t raise equity finance
corporate finance adviser, a broker and without a legal adviser. Fees for raising
a financial PR consultancy £500,000 in venture capital would typically
l Build advisers’ costs into funds sought range from £15,000 to £40,000, while a
flotation will cost from £50,000 to £150,000.
section
1
further points to think about

What to ask before you hire an adviser: You should also:
nW
hat types of fundraising does the nS
peak to one of the expert’s recent
expert specialise in? Check their track clients to find out how they operate and
record in your business sector what they did for them
nW
hich lenders and investors do they nT
hink carefully about the fee structure,
work with? Are they impartial? so that it provides the right motivation
nH
ow quickly can they secure you finance? to allow you to get the most out of your
nH
ow do they propose structuring fees? relationship. One possible option would
nC
an they supply three references, ideally be to combine a retainer, a bonus for
in a similar business area? getting better terms and a closing fee
Corporate finance adviser: Sitting between Companies wishing to take part must make a
your business and potential lenders or case for inclusion. For more information, visit:
investors, corporate finance advisers help to www.businesslink.gov.uk/solutions n
source and secure all types of finance at a
higher level. Charges are usually made up Free performance review
of a series of fixed costs, a closing fee and Business Link’s Health Check for Growth
bonus. Fees may reach 7 per cent of deals provides a free business performance review
under £1m, but 2-6 per cent of larger deals. with an independent business adviser. The
adviser helps you create an action plan
NOMADs, brokers and corporate advisers: covering a range of issues. These include:
To list on the Alternative Investment Market planning and strategy; innovation; access to
(AIM), you’ll need a nominated adviser (NOMAD) finance; exporting; and capital investment.
and broker to help you comply with the Health Check for Growth also provides
regulations. A PLUS market listing requires a an analysis of the new skills you require to
corporate adviser. Expect to pay £100,000 to drive growth. Plus the adviser helps you
£400,000, plus 3-4 per cent of funds raised. access the full range of government and
private sector support that may be available
Financial PR adviser: Compulsory for a to help implement the plan. To arrange
market listing, financial PRs charge from an appointment with a Business Link
£2,000 to £5,000 a month. adviser, call the Business Link Helpline
on 0845 600 9 006. n
High growth coaching: Coaches offer key
advice on how to grow your businesses. For advice on calculating your investment
Coaching for High Growth, a Solutions for needs, see pages 14-15
Business product, delivered by some Regional
Development Agencies and accessed
through Business Link, assigns coaches with Where to go next
experience at chief executive level. They work For more on advisers go to
with companies with high growth potential www.businesslink.co.uk/advisers
to foster and develop management skills.
section
1 Preparation
Intellectual
property
Protect your intellectual property
image: Shutterstock
and other intangible assets, as
they may be important when you
are looking for investment
I
f your business is innovative or creative, trade marks and design rights. They protect
you will probably have developed some the innovative processes, the name and the
intellectual property (IP). You can legally design of your product or service. But you
protect the originality of your business, and also have unregistered assets, like copyright,
should take steps to ensure others can’t know-how and confidentiality. These can
steal your ideas. IP can also be vital when be protected using contracts with staff,
seeking finance. Investors like a concept that manufacturers and distributors. Protect your
can’t be copied easily, and may be deterred if IP thoroughly. If you get a company to improve
you have not safeguarded your IP. your prototype, have a contract that ensures
Innovative and creative companies have an you own the rights to any improvements. If
advantage when looking for funding. They can your product is a spin-off from education, or
be cheaper to set up and grow, and their ideas uses ideas from your previous job, you’ll need
are harder to copy. Profit margins tend to be to be clear about the ownership of all IP.
higher than for labour-intensive businesses,
and if successful, you can license your IP to Where do I start?
other businesses or to manufacturers abroad. Secure your IP as soon as possible. If you’re
unsure about the rights you own, audit
What intangible assets can be protected? them and take the necessary steps before
Usually for IP, only the three “registered applying for funding. Use The Intellectual
rights” in UK Law are considered: patents, Property Office’s (IPO’s) IP Healthcheck to
print a report showing what you need to do.
IN BRIEF protecting your IP Visit www.ipo.gov.uk/iphealthcheck for this
and other useful IP help, including a list of
l IP is not just a patent. Most original relevant events. For more information on how
ideas can be protected in some way you can make the most of your intangible
l Protect your IP before looking for assets, visit www.businesslink.gov.uk
funding, or you may put off investors and If you need an IP specialist lawyer, most
risk your idea being stolen will offer a free introductory meeting to
l Be careful when using contractors. discuss your needs. The Chartered Institute
Make sure they assign the IP from their of Patent Attorneys (www.cipa.org.uk) and
work to you and insist on non-disclosure the Institute of Trade Mark Attorneys (www.
itma.org.uk) can recommend one near you.
section
1
What are the costs? Case study

Securing a basic UK patent can cost Unable to secure
approximately £2,000 to £3,000, but is far funding for his
more expensive in other countries. Most of laptop security
this consists of legal fees. Registered rights products business,
are charged for a period of time in a certain Norman Shaw of
area. For example, registering a trade mark ExactTrak, based
for 10 years costs £200. in Oxford, met two intellectual
You need to protect your product wherever property (IP) lawyers from Mathys
it is sold or made, especially in emerging & Squire, who explained that his
economies, where it’s cheaper to copy problem was that he didn’t hold
ideas. You’ll also need to pay for expert patents on his invention.
advice if your concept is similar to others “I was having a problem getting
on the market. investors to take me seriously.
You may not be able to protect registered “Mathys & Squire worked with me
rights that are similar to your rival’s IP, to identify the innovative and unique
but you can, for example, ensure the steps that were the basis of three
confidentiality of your know-how is safe. patent applications.
“With my IP protected, three venture
What questions might investors ask? capitalists offered funding for the next
Aim to show you’re protected in two ways. stage of development, and the first
First, prove your business can’t be copied big orders are already coming in. My
easily. The harder it is for rivals to enter your prototype also received government
market, the more attractive your proposal. funding, and none of this would have
Second, show that your idea has licensing happened without patent protection.”
potential. You can use your IP as a source
of profit, either making it available, or
using contractors to manufacture your IP tax review
product for other markets. To do this, This Autumn the Government is consulting
consider exactly what you need to protect with business to review the taxation of
in different markets, and include this in intellectual property, the support R&D
your business plan. tax credits provide for innovation and the
proposals of the Dyson Review set out in the
Pre-commercialisation funding? publication Ingenious Britain. n
If you have a bright idea, but need some help
to commercialise it, funding is available from For advice on attracting equity investment,
some Regional Development Agencies. The see pages 16-17
grant help that’s available to businesses
varies widely. For more information about
grants, see pages 52-56. Where to go next
If you are collaborating with a commercial Visit www.ipo.gov.uk/home.htm for guides,
partner to produce a prototype, draft education and the free downloadable IP
agreements to protect your IP are available healthcheck for your business
at www.ipo.gov.uk/research-ukip.htm
section
1 Preparation
Calculating
what you need
image: iStock
Before seeking finance, it’s important to know how much you require,
your chances of securing it and which source best suits your needs
F
inancial backers expect you to have areas you may need to assess include: salary
carefully considered your funding outlay for staff you plan to recruit, the cost
requirements, so that the amount and of the equipment required, or how much
timing of borrowings has been rigorously suppliers would charge for the new stock lines
assessed and there is a robust strategy in you propose to sell.
place to provide repayment – essentially, that Rob Donaldson, head of M&A and private
your business is investment-ready. equity at advisory firm Baker Tilly, advises
asking for slightly more than you need when
How much should I ask for? raising finance. “The fixed costs can be high
You need to cost each aspect of your growth if you are looking to secure smaller amounts
strategy. For acquisitions, try to identify of money,” he says. “So make sure you raise
the potential target and its likely price. To enough, as you don’t want to do it twice.”
launch a product or service, you’ll need You should also plan to include some
a marketing plan, which should include: breathing space for at least a year, as it’s
who you will target; assumptions about difficult to ask for more once a sum has
how many sales or customers you hope to been agreed, and extra funding could
acquire; the proposed medium; and the cost take several months to raise, potentially
of the campaign. Opening or purchasing new compromising operations.
premises will require an assessment of the “Company directors tend to take an
cost to buy or rent in the suggested location, optimistic view of prospects,” says Stephen
as well as any proposed modifications. Other Bayfield, a partner in corporate finance
at PKF. “Investors gain confidence if a
IN BRIEF YOUR FUNDING NEEDS contingency plan is evident, as things rarely
go to plan. Remember, sales are usually
l Research what level of funding your more unpredictable than costs.”
plans require, the risks versus your Ultimately, you may need to temper your
expected returns, and how the funds ambition. It’s worth formulating alternative
will be repaid growth plans in case the financier offers you
l Consider what affects your a smaller amount than you have asked for, to
calculations, such as sector factors, make sure you don’t lose time trying to raise
track record, business strategy, the life funds while your existing resources dwindle.
stage of your company, existing financial If your sector is unusual, new, or you’re
resources and the value of your assets a social enterprise, the time taken to raise
growth capital will be further extended, and
section
1
this should be built into your costs. You may Case study
also need to consult specialist lenders (see Seatwave is a £30m
Banks and specialist lenders, pages 20-23). London-based
ticketing company,
What affects the amount I can seek? which has gained
Be realistic, given the stage of development backing from
your business has reached. For most venture capitalists
companies, funding tends to rise on three separate occasions. Chief
incrementally from small amounts of financial officer Aksel van der Wal
secured debt and personal investment, to explains what you need to consider
more sophisticated facilities, such as invoice when looking for finance.
finance and leasing, and business angel, “Business owners need to think about
venture capital and public market funding. not only what they want to achieve, but
When considering how much you can expect also how much of this is realistic. Once
to secure, think about these two factors: this has been done, they can look at
how much it will cost. Our growth was
How financial providers view your business mostly viewed in terms of hiring new
n Your management team’s track record staff and marketing. Because of the way
n Existing and potential future competitors, our payment model works, we don’t have
and the economic climate huge cashflow issues. However, ticketing
n Your existing debt facilities is seasonal, so that had to be taken into
n Your ability to service the debt or achieve account when making forecasts.”
the required return on investment
n Your asset backing – what assets can you
use as security with investors or lenders? higher equity stake. For details on angel and
n Your vision – it’s important to have clearly venture capital finance, go to pages 30-41.
defined goals and ambitions For a listing on the Alternative Investment
Market, most companies look to raise at least
What is the most cost-effective option? £5m, with the PLUS market typically used to
Raising finance can be expensive in terms of generate slightly less. Listing costs may top
time, and arrangement and advisory fees. For £500,000 on AIM (less on PLUS), so consider
more on advisers’ fees, go to pages 10-11. carefully whether either market can meet your
If you are raising equity finance (from needs. The financial climate has seriously hit
a venture capitalist or angel investor, for the stock markets, so flotation may not be the
example), you need to be aware of the costs right move until the economy improves. n
involved. So if you’re likely to need extra
funding in the medium term, it’s often more For advice on using bank debt for growth,
economical to seek more at the outset. see pages 20-23
As most debt is secured, costs tend to be
lower, although for cashflow loans a funder
will require independent due diligence, which Where to go next
will be paid for by the borrower. Cash outlay For The Institute of Chartered Accountants
for angel investment tends to be minimal, in England & Wales, visit: www.icaew.com
but risk is usually compensated for by a
section
1 Preparation
Attracting equity investment

It’s a battle securing investment from venture capitalists and business
angels, so it’s vital to make your proposal as attractive as possible
U
nder any circumstances, encouraging trading environment, as well as explaining
investors to trade finance for a how you are going to take advantage when
stake in your business is tough, and the recession subsides.
currently it’s harder than ever. Ian Shields of Gateway2investment, which
Only a fraction of the proposals venture helps businesses prepare for funding, says
capitalists (VCs) receive get as much as a investors will be impressed by a business
phone call. Even fewer will go all the way and plan showing an understanding of the effect
secure investment. the recession is having on companies.
Today, risk is seen even more vividly, the “Identify how you’re going to get through
flotation market is effectively closed, and the downturn and take advantage when you
investors have less to invest – there are come out the other end,” he explains.
simply fewer deals around. To stand It’s also important to know what the
a decent chance of success, you need a investor is looking for from a company, so
strong proposition, able management and assess the following:
rigorous preparation. n The backer’s investment range
n The stage of business they typically finance
Getting investors’ interest n Their geographical reach
Your proposition must show a carefully n Their deal portfolio and sector preferences
evaluated business idea detailing the risks If you’re seeking angel finance, go to
and rewards. Emphasise how potential networking events to get an idea of who
investors will benefit financially and the you’re up against. For more on business
timing of their exit, if applicable. You should angels, see pages 30-35.
also include where your business sits in
its chosen market and why it will succeed Your management team
against existing and potential competition. Investors need to be able to believe in and
It’s also very important to show an investor work with your management team. They
how your business will cope in a tougher are likely to be looking for:
Personal qualities: Illustrate
IN BRIEF SECURING EQUITY INVESTMENT your business pedigree by
highlighting past successes
l Match your proposition to investors’ requirements Contacts: Prove you have good
l Investors consider track record, the quality of the contacts in your chosen sector
management team, contacts and financial commitment Commitment: Show that
l Work out what returns you can offer you believe in your business
l Decide how much equity and control of your business enough to invest some of
you would be prepared to share your own money in it, and
that you’re prepared to put in
section
1
Case study
Richard Williams
is chief executive
of Hampshire bio-
detection company
image: iStock
Stratophase, which
has attracted £3.6m
of finance from investors, including
maximum effort. Social enterprises may Boston-based East Hill Management.
find it difficult to secure investment that “You’ve got to pitch your business
requires security, as directors are unlikely plan according to what your investor
to want to offer personal guarantees. is looking for,” he says. “We are
Therefore, social enterprises should explore developing devices that can detect fatal
all alternative security sources before viruses without the need of a laboratory.
approaching an investor They could be useful in medical
Team: Emphasise your directors’ previous settings, but because of the nature of
experience in their role and at a similar level that industry, they could take years
Track record: Push your past experience. If to produce, which could have put off
you’ve been through tough times, it’s vital to potential investors.
explain the lessons you’ve learned “To avoid this, we adopted a low-risk
model, using the technology to develop
The returns you can offer products for military, agricultural and
An investor’s main concern is the potential manufacturing environments before
return and when they’ll see it. They typically moving into the medical sphere.”
seek businesses offering an early exit, by
trade sale or flotation (for more on exit
strategies, see page 41), and will want to Also, treat rejection as a chance to
know the following: improve your offering. Ask for feedback and
n I s the proposition feasible? try to fill gaps in your proposal.
nC an the management deliver the plan? The ability of VCs to raise funds has been
nA re the potential rewards enough? adversely affected by the economic downturn,
nH ow will I get my money out? and this has resulted in many investors having
n I f the business is to be sold who will buy it less money to re-invest in businesses. n
or how will the market react to flotation?
For advice on what to include in your
What are best and worst-case returns? business plan, see pages 18-19
By attracting equity investment you are
growing your business, and although you will
have a smaller stake, it will potentially be
Where to go next
worth significantly more. For more on equity finance, visit:
Remember that equity investors in social www.businesslink.gov.uk/equity
enterprises will not necessarily be looking Visit the British Private Equity and Venture
at a conventional exit strategy, but may still Capital Association at: www.bvca.co.uk
want a return on their investment.
section
1 Preparation
A business plan
to raise finance
Securing funding isn’t easy during
a recession, so getting your
image: iStock
business plan spot on is essential
if you are to convince investors
T
o acquire the funds you need to grow, and growth strategy; unique selling points
your business plan should be tailored (USPs); sales; forecasts
to your finance provider. A potential History and background: The business; its
backer wants to see why you need finance, origins; historical performance; sales data
how you plan to use it, how they will get The market: Size; growth rate; major
their money back or realise a return on their players; your position; technical advances;
investment, and the evidence that backs up forecasts; relevant government regulations
any claims you are making. Opportunities: Vision and objectives;
If you have an inexperienced management customers and their needs; target market;
team, which has never dealt with raising product or service positioning and value
finance before, you should consult an offering; USPs (such as plans to cut prices);
adviser, who can help you prepare the patents or other legal protection; pricing;
right business plan. distribution channels; marketing plans
Operations: Financial; organisational and
The structure of your plan human resources; requirements not yet met
Executive summary: Your overall vision; Management team: Brief background of your
a mission statement; plans; the current key people; their responsibilities and relevant
state of the business; details on your skills; gaps that need to be filled
product or service; your value, proposition SWOT analysis: Strengths; weaknesses;
opportunities; threats. Be thorough here,
to avoid investors spotting weaknesses and
IN BRIEF BUSINESS PLANS
threats that you have not identified
l Include background information on Financial forecasts: Sales; gross margin;
the business, market analysis, future logic behind figures; profit and loss account;
opportunities, existing operations, balance sheet and cashflow three-year
brief management biographies, SWOT forecasts; payback period; breakeven point
analysis, forecasts and existing finances Financing: Loans and debt arrangements; a
l Try to keep it under 40 pages and breakdown of how funds will be used
tailor it to the type of finance sought – 10 Exit routes: Possible exit strategies – for
pages may be enough to secure debt more on this, see the box on page 41
l Keep the look and feel straightforward This covers most forms of fundraising,
although securing debt requires less detail,
section
1
with added emphasis on assets, security, trade buyers. Venture capitalists are having
creditworthiness and aged-debtor analysis a tough time, as currently the market for
– who owes you what and from when. flotations is effectively shut, while investors
A business plan for a social enterprise will are more cautious. This makes floating
also need a clear explanation of the function unlikely, but if you’re not exiting for three
of the company and its social objectives. It years, it can be discussed
should show that the company has a strong
track record, is able to repay any borrowing, Focus on the present
and, if relevant, generate sufficient profit to While projections are vital to backers,
interest a social investor. don’t forget existing sales, customers and
To read and download a sample plan, visit the make-up of your management team.
www.businesslink.gov.uk/businessplan “People buy people, not business plans,” says
Khedair. “Business ideas remain conjecture
How much to include without the right people to implement them.”
Each section should be between two and four
pages, with slight variations depending on the Keep a straightforward look and tone
type of business – a manufacturing company, Lengthy plans are off-putting, says Khedair.
for example, might talk more about its “An executive summary should be just
products’ intricacies. Avoid over-emphasising that,” she stresses. “Restrict it to two sides,
any one section, and only use headline letting the rest of the plan provide the detail.”
figures in the executive summary. Presentation is everything. Keep the
“An effective business plan is more than plan’s language and appearance clear and
a set of spreadsheets, but the narrative accessible. Use photos and graphics if
shouldn’t be a novel,” says Jane Khedair, relevant, but don’t overcrowd it. Supply the
managing director of Business Plan Services. plan as a professionally presented document.
“It should have enough detail to present the Seek advice, but an adviser shouldn’t
relevant facts and whet readers’ appetites.” write the plan without your input. It should
reflect your character, because investors are
Empathise with your audience backing you as much as your idea. n
nB ackers want to be confident that the
interest and capital repayments can be For advice on negotiating with investors,
met. Talk about how risk can be controlled, see pages 46-48
loss can be limited, and security. Adjust
the tone to suit the audience
n I nvoice and asset-based financiers are less Where to go next
concerned with security than the quality A new Compose a Business Plan tool is
of your debtor book, credit management available from Business Link at: www.
capabilities, bad debt record and the extent businesslink.gov.uk/prepareabusinessplan
to which the business suffers credit notes.
For more on business plans in general, visit:
They may also want to have an idea of the
www.businesslink.gov.uk/planforgrowth
sell-on value of your assets. For more on
asset-based lending, go to pages 26-27 For more on business plans tailored to
nF or equity investors, focus on market equity investors, visit www.bvca.co.uk
opportunities and exit options, such as
section
2 Funding options and process
Banks and specialist lenders

Although currently it’s difficult to secure funding from lenders, there is still
money out there. So how can you raise it and is it right for your business?
G
etting a loan from a lender may be UK banks negotiate lines of more than
a little tougher than usual at the £1bn to provide loans to small businesses.
moment, but despite this more So if you are applying for a bank loan, make
cautious economic environment, cash is sure your bank manager is aware of the
still available for businesses and EIB’s lending packages, as it may help
entrepreneurs. you get a cheaper loan. For more details
on these, visit: www.businesslink.gov.uk/
Are the banks still lending? eibfunding
Banks are providing finance, but it may be The Enterprise Finance Guarantee
more difficult to secure than it was in recent (EFG) (a Solutions for Business product)
years. What’s more, the interest rates that was introduced to encourage bank lending
banks are charging are likely to be higher, to small businesses that lack the security
because they are assessing risk in light to secure a normal commercial loan.
of the economic situation. At a time when Under the government scheme,
many well-known businesses have suffered, accredited lenders can offer loans ranging
successful growing and viable companies from £1,000 to £1m, over a period from
are finding it hard to get funding. three months to 10 years, to qualifying
A key problem is that banks aren’t lending small to medium-sized UK businesses
to each other as much as they have done in that have a turnover of up to £25m.
the past, leading to a slowdown in credit for The Government provides a 75 per cent
everyone. As a result, banks need to borrow guarantee to the lender, for which the
money from institutions they may not have borrower pays a premium of 2 per
used previously, such as the European cent a year.
Investment Bank (EIB). The EFG can be used to support new
The EIB doesn’t lend directly to small loans, to refinance existing loans, for
businesses, but lends through local banks. overdraft conversion, for guarantees on
With the EIB, the Government has helped invoice facilities and for guarantees on
new or increased overdraft
borrowing.
IN BRIEF KEY ASPECTS OF bank debt
The EFG is accessed through
l Good for buying assets and medium-paced expansion participating banks. Visit www.
l Raising between £1,000 and £1m plus is possible bis.gov.uk for a list of lenders
l Assets and track record of the management are key involved. The EFG has been
l You may have to make personal guarantees, such as extended to 31 March 2011.
putting your house up as security Click here for more details
l It has become tougher to secure since the credit crunch about the Enterprise Finance
Guarantee.
section
2
BANK DEBT
Pros
n It is cheaper and easier to obtain than
equity finance
n You do not have to give up any control of
your business to a backer
Cons
n Businesses with little trading history
may find larger loans hard to obtain
n Defaulting on repayments or breaching
conditions may mean paying back in full
repayment holiday) from the start or

allow you to make lump sum repayments.
Regardless of the exact nature of the deal,
the bank will want to know the following
details about your business before they will
be willing to lend:
nT he track record and financial position of
your company and the management team
nT he loan’s purpose and your ability to repay
nT he value of your personal guarantees
Banks generally ask for security on the
image: iStock
loan in the form of a personal guarantee.

If you don’t possess the necessary funds,
banks will usually ask you to put up your
Should I get a loan? home as security.
If your business needs a significant injection
of cash, you may have no choice other What are the costs?
than applying for a loan. The only real Bank loans are cheaper to raise than
alternative is to sell shares in your business. equity, but they do pose more of a burden
However, you must be aware that equity is to cashflow. This makes it important to
often the most expensive form of funding always check the annual percentage rate
in the long term, since you are exchanging (APR) for interest on any loan. It is worth
part of your business in return for cash. shopping around to secure the best deal.
If you do take a loan, you will have Get a written quotation first, and read the
repayments scheduled from the outset. small print, looking for hidden charges.
This means new businesses looking In general, costs include:
to launch products or services without n I nterest, which is usually 2.75-4 per cent
sufficient cashflow to service the loan may over the base rate, although it may be
not be considered. However, your bank higher for new businesses and deals can
may offer a capital interest holiday (or vary. Interest is charged on the amount
section
2
Case study What is the loan dependent on?

Hi Ho Silver, based Banks have a strict underwriting process
in Somerset, is a and set the following provisos before a
multi-million pound loan can be agreed:
jewellery business nY ou have to sign legally binding covenants,
which has been and if you breach any of the conditions that
financed solely through overdraft loans. they set out, the bank will be entitled to
However, it had only been able to get immediate full repayment
limited finance from the bank, and so its nY our profits should demonstrate an ability
ability for growth was being inhibited. to service the debt
To change this, Andrew Ransford nM onthly management accounts and
and his team set about improving the audited annual accounts are required to be
quality of information the business presented before and possibly throughout
produced. This took the form of formal the period of the loan
management accounts that could nL enders may want to see how you
show a lender exactly what the money manage debt, with analysis of how much
it was investing in the business was the business is owed alongside when
going to achieve. As Ransford explains: the invoice was issued (this is called
“The aim was to get the business’ aged-debtor analysis)
management accounts in order and to
establish a relationship with the bank. Getting the best deal
This can make a huge difference. Take the time to shop around – it could save
“If your bank has proper management you money in the long term. Make sure you
information which is presented monthly, negotiate with the bank manager to get the
and you inform your manager about best deal, and ask if you can have any special
the decisions that you are making, terms in writing.
then it makes it a lot easier for them Use a financial broker to propose the
to support you.” best deals for the type of finance that your
business needs. A broker can save you time
of the facility you use at one time, and is and money, and can also increase your
levied quarterly or monthly chances of getting a loan by presenting
nA
lending fee with arrangement costs of your proposal in the best way to the most
1-1.5 per cent of the loan can be charged appropriate lenders. But don’t forget to
nA
prepayment fee may be levied if you establish what fees, if any, the broker
decide to pay the loan back early will charge you.
nC
harges are based on the level of risk and You will be able to find a list of financial
your standing brokers by visiting the National Association
of Commercial Financial Brokers’ website at
How quickly can a loan be secured? www.nacfb.org.
It can take between one and three months Research the small print. Apart from
to finalise the detail, but you should get an interest rates, assess other lending
initial answer within weeks. Getting quotes criteria, such as loan terms and set-up
from a number of banks can help to force fees. Consider having an expert, such as a
a quicker decision. solicitor, review the loan documents.
section
2
Negotiating the terms Alternative specialist lenders

of your loan
A loan agreement can be a Not all businesses fit into the same type of model, and as
long and complex document. a result, have difficulty getting finance from traditional
How you agree the terms of lenders. If your business has a social, charitable or ethical
the loan will have a direct dimension, then you could try the sources below:
impact on the health of your
Name Website
business. Remember that
almost everything will be up Adventure Capital Fund www.adventurecapitalfund.org.uk
for negotiation.
Aside from discussing basic Big Issue Invest www.bigissueinvest.com
issues, such as the due date of
the loan and the interest rate, Charity Bank www.charitybank.org
you also need to establish the
amount of the loan fees. It’s Futurebuilders England www.futurebuilders-england.org.uk
important to make sure that
Triodos Bank www.triodos.co.uk
you will have the flexibility to
pay off your loan earlier than
Unity Trust Bank www.unity.co.uk
the due date and, if possible,
try to avoid any penalty for Co-operative &
early settlement. Community Finance www.icof.co.uk
Negotiate for a grace period
for your payment schedule
and check to make sure that late payment However, specialist lenders can be
charges are practicable. more flexible in the way that they look at
other aspects of the business, particularly
The alternatives to the high-street banks personal guarantees.
Big institutions typically use a computer “We work with the usual types of security
to give loan decisions, and if your sector is (property, etc), but don’t take personal
unusual or you run a social enterprise then guarantees,” says Cooper. “We can work with
it may not fit the model. security from a community of guarantors,
Briefing the bank on your market can help, where risk is split between them.” n
but if you are rejected there are alternative
lenders that specialise in particular sectors, For advice on calculating your investment
as well as in helping businesses that have needs, see pages 14-15
failed to get funding elsewhere.
While specialist lenders often operate in
areas that the main ones won’t consider, Where to go next
they still examine the same criteria. For more on bank debt visit: www.business
“We look at a number of factors, including link.gov.uk/loansandoverdrafts
business background and history, and For more information on the banking sector
what experience the management team in general, go to The British Bankers’
has,” explains Sue Cooper, deputy head of Association’s website: www.bba.org.uk
business banking at Triodos Bank.
section
Borrowing against your invoices

Raising funds against the value of your invoices can dramatically improve
your cashflow, but is debt factoring or invoice discounting right for you?
I
nvoice finance comes in two forms: those that allow the return of goods or
factoring and invoice discounting. For both, take cash payments.
cash is advanced to you when you raise an
invoice. The lender pays an agreed percentage How much can I raise?
of each invoice, with the balance, minus fees, Typically, lenders advance 80-90 per cent
paid on settlement. The difference between of invoice value, depending on the quality
the two is that factoring includes sales of the debt. If your customers are deemed
ledger and collection management. creditworthy, you’ll get a higher percentage.
Invoice finance is only suitable for
partnerships and companies selling goods What are the costs?
or services on credit to other businesses. For factoring, costs usually range between
1-3.5 per cent of turnover, whereas invoice
The benefits of invoice finance discounters usually charge between 0.1-1.5
Getting invoices paid upfront helps maintain per cent. The factoring charge depends on
cashflow, which could help to keep you how much work is involved in the collection
afloat in a recession. Invoice finance is a of the ledger. Some invoice financers may
cost-effective alternative to overdrafts or bank insist on a minimum level of turnover for a
loans, and there is often no need for extra minimum fee. Interest is also charged on
security before the money is advanced. what you are borrowing, which can range from
However, invoice finance lenders will want 1.5-3 per cent above the base rate.
to see sound management processes and, for An optional cost to consider is bad debt
invoice discounting, an efficient credit control insurance. With a ‘recourse’ facility, if your
system. They will consider most sectors, but clients don’t pay within a specified period
some companies are less suitable, such as (usually 90 days), the lender will reclaim the
money from you. By opting for a ‘without
recourse’ service, you’ll be covered for up
IN BRIEF invoice financing
to 100 per cent of the invoice value on the
l Immediate advances of as much as default of the debtor.
80 per cent of the invoice
l Retail and cash businesses are How quickly can I get a deal?
less appropriate than manufacturers, It can take from a week to a month to get an
distributors and service providers answer, depending on the size and complexity
l Can help to even out cashflow of your business. Lenders will want to:
l The charge is a one-off percentage n Examine your business and its accounts
of turnover, plus interest on the nC arry out some due diligence, including
amounts borrowed scrutinising your sales ledger history and
your credit control procedures
section
2
Case study
Stuart Dunbar is the
co-founder of Oak
image: iStock
Exports, a Cheshire-
based exporter of non-
perishable British food.
nP
erhaps suggest changes to your “We have to buy and distribute stock,
processes, before the facility is cleared and it can be up to 60 days before we
get paid. As our customers are all
What do lenders want? overseas, invoice finance has proved
Profitable businesses are preferred, but the ideal way to handle the problem.
some lenders will consider companies that “There was a gap to be bridged
are not yet in profit or have been insolvent, if between the 30-day payment terms we
they have a robust turnaround plan. “Lenders had with UK suppliers, and the 60-day
require good debt, a good business plan, terms many of our overseas customers
sound management and financial credibility,” worked to. Invoice finance means
says Kate Sharp, chief executive of the Asset our cashflow is freed up by releasing
Based Finance Association (ABFA). “You a percentage of our invoice value,
need to have your books ready and people providing a smooth, consistent source
available who know where you want to take of funding that grows with our sales.”
the business.” For advice on business plans,
go to pages 18-19.
Lenders will constantly monitor your sales The downside of invoice discounting
ledger, which can help identify credit risks This isn’t the cheapest form of funding, so
and tighten up your processes. “Finance balance your need for smooth cashflow
companies also carry out extensive credit against forfeiting some invoice value. Also,
checks on your customers and can pass this if things go wrong, you may find you’re tied
information on to you,” adds Sharp. into a deal for at least 12 months, so before
you sign up, find out what happens if you
is invoice finance for you? want to get out of the contract early.
Remember, invoice discounting is a
PROS competitive market, so negotiate on terms
n The amount advanced grows as your and conditions, such as notice periods. n
company expands
n Improves cashflow and gives you flexible For advice on the benefits of leasing over
access to additional funds buying outright, see pages 28-29
n Helps introduce credit control discipline
CONS
n Only really works if you sell products or
Where to go next
services on credit to other businesses For more advice on invoice discounting, visit:
n Not the cheapest form of finance, but the www.businesslink.gov.uk/discounting
recession has made it more attractive For the Asset Based Finance Association,
n You can get tied into long contracts visit: www.abfa.org.uk
section
Making use of
image: Shutterstock
your assets
You can use items like stock, machinery and premises to secure funding, and
in the current climate this can help to persuade lenders to agree to a loan
A
sset-based finance (ABF) is a secured ability of a seasonal business can fluctuate.
business loan where the borrower uses Financiers usually retain security over the
their assets as collateral. Financiers assets for the contract’s duration, with the
lend on items with high sell-on values, such lending decision based on their value.
as stock, machinery, premises, invoices and ABF has grown considerably over the past
even brands or trademarks. It is distinct from decade. However, figures from the Asset
invoice discounting, as invoices make up only Based Finance Association (ABFA) for the year
part of the arrangement. For more information to September 2009 show a marked decline
on invoice discounting, go to pages 24-25. in advances compared to 2008 – these have
Typically, you’ll have access to a revolving fallen by 18 per cent, from £17.6bn to £14.5bn.
credit facility, where you have an upper limit, This was advanced against invoices, stock,
but the total borrowed changes frequently, property and other assets worth £28.6bn,
as with an overdraft. The amount is subject down 7 per cent from £30.8bn in 2008.
to the value of collateral at the time, and
is constantly assessed, so the borrowing Who is it for and how much can be raised?
ABF works well for asset-rich businesses
undergoing a step change. For example,
IN BRIEF ASSET-BASED finance those looking for extra working capital to fund
l Debt can be secured against assets, growth or seeking to part-finance a larger
including stock, machinery, premises, deal, such as a management buy-out. The
invoices and even brands amount raised is down to the assessed value
l Manufacturers, distributors and of the assets and the likely depreciation rate.
retailers are the most likely users. It Some assets are worth more than others:
has not been a common source of UK n Invoices can secure 80-90 per cent upfront
finance, but it is growing in popularity nP lant, machinery and property also raise
l Security over assets is retained by the high advances of around 80 per cent
lender for the duration of the contract nS tock and raw materials tend to result in
l Lenders may advance more than a lower advance of 30-70 per cent. Values
invoice discounters, because they look are usually based on what assets would be
at all the assets of the company worth in a ‘forced’ or ‘orderly’ sale.
l Asset-based finance is provided by
some banks and specialist lenders Insuring your assets
l Some lenders have a minimum “Non recourse arrangements” are worthy of
loan size of £5m your consideration in the current economic
climate. This is where an asset based lender
section
2
provides credit protection against debtor’s Case study

insolvency in respect of the invoice finance In 2007, Qualtech
part of an asset based lending facility; if a Engineering, based
debt is not collected due to the financial in Devon, produced
inability of the customer, the factor assumes revenues of £250,000
the loss. Many asset based lenders will and had just five staff.
provide this service. However, director
Emma Warren was
What are the costs? keen to grow quickly.
Typically, the annual cost of borrowing on When another engineering business,
a revolving credit facility is around 1.75-3.5 Yale Systems, was put up for sale it
per cent above the base rate, plus an annual appeared to be the ideal opportunity.
and/or closing fee of around 0.5-1.5 per cent Unfortunately, the investment required
of the total borrowed. was too high for angel investors and too
Should you decide to seek a term loan low for venture capital.
against fixed assets, you would be charged at “We decided to use asset-based
similar rates to your credit facility. To support lending, and raised finance by placing
loans, however, the financier would have our machinery as security. The new
appraisals or valuations undertaken on your combined company, UK Precision, now
fixed assets. The cost of employing a valuer, turns over £1.25m and has 20 staff.”
which varies depending on the assets and
size of facility, will be passed on to you.
You will also be charged for monitoring, What do lenders want?
relating to the constant ongoing review of Solid businesses are preferred by lenders
your collateral arranged by your backer, rather than those promising huge returns.
along with due diligence costs (see below). “We seek companies with assets and
prospects for improvement,” says Dennis
How quickly can I raise the money? Levine, chairman of ABF specialist Burdale
Not as quickly as pure invoice finance. The Financial. “We tend to finance buyouts or
sums involved are larger and the valuation of refinance businesses where traditional
certain assets is more complex. The lender sources are less flexible.”
might need the services of a specialist valuer. Lenders expect to be provided with a
You’ll have to be prepared to undergo a variety of reports – daily, weekly or monthly,
detailed evaluation of your business (due depending on the assets being funded. n
diligence), where the lender will look at
all your accounting systems. They’ll value For advice on bank overdrafts and loans,
property, plant and machinery, and will see pages 20-23
review your cashflow and budget projections.
You’ll have to prove your cashflow is smooth
enough to weather any seasonal fluctuations Where to go next
or unplanned drops in business. For a list of asset-based lenders from
The whole process should take four to the Asset Based Finance Association, visit:
six weeks. After signing, some lenders may www.abfa.org.uk
allow a cooling-off period.
section
Should you buy or lease assets?

Purchasing important items upfront for your business may drain your cash
reserves, which is something companies can ill-afford. So, consider leasing
B
uying outright might sound like the Leasing accounted for 33% of fixed capital,
simplest way to acquire equipment, as up from 28% the previous year.
cash purchases can work out cheaper There are a number of leasing options.
in the long run. What’s more, the goods are A popular long-term approach is a finance
classed as business assets, so they can be lease, where you pay a deposit followed
used as security. However, it may not be the by regular payments that ultimately
best use of your working capital. cover the full value of the asset and the
A key way to survive the economic interest accrued.
downturn is to preserve cash in your Another option is operating leasing, which
business. So, if you don’t need to own the allows you to use the assets for a shorter
item immediately, consider leasing, which period – the finance house can either sell or
allows businesses to use valuable assets lease them again at the end of the contract.
– such as machinery, cars or furniture If you don’t want the worry of covering
– without paying upfront. Instead, these maintenance costs, consider contract hire.
items are bought and owned by a finance This is often used with vehicles, and monthly
house and leased to you for a set period. payments can cover maintenance and fuel.
During 2008, motor finance members
of the Finance and Leasing Association The advantages of leasing
provided £18.1bn to consumers and nC
ash that would have been spent on assets
businesses for the purchase of vehicles. can be released to finance growth
nY
ou can deduct the costs from your
taxable income. For more details, visit
IN BRIEF LEASING
www.businesslink.gov.uk/taxdeductions
l You get immediate access to the nY
ou don’t own a depreciating asset and can
assets, but pay on a monthly basis, return it, offering flexibility
easing the pressure on your cashflow nY
ou can lease almost anything, from cars
l Leasing companies effectively lend you to computers, machinery and furniture
the total cost of items leased nY
ou can access the latest equipment and
l Almost anything can be leased – cars, may get maintenance as part of the deal
property, IT and telecommunications
equipment, machinery, printers and The disadvantages of leasing
photocopiers, even furniture nA
long-term lease will probably mean you
l There are various tax benefits – for pay more for the item than buying it outright
example, you can deduct lease costs nL
eased items are not classed as business
from your taxable income assets, and so can’t be used as security
l It can take as little as a day to organise nY
ou won’t own the equipment at the end
of the lease
section
2
Case study
East Midlands-based
company Martin
Wright Ltd has built
a solid reputation as
a vehicle diagnostic
image: Shutterstock
and mechanical repair company, for
brands such as BMW and Audi.
The business requires specialist
equipment in order to carry out its day-
Reducing your tax bill to-day work effectively, and had to decide
The Annual Investment Allowance (AIA) whether to buy or lease those assets.
allows businesses to reduce their taxable After initially failing to get finance, the
profits by up to £100,000 each year on their company obtained grant funding to help
annual capital expenditure on most plant and buy the equipment outright.
machinery. This will be reduced to £25,000 “Working with Business Link helped
from April 2012. us look at all options available to us.
As a result, we decided it was more
How much will it cost? suitable for us to buy because of the
Finance fees can vary considerably changing economic conditions.”
depending on the item you want and your
own creditworthiness. However, interest
rates are at an historic low, so, in theory, tax benefits of buying outright against leasing.
lenders should be able to offer you a good Your accountant should also be able to tell you
deal. It’s always worth shopping around and if the overall cost is too high.
getting a few quotes. Also be prepared to There are other cost benefits, too. One of
negotiate, because lenders could reduce the biggest savings for small businesses can
their rates or waive charges, or be more be in administration. For example, it’s quite
flexible on payment terms if you do. common for the responsibility for dealing
The key is to get the type of deal that best with a company’s vehicle fleet to be added on
suits your business. Deals typically span one to someone’s job, and an operating lease or
to five years, but some can be for longer, contract hire can help to reduce the workload
such as those for more valuable items. and hassle involved. n
Some lenders may ask for a deposit to help
underwrite the deal. So, anticipate this and try For advice on making the most of the assets
to use it to your advantage when negotiating. you own, see pages 26-27
You may be able to get lower monthly
payments by offering a slightly higher deposit,
because it will reduce the lender’s risk.
Where to go next
Before striking a lease agreement, it’s vital To decide whether to lease or buy, visit:
you’re really sure it’s the best deal for you. If www.businesslink.gov.uk/assetsandtax
necessary, get independent expert advice from For advice on leasing, visit the Finance and
a professional, such as from your accountant, Leasing Association at: www.fla.org.uk
who can analyse the figures and compare the
section
Angel finance
If you are looking for financial
input and guidance from experienced
individual investors, angel funding
could be for you. But how much
can you raise and how can you
image: iStock
go about securing it?
M
any people are familiar with angel This may help take your business to the point
investing through the Dragons’ at which it will be attractive to a VC firm.
Den TV series. This gives a good Investment from angels can be offered as
indication of how an angel will test your a lump sum upfront, or in stages. It can be
business plan, but unlike on TV, the process dependent on your business achieving specific
of investment may take months – and in milestones, such as hitting a sales target or
a downturn there are many businesses launching an new product or service.
chasing few investors. Angels invest to achieve a financial
Angels are usually wealthy entrepreneurs, return, typically in the form of a capital gain
and dealing with them is a less formal through an exit. This could be realised by
process than with other forms of equity an acquisition of the company or a flotation,
finance. However, they are less predictable, although the latter is unlikely at the moment
and not mandated to invest. If they think they due to the current economic climate.
can get a better return elsewhere – from “Angels not only bring money, but also
bonds, for example – that’s what they will do. experience and skills. Many have been
Angels tend to offer smaller sums at an through at least one downturn, so can help
earlier stage than venture capitalists (VCs). steer your business forward in challenging
times,” says Anthony Clarke,
IN BRIEF raising aNGEL FINANCE chair of the British Business
Angels Association (BBAA).
l Between £10,000 and £2m can realistically be raised Some will even take on specific
from individual business angels or an angel syndicate management roles.
l Sourcing angel investors might require more searching Angel funding can come
than finding venture capitalists (VCs), but private investors through personal or industry
are more prepared to back an early-stage business contacts, as well as suppliers.
l Angels may be found through industry contacts, but a However, the most structured
more structured approach is via business angel networks way is to approach a business
l The process is less formal than with VCs – angels often angel network regionally,
know their sector well, and so make instinctive decisions close to your business. Each
l You are likely to have a closer involvement with your one represents a group of
investor as they look to add value to your business private individuals looking for
investment opportunities.
section
2
In sectors more suited to longer-term angel finance

investment, or where the potential for a big
return is limited, it may be harder to get PROS
angel funding. The current economic situation nA ngels often invest smaller sums than
means the same goes for businesses working venture capitalists (VCs), so may suit
on low profit margins or with no protectable newer businesses
intellectual property. This is because, like nA s well as funds, they may be able to
every investor, angels may currently be less offer skills, contacts and experience
likely to take on high-risk investments. nB usiness angels take much higher risks
For more information on alternative sector than other forms of funding
angel investment, see page 35. n I nvestment occurs in most business
sectors and at all stages of development
What will angels back? nC an be quicker and less formal than VCs
Business angels invest in almost all industry
sectors, but often prefer ones in which Cons
they have experience. Most invest in nA
ngels invest in only a very small
businesses that are past the ‘proof-of- proportion of the proposals they are
concept’ stage, but young and growing presented with – more than 90 per cent
firms will also be considered. of investment opportunities are rejected
Most angels prefer to invest in companies at the initial screening stage
within 100 miles of where they live or nM
any angels expect close involvement
work. Investors in technology companies, with the business they invest in, which
not all businesses find desirable
Case study nL
oss of equity means loss of control of
When Eseye your business, which won’t suit everyone
co-founder Ian
Marsden was looking
for investment to however, tend to be more prepared to travel
expand his mobile longer distances.
technology business,
based in Guildford, his How much can be raised?
priority was to find an active investor The amounts involved in angel funding vary
who could help him grow. So, he opted widely from £10,000 up to £2m. However,
for a business angel rather than bank most of the deals that are done tend to be
finance or investment from friends and between £75,000 and £750,000.
family. Most individuals invest £20,000 to
“For us, growth is about market focus £50,000 per deal. Some are happy to put
and networking connections, and angel up to £200,000 if they really believe in an
investors are motivated to use their organisation, but most of the larger sums
contacts to make the business work. raised occur when syndicates are formed.
“Getting investment was tough, but Where larger amounts are invested
it’s impossible to know who will fit your through a syndicate, you will deal with
business until you meet them in person. a lead angel, who acts on behalf of the
other investors.
section
2
What can the funds be used for? to expect, and you can learn from their
Angel investment can often be used to help previous mistakes and successes
companies accelerate away from the start-up nM
entoring and strategic advice – Growing
phase, while mature businesses sometimes your business will involve making some big
use it to launch new products and services, decisions, and the advice an angel can offer
open new premises, buy competitors or to you can prove invaluable, so plan to meet
take on staff as growth demands it. them face to face occasionally
Angel investment can be useful leverage nN
etworking – Angel investors typically
with which to attract bank loan finance, have useful contacts, which can open all
especially if your business has previously sorts of doors to other investors, potential
been refused a loan. customers, recruitment opportunities and
service providers
What else can angels offer? nD
irect involvement – Generally, your angel
As well as offering the finance you need to will want to take a seat on the board in
grow your company in return for a portion order to be involved in decision making
of your equity, good business angels offer a (if your investor is a syndicate, the lead
range of other benefits, such as: angel will do this). If your angel considers
nS ector experience – Most angels will have that you would benefit from a particular
a track record of starting or investing in strategic skill, they might take a more
businesses in your market. They know what hands-on role – although this is much
less common
Case study
In 2006, Bac2, which What to look for in a business angel?
had developed a It’s important that the business angel who
plastic that was is willing to invest is right for your company.
a billion times Before signing an agreement, you must first
more electrically ensure that:
conductive than nT he management team and the business
other polymers or resins, wanted to angel are compatible and can work together
capitalise on its intellectual property. To nT he angel’s skills and experience match
do this, it was looking for £300,000 of the needs of your company
angel investment. Chief executive Mike
Stannard sent his business plan to the What do angels look for in you?
London Business Angel Network, which The factors that influence an angel’s decision
screens companies for its members. to invest in a business vary greatly from
“We pitched to around 60 angels at investor to investor. However, the following
once, and raised more than we were issues are likely to be taken into account
looking for. We also gained vital skills when angels are deciding on funding:
from two angels who took seats on the nT he expertise and track record of the
board, really strengthening our team. founders and management
“We have since raised a further nT he business’ competitive edge or unique
£2m from London Business Angels for selling point
global expansion.” nT he characteristics and growth potential
of the market
section
2
and direction, which not all companies

find acceptable
For more on negotiating the terms of a
deal, go to pages 46-47.
What are my chances of securing finance?

Some investors make only one investment
a year, while others operate a portfolio
of investments. Currently, it is a very
competitive environment, so pay particular
attention to making sure your business plan
is investment-ready.
According to the BBAA, between 95 and
98 per cent of applications are turned down.
Having a strong business plan is essential
– for more on this, go to pages 18-19.
You will also have to be able to
demonstrate how your business will use
image: iStock
any funds it raises to achieve specific

growth objectives. At the moment, most
investors are looking for an idea with strong
nT
he compatibility between the management, market potential, which is scalable, and can
business proposal and the business angel’s be protected. If you can demonstrate all
skills and investment preferences three, your chances of being funded will
nT
he entrepreneur’s financial commitment be much better.
What do angel investors expect? Where can I find business angels

Given the strong element of risk involved in The most reliable way to source angels is
many angel investments, investors will look to contact one of the many business angel
for solid returns: networks, which sift opportunities for their
nM ost will seek an exit in three to five years pool of investors and arrange networking
nT hey will expect growth of their capital of events for you to present your business.
at least 25 per cent a year, often higher The BBAA, the UK trade association for
nY our management team may need to show business angel networks, at www.bbaa.org.
equal commitment to the project, and be uk, will be able to put you in contact with
prepared to back the venture with their your local angel networks.
own money as well Networks will have a fund manager who
nM arket validation of your business through acts as a gatekeeper, and who will direct
existing sales or known distributors is your business plan to the most appropriate
desirable, although it is not essential individuals in the network. They will also be
nB usiness angels enjoy working with able to give feedback on whether your plan is
small businesses, so they expect to bring suitable for angel funding.
in their expertise. This means they will With angels currently receiving many
wish to contribute to the business’ strategy requests for funding, a personal relationship
section
2
or introduction can make all the difference Like any investor, an angel will want to
and should help you get past the piles of carry out thorough due diligence on your
business plans vying for their attention. business to establish its value, and uncover
any weaknesses or assets that are not
How quickly can I raise funds? immediately apparent. If you are dealing with
It’s difficult to accurately predict how long the a syndicate, the lead angel will do this job.
angel investment process will take, but three At this time, you must be transparent
to six months is typical. about your business, your idea and your
finances. Angels ask a lot of questions,
Case study but this is because they know that their
Andy Redfern investment is much more likely to bear fruit
is a director of if they have an intimate knowledge of your
Newcastle-based company before they fund it.
EthicalSuperstore. Ask your potential angels a lot of questions
com, which too, because they will expect you to do this.
promotes good While this process might seem protracted,
causes, ranging it’s a good opportunity to make sure that
from local community movements to you will feel comfortable taking investment
those seeking global impact, including and advice from them.
a website featuring more than 5,000 You should also make sure you have good
Fairtrade and eco-friendly gifts. legal advice throughout this process.
“We started with the aim of trying
out business ideas in the social sector. How to value your business
Initial success inspired us to produce a Before marketing the proposition of your
cross-brand ethical website to allow company as an investment opportunity to a
users to buy from one place online. business angel, be clear about the valuation
“We’ve had three stages of funding of your business.
using business angels and venture Broadly speaking, this determines how
finance. First, we raised £286,000 to start much of the business the angel is buying
the idea, with angel investors putting in for their investment.
£86,000, while the further £200,000 was For example, if an angel invests £500,000
raised by venture finance from NorthStar at a pre-money (excluding finance or the
Equity Investors (NSEI) Co-Investment latest round of funding) valuation of £1m,
Fund. Then we went back to the investors they would have 33 per cent of the business,
and said: ‘We’ve proved the idea and which would have a post-money valuation
need £800,000 to develop it further.’ of £1.5m. Research by The National
“Not everyone reinvested, but in the Endowment for Science, Technology and the
second round we received £500,000 from Arts (NESTA), which looked at data from 96
the NSEI Co-Investment Fund, with a investments, concluded that the pre-money
further £300,000 from angels. valuations of early-stage businesses can be
“We have subsequently raised summarised as follows:
another £1.5m to allow the business to nA pre-revenue seed business would
keep on growing.” be valued at somewhere between
£350,000 and £750,000
section
2
nA
n early-stage business with a new network of social investors
some revenues (say, under
£300,000 per year) would be Supported by the Government, Equity Plus is a network
valued from £500,000 to £1m. of individual funders and investors that want to invest
Angels are looking for a in social enterprises and social-purpose businesses.
realistic chance of achieving It focuses on equity-based investments, looking for
a high return on capital. organisations that are interested in partnering with
A compound return on an investor to share the potential risks and rewards
investment (sometimes known associated with any new venture. For more information
as internal rate of return or about Equity Plus, visit: www.equityplus.org.uk
IRR) of 50 per cent a year is
a good starting point. It may
seem high, but it is commensurate with the Ethical angels
risk. Investors lose money on around 40 per A trade sale or flotation for a social
cent of the deals they make, and need to do enterprise is complex, and hence investment
very well on the ones that are successful to by individual angels or groups of them in
show an overall positive return. such organisations is rare.
Fortunately, some angels are not
What are the costs? motivated purely by making a profit. Some
Angel finance, especially when sourced ‘ethical angels’ invest largely because they
through a business angel network, will have a desire to use their money to help
involve costs and charges. improve society, and are less driven by
If you deal with a network, there should making a return through an exit.
initially be no fee to view your business If you are seeking an investment for an
plan. However, networks often charge up ethical business, there are other ways to
to around £1,000 (depending on services) to reward them for investment other than a
arrange for you to meet their angels. trade sale or an flotation – through a dividend
On top of this, there is also a success payment, for example.
fee, which averages at five per cent of the While there are growing number of angels
funds that are raised. It’s important to ask a who want to invest in social enterprises, the
network about its fees at the outset. networks for accessing them are not, as yet,
Costs are lower than VC and public market well established. n
listings – for more information on these, go
to pages 36-43. It is, however, a full-time For advice on pitching your business to
activity for one person in your company, often investors, see pages 44-45
the owner-manager, so the cost of time
taken out of running the business should
be calculated.
Because angels are often involved in
Where to go next
early-stage companies, which are considered For more details about angel finance, visit:
a high risk. They will expect you to be www.businesslink.gov.uk/angels
flexible and prepared to negotiate to give For more information on business angle
them a fair share of your equity in return networks, visit: www.bbaa.org.uk
for their investment.
section
Venture capital
If you’re looking to raise about
£10m and are prepared to share
control and equity in your
image: iStock
business, then venture capital
funding may be right for you
C
ompanies with ambitious expansion nY
ou don’t over-value your business
plans often turn to venture capitalists nY
ou can demonstrate the market potential
(VCs) to fund their growth strategies of the product or service
in return for a major stake in the business. nY
ou have a good rapport with them
VCs provide equity finance – usually in larger
amounts than angel investors – often referred What growth strategies will they back?
to as venture capital. The VC takes some of VCs are looking for rapid expansion plans that
the risk, has a say in direction, seeks a high can deliver the required returns, such as an
return and usually exits in three to seven acquisition, product or service launches, new
years, often through a trade sale or flotation. markets, or the establishment of a chain.
Increasingly, VCs are wary of businesses that
What do VCs look for? use a lot of working capital with low margins.
Proof of concept and maturity will be In a downturn, these can quickly slip from
expected by VCs, unless you are running a profit to loss, and find it hard to recover.
new business with a proven management Businesses that are unable to provide solid
team, or, following a period of research and evidence that they have growth potential and
development, you are about to launch a new are operating in a strong market are unlikely
product or service. VC’s generally prefer it if: to gain funding from VCs. So when pitching
nY ou are near to profit already to VCs, it’s essential to prove this is the case.
nY our overheads are tight If your business is selling to sectors or
markets that are relatively
IN BRIEF raising venture capital robust in challenging economic
conditions – such as telecoms
l It usually takes between three and eight months to raise and technology businesses – it
funding, sometimes longer may stand a better chance
l Owner-managers will often be expected to give up at of gaining funding.
least a 20 per cent stake in their business VCs will look to see how you
l Venture capitalists back high-growth strategies, such as: have protected your assets,
acquisitions; product or service launches; new premises; and will want to see a realistic
or national, European or global business expansion plan for exploiting them. Many
l An exit through flotation or trade sale is expected will be able to help with advice,
within three to seven years but you need to have the
basics in place before
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2
you attempt to get funding. VCs do not venture capital finance

invest in hope.
Pros
How much can be raised? n I nvestors can add valuable skills
Companies that are looking for venture and open doors for your business
capital for the first time can raise up to £5m, n I nvestors may provide follow-up
although some smaller regional VCs and VC funding as your business grows
Trusts (VCTs) will make investments from
£50,000. However, remember that if you Cons
are raising money from VC structures that nV
Cs reject 95-98 per cent of
feature tax incentives for investors – such prospects, and are currently
as the Enterprise Investment Scheme (EIS) particularly cautious
and VCTs – you are limited to raising £2m in nM
edium-sized to large investments
any 12-month period. See over the page for are more attractive than smaller ones
more information about VCTs and the EIS.
If your business is a start-up, or needs
investment to get off the ground, you should the valuation you give your business. VCs
also consider angel investors. For more may seem to be undervaluing it, but they are
details on business angels, see page 30. using criteria based on their experience. If you
Be aware that VCs have other demands on disagree with their valuation, use evidence
their cash, and you might have to wait for that they might not have, such as sales data,
investment. They may also need cash to the performance of other businesses in your
support existing investments while sector, or negotiations with potential partners.
awaiting and exit.
Where can I find VCs?
How will the business be valued? The British Private Equity and Venture
A standard way for VCs to value a more Capital Association (BVCA) is a good source
established company is a multiple of the of VCs, and has a full list of members
profits or earnings ratio – usually four or five at www.bvca.co.uk, with details of their
times. It is important to be realistic about preferences. Accountants, lawyers, and
uk finance for growth

In the 2010 Budget, the Government This includes a new £200m Growth
announced that a new body, UK Finance Capital Fund to provide finance for
for Growth Ltd, will bring together all of businesses looking for £2m to £10m in
the Department for Business, Innovation growth capital – addressing the market
and Skills’ (BIS) finance support for gap identified by the Rowlands’ Review
small and medium-sized companies in of Growth Capital in November 2009. The
one place. It will also oversee all publicly eventual fund size aims to reach £500m
funded venture capital schemes, to make following cornerstone commitments of
support simpler to access and improve £200m from Lloyds, RBS, Clydesdale,
regional coverage. Santander and Government.
section
2
corporate finance and

business advisers
should also be able
to introduce you to
potential investors.
Other routes
include: business
contacts; events
matching investors
with ambitious
businesses; and
investment-readiness
image: iStock
programmes run by
VCs, accountancy firms
and corporate finance
specialists. Some VCs ask for enquiries details visit: www.bis.gov.uk/UKIIF and
through their websites, although in the www.capitalforenterprise.gov.uk
current market, a personal introduction has
much more chance of success. What are the costs?
VC is more expensive than angel finance.
UK Innovation Investment Fund Advisers’ fees are the main cost to consider:
The Government’s UK Innovation Investment nC orporate finance advisers usually take at
Fund (UKIIF) and the Enterprise Capital least five per cent of the money raised
Fund were created respectively, to finance nT ypical legal fees are £20,000-30,000
growing technology businesses and to nS pecialist accountants usually charge a
solve the equity-gap problem. For more percentage of funds raised or an hourly
The Enterprise Investment Scheme

Designed to encourage venture capital n I nvestment must be long-term – for at
(VC) investment from smaller investors, least three years
the Enterprise Investment Scheme (EIS) n I nvestors ‘connected’ to the company
offers income and capital gains tax breaks (paid directors, staff or those with more
on investments of up to £500,000 per than a 30 per cent stake) can’t claim
investor. If you’re a small company looking income tax relief, but may be able to
for growth capital, but small amounts of VC defer an existing capital gains tax charge.
are too expensive, attracting EIS investment n ‘Unconnected’ investors can also defer
from private investors might help bridge capital gains, and will also be able to
that ‘equity gap’. claim income tax relief at 20 per cent of
Here’s how the scheme works: their investment. Gains on disposal of EIS
n I nvestors buy ‘ordinary’ full-risk shares in shares are exempt from capital gains tax
a company, investing up to £500,000 each
in a tax year For more details visit: www.hmrc.gov.uk/eis
section
2
rate of between £200-400 in London, or Venture Capital Trusts

£175-300 outside
You also have to pay the VC fees and due Established to encourage venture
diligence costs. The VC’s percentage is usually capital (VC) investment in small
higher for smaller fundraisings, as they companies, Venture Capital Trusts
involve a similar amount of work to raising (VCTs) are listed investment vehicles.
larger amounts. Overall costs vary widely, but VCTs invest in unquoted businesses or
are typically eight to 15 per cent of the money those listed on the Alternative Investment
raised. Some advisers may take part of their Market (AIM). Instead of investing directly
fees as equity options, or be happy to only get in companies, investors buy shares in the
paid if the fundraising is successful. VCT, which then invests the money in
Raising VC is still cheaper than going various companies.
public, where issuing a formal prospectus for Investors are eligible for 30 per cent tax
a flotation through a nominated adviser could relief on investments up to £200,000 in any
cost £100,000-500,000. For more on the costs one tax year, and capital gains tax relief
and expert advisers, go to pages 10-11. on disposal of those shares. Plus, VCT
dividends are exempt from income tax.
How quickly can I raise VC funding? In addition, VCT strategies vary. Some
It may take as long as six months or more trade on AIM, some are generalists,
to complete the VC funding process, so you some prefer technology investments,
shouldn’t embark on fundraising without while some are environmental funds.
enough cash in reserve. It can involve Appetite for risk and willingness to
months of preparation, many visits to invest depend primarily on their
investors’ offices, detailed due diligence and strategy, not on business plans.
some knock-backs. Only from one in 20 to one in 50 of
It’s better to start early, as investors the business plans that VCTs evaluate
will not participate until the necessary actually gain investment.
due diligence has been done. Also in a Corporate finance advisers are hardly
volatile market, some will prefer to wait ever active in early stage VC rounds.
until they have more assurance over For information about the VCT
economic conditions. investment regulations, go to
www.hmrc.gov.uk/guidance/vct.htm
How does the investment work?
You’re unlikely to get funds from a VC all
in one go, unless you’re prepared to give paying something back over the duration
up far more equity. VC investors prefer to of the investment.
provide finance when you have achieved
pre-agreed milestones. These could be set What rights do VCs expect?
as a particular level of turnover growth, or In a typical deal, VCs will be looking to
the delivery of a certain target. This could agree certain rights of veto, or for areas
be making an acquisition, or progress where they expect to have an influence.
relating to products or services. VCs will These include:
often expect to agree a mix of debt and nS ignificant items of expenditure
equity, to ensure investee companies are nH iring and firing key staff
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2
nM
ajor acquisitions, disposals or strategic
alliances, and any fundraising strategies
involving giving up equity
nS ignificant changes in business strategy
nC ontrol over key staff members’ and the
management team’s remuneration
nD ividend payments
There will also be restrictions over what
management are able to do if they leave
the business, such as being barred from
forming a competing company, working for a
competitor or poaching staff for a set period.
While some of your autonomy may be
Image: Shutterstock
lost, VCs expect to work with you and
share a common interest – growing the
business. If you communicate well and bear
your investors’ interests in mind, too, the
relationship can run smoothly. For more on
negotiating the deal, go to pages 46-48,
Case study and for more on investor relationship
London-based management, go to pages 49-50.
managing director
and co-founder What returns do VCs expect?
of the Latin VCs will be looking for a significant return
America-themed on their investment, and they will be
restaurant chain Las Iguanas, Eren more interested in facts and figures than
Ali, raised a total of £27m through a projections and promises about how you
combination of venture capital (VC), will achieve this.
debt and equity. You may have to deliver the required
“This was a very different round of return within three to seven years into an
fundraising from the £3m that we were agreement, depending on the investor and
able to secure back in 2002, which the condition of their portfolio. Others may
was composed of part VC funding wait eight to 10 years.
and part bank loan. To boost the chances of achieving a sale
“The deal was agreed with Bowmark or eventual flotation, VCs will scrutinise
Capital, and was made up of £10m of your procedures, management team and
equity, and around £8m of bank debt. accounting systems. This can include your
Myself and another co-founder also investor joining the board, appointing an
rolled out £9m of equity between us. independent chairman or bringing in a
“For this stage of our brand roll out, finance director with VC experience.
Bowmark Capital was a more suitable
partner and more accustomed to doing What about social enterprises?
deals of this size.” VC is open to social enterprises, but it may
not always be appropriate, or they may
section
2
find it difficult to access. VC investors that exit strategies

operate in the social enterprise arena still
want to see the same commitment and Venture capitalists (VCs) want their
good management as their counterparts investment to grow, but they also want
working with purely commercial businesses. to get their money back. Therefore, to
However, they may also be interested in attract venture capital (VC), you need
social returns. a plan for returning the investment
According to ethical bank Triodos, social at the end of the agreed term – known
investors look for the following qualities in a as an exit strategy.
business when considering funding: You will not be able to precisely identify
nA n experienced and well-balanced team the exit, but you must plan for it from day
with a good track record one in order to secure VC investment.
nA strong idea that meets potential demand The most common exit option is selling
within the market your business to another company –
nS trong growth potential in the relevant known as a trade sale. This could be your
target market entire business or part of it, and it can
nA sustainable competitive advantage over be the best way to generate the biggest
rivals in the sector return on the VC’s investment.
nA financial position that’s close to breaking You could also consider a merger
even or making a net profit with another company, although this
nA desire to share ownership of the would probably mean remaining with
business with an investor that can bring the business for longer than if you make
more than just money a straightforward trade sale.
nP otential exit routes identifiable at the time To help business owners get the most
of investment from their exit, the Entrepreneurs’ Relief
threshold, on which capital gains tax
Social enterprise exit options is levied at 10 per cent, has now been
One reason that may discourage VCs from raised to £5m.
investing in the social enterprise sector is
a perceived lack of exit options. Social
enterprises can place a limit on the once the business is in a stronger position
proportion of their shares that can be with respect to cashflow. n
traded publicly on the stock markets.
They can also restrict how many shares For advice on negotiating with investors,
one investor might hold, or allow founders see pages 46-48
to issue and retain a golden share.
It can then be harder for a social investor
to find a willing buyer for its stake in the Where to go next
business, once it is ready to realise its For more on equity funding options, visit:
investment. However, one way that this can www.businesslink.gov.uk/equity
be achieved successfully is by giving the For a directory of all UK investors, visit
management of the social enterprise the the British Private Equity and Venture
opportunity to buy back the shares from the Capital Association at: www.bvca.co.uk
outside equity investor. This can be done
section
Should I float
my company?
For raising £1m or more, a stock
market listing may be your best
image: iStock
option. It is often the next step after
angel and venture capital funding,
but it can be a complex process
F
or businesses that want to grow rapidly PLUS is a fully competitive UK stock
and raise their profile, a flotation on the exchange, focused on small and mid-cap
Alternative Investment Market (AIM) or companies, offering the complete range of
PLUS is worth considering. Typically, you can stock exchange activities. For more details,
raise far more money through an initial public visit: www.plusmarketsgroup.com/PLUS_
offering (IPO) than by other means. about.shtml
What are AIM and PLUS? What can you use the markets for?
AIM is the London Stock Exchange’s (LSE’s) The main purposes of a stock market
junior market for growing companies, and flotation are to raise money, establish a clear
provides a regulatory framework to allow value for the company’s shares and improve
for both the flexibility and protection a its profile in the public eye and media.
growing company needs. For more details, AIM is home to more companies than
visit: www.londonstockexchange.com/ any other growth market, but has not been
companies-and-advisors/aim/aim/aim.htm immune to turbulence in the global economy.
Today there are around 1,300 companies
IN BRIEF Flotation on AIM, with UK incorporated AIM quoted
companies employing over 260,000 people.
l PLUS is good for raising sums in the PLUS has positioned itself as an
lower millions, AIM for larger amounts. alternative to AIM with its PLUS-quoted
Strong growth potential is necessary, market. PLUS has grown steadily and
and a track record of profit is helpful attracted some entrepreneurial businesses,
l Fees account for seven to 10 per cent as well as encouraging a few AIM-listed
of finance raised on AIM. This can be less companies to also list on PLUS.
for PLUS, but the ratio of fees to funds
generated can be more for smaller IPOs How much can I raise?
l Flotation takes up to six months – you At the moment, it is very difficult to raise
must be prepared to share some control money as the economic climate has made
and be strictly regulated investors more risk averse. Investment
from venture capital trusts (VCTs) has
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2
largely disappeared Case study Janine Woodward is

because rule changes the Bristol regional manager at The
introduced in 2006 mean Ethical Property Company, a social
that they cannot invest in enterprise that buys properties and
businesses with assets develops them as centres that bring
worth more than £7m, or charities, cooperatives, communities
that employ more than 50 and campaign groups together under
people. Both factors have one roof. She explains how the
led to companies getting business has handled flotation.
far less investment, and “A bank specialising in funding
share price liquidity has social enterprises acted as lead adviser
seriously suffered. for two of our share issues in 2001 and
To join AIM, companies 2003, raising a total of almost £6m. While the offerings were
do not need a particular successful, we realised that our shareholders needed to be able
trading history and to buy and sell shares in order to maintain liquidity.
there is no minimum “Potential shareholders were worried about liquidity, so we’ve
requirement in terms worked hard to find ways to get it. As a result, we now use
of size. PLUS caters for Brewin Dolphin to run a matched bargain market, which helps
smaller entrepreneurial us to provide the liquidity our shareholders want.”
companies looking to
raise sums in the lower millions, although
there were exceptions that raised far more. You will also need to take into account
If you’re considering floating on the junior the cost of the time and resources that your
stock markets the costs can be considerable, management team will have to put into the
and there is a shortage of liquidity, which IPO, which is likely to be considerable.
limits the funds available for investment.
How quickly can I raise funds?
What are the costs? Typically, it takes five to six months, although
Fees are made up of adviser’s costs and this varies according to the complexity of the
the broker’s commission, which is a flotation. Sometimes, to make the process
percentage of funds raised. Adviser fees faster, companies start with an ‘introduction’
vary considerably and depend on the size of to one of the markets, which involves joining
the deal. However, small and medium-sized without raising funds. This also helps
companies can expect to pay £500,000 or investors assess your management team and
more for an AIM flotation, and in the region its ability to perform in the public arena. n
of around £200,000 or more on PLUS.
On both markets, a company requires For advice on finding the right advisers,
specialist help – from a nominated adviser see pages 10-11
(NOMAD) on AIM, and a corporate adviser on
PLUS. These advisers orchestrate the listing
process, linking your company, the City, your Where to go next
accountants, lawyers, brokers and a financial For more advice on AIM and PLUS, visit:
PR firm. For more details on choosing the www.businesslink.gov.uk/stockmarket
right financial advisers, go to pages 10-11.
section
Making the perfect pitch

Whether pitching to angels, venture capitalists or investors prior to a float,
find out how to structure your presentations and which tools to use
I
f investors have seen your business plan Case study
or executive summary (for more details, Hugh Scantlebury
go to pages 18-19) and want to hear more, is the co-founder of
it’s time to hone your pitch, as it will be crucial London-based online
to securing the investment you need when you accountancy service
meet up. But there’s no point pitching unless Aqilla. His business
your company is properly prepared. raised an undisclosed sum from private
investor Bob Morton in January 2009.
Are you investment ready? “We wanted funding to create a sales
There are lots of programmes that specialise and marketing infrastructure for our
in preparing businesses for investment. business, spending six weeks preparing
They help to align your company as closely a prospectus before sending it out to
as possible to the interests of potential 21 investors. We followed up with email
investors, as well as refining your business and arranged a number of meetings.
plan. Regional Development Agencies (RDAs) “There’s no point pitching to someone
provide Understanding Finance for Business, who doesn’t invest into your area. Try to
a Solutions for Business product, which meet people through referrals, as they
includes advice on investment readiness and will always be more responsive.”
can be accessed via Business Link. Once
you’re ‘ready’, its time to prepare your pitch. to see your business and its processes.
An investor may provide guidance on the
What format does a pitch take? presentation format, so ask first. Otherwise,
First meetings generally take place at the after the introductions, you set the agenda.
investor’s offices, although some prefer You are typically expected to make a
formal pitch, although some investors
IN BRIEF the pitch encourage informal discussion. Plan to
talk for about 30 minutes, covering the key
l Details of your management team are points, using slides where appropriate.
as important as your business concept Backers may interrupt with questions and
l Take a team of around three hold a more detailed, and potentially lengthy,
l Aim to present for around half an hour Q&A session at the end if they are interested.
l Cover history, products, finances, the “Have as many back-up slides as required.
growth opportunity, market conditions, If the investor is interested, he will ask to
and a SWOT analysis drill down in certain areas, so ensure the
l Anticipate tough questions, and think slides are clear and to the point,” suggests
about how you will answer them Jamie Davies of the Business Advice Bureau.
Meetings can last from one to three hours.
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2
QUESTIONS INVESTORS ASK
1 Are you filling a gap in the market? Who

are your potential buyers, and is there a
image: iStock
broad spread or small concentration?
2 Do you know your market. Is it growing
or shrinking? What are the constraints?
What should the presentation cover?
nA ny developments since your submission 3 W
hat barriers face market entrants, and
nT he quality of your team – it’s often more is the product easy to reproduce? Are
important than details of your products there any copyright or patent issues?
nR elevant industry experience and expertise
4 Have you suffered difficult trading
nA précis of the business’ history, progress patterns or loss-making periods?
and financial performance to date
nM arket opportunities, who your customers 5 Which staff are critical, and how can
are and why your product or service will you encourage them to stay?
appeal – see the investor’s viewpoint by
focusing on the business opportunity
nY our balance sheet, cashflow, historic What presentation tools should I use?
profitability, trends and projections – justify Any you’re confident with. PowerPoint is
targets with graphics, such as pie charts popular, but ensure the necessary equipment
nR ealistic figures – a common mistake is to is available, and take a back-up paper copy.
exaggerate demand, sales, etc Use graphics, but keep demonstrations short.
nA Strengths, Weaknesses, Opportunities For top presentation tips, visit:
and Threats (SWOT) analysis to show www.businesslink.gov.uk/equitypitch
that you have studied any potential flaws. For presentation courses visit:
For more on SWOT analyses, visit: www.businesslink.gov.uk/trainingprovider
www.businesslink.gov.uk/swot
nA best and worst-case scenario of how Should I rehearse?
your business may perform Do at least one practice run with your team,
nA summary of key points and read through your proposal, so you
The aim is to present the necessary details don’t contradict what’s written in your plan.
that will help to solidify the investor’s interest Agree key details to avoid quoting conflicting
in your company. So avoid discussing the figures, and swot up on financial jargon. n
terms of the deal, as this will come later, and
the investor will not consider it appropriate. For advice on how to negotiate with
investors, see pages 46-48
Who should present the pitch?
Around three people, with the owner-manager
covering the areas above, your sales
specialist detailing the opportunity, and your
Where to go next
finance manager presenting the figures. Also, Further advice on pitches can be found at:
gauge your audience. A few light-hearted www.businesslink.gov.uk/equitypitch
comments may help, but jokes can backfire.
section
Agreeing the terms of the deal

Interested investors will issue a provisional contract called a term sheet.
Be prepared to ask some probing questions to ensure it’s acceptable to you
A
fter a successful pitch, investors will Deals are often a mix of equity (finance for
send you a document stating the ordinary shares) and debt (a loan arranged by
conditions with which they expect to go the investor). If you have a choice of backers,
ahead. Known as a ‘term sheet’, it will set out the term sheet will help you decide who to go
the key points of the final contract, including with and what terms to accept. By signing it
a description of what is for sale, the amount you will have agreed to deal exclusively with
they propose to invest, the funding method, that investor. The deal must work for both
their expected return and an exit plan. It is parties, so consider the following:
not legally binding and is open to negotiation.
Your legal adviser should help you with Is the investor offering enough?
any jargon (for tips on finding a solicitor Be clear about this. You’re selling part of your
visit www.businesslink.gov.uk/solicitor), business and its value will be key. There is no
and a corporate finance adviser or specialist right price and no set way to value it, which
accountant can identify key points for often leads to disagreement. Valuations
negotiation. For more on professional depend on what the buyer will pay and what
advisers, go to pages 10-11. you’ll accept. However, the present value of
expected future cashflow is one figure often
used. For other ways to work out the value,
IN BRIEF negotiations
visit: www.businesslink.gov.uk/valuations
l Businesses needing immediate capital You are in a stronger position if you’ve had
will start from a weaker position more than one offer. Be confident, as this is
l Make sure that the investor is offering a meeting of equals. You’re not asking for a
an adequate level funding handout – you have something they want.
l The right chemistry between you and
your investor is often more important How does the investor assess their risk?
than raising the full amount During the due diligence process, where
l Younger businesses, or less profitable investors scrutinise information about your
companies, may have to give up more company’s past, present and future status,
equity to seal the deal you will need to hand over a lot of intimate
l Exits can often be determined by the knowledge about your business. This comes
investor, so try to make sure that you under the warranties contract, which
retain your rights on this issue and have requires the business owners to provide
some input into the decision any and all pertinent information on the
l You have a right to know who your business. This helps investors assess the
investor wants to place on the board and risk of investing, which is hugely important
what powers they expect them to have and depends on a series of factors. These
include the overall state of the market, the
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2
unacceptable terms. Personal relationships

are key, as you’re going to be working closely,
so you should like and trust each other.
Will they offer further fundraising?

Investors may not like companies asking
for more money without prior warning, so
if you plan to seek second-stage funding,
address this in advance. Also discuss bringing
in other backers at a later date, what kind
would be appropriate, and how to prevent the
image: iStock
original investor’s stake being diluted. Try to

retain as much flexibility as possible.
VCs may even agree to provide further
maturity and financial track record of your finance in the future without taking more
business, and the ability of your management equity, according to Baker Tilly’s head of
team. This can be a daunting task, and M&A and private equity, Rob Donaldson.
business owners may want to get a lawyer to “Where the VC is a big shareholder, they
explain why this is done and how it can help won’t want to dissuade the management
push negotiations along. team by diluting their stake more, and
“Due diligence was tough. We faced a funding to accelerate growth may be in their
barrage of questions for six months,” says interests to hasten their exit,” he says.
Eren Ali, managing director of restaurant
chain Las Iguanas, which raised £3m in How long should the exit period be?
venture capital (VC) and bank debt. Investors will typically look for an exit in
It is important to be upfront and honest three to five years. Some may want a clause
about potentially deal-breaking issues, in the contract to force an exit, while others
such as lawsuits, tax investigations or are happy to wait until the most appropriate
simply unexplained gaps in accounting or moment for both company and investor.
management. If they unearth things they feel Ensure you have similar ideas of how to
increase their risk, you may have to accept realise value in the business, then work
less favourable terms or lose the backer. towards that target. For more on investors
and exit strategies, see pages 36-41.
Are they the right investor?
No investor is perfect. The one you feel most What is their track record like?
comfortable with may not be offering enough, Every investor has a different style, and it’s
while another may want to back you, but on useful to know what this is. Ask to speak to
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2
before you jump headlong into negotiations…
A pproach the discussions over the

deal with caution. The small print is
arduous and designed to dilute the risk
n How badly do you need the money?
n What terms would you accept?
nC ould the company survive without
for the investor, which may propose to investment and, if so, could you
structure a deal in an unexpected way. So, grow it at a slower rate and seek
before you enter negotiations, ask yourself finance at a later date when better
the following questions: terms can be agreed?
other companies in their portfolio, as they will skills, contacts and knowledge they can
know how the backer works. Find out the type add; and their intended role as a board
and frequency of reporting they expect and director – will they be hands-on?
how involved they like to be in the business. Don’t assume that it’s down to the investor
to suggest a non-executive director. You
What is negotiable and where are the may know the industry better and be able to
potential pitfalls? recommend a candidate who will add value
The value of the business, how much equity to the business – although investors will still
you give up, or the interest on any debt and appoint one of their own, too.
legal issues are key areas for negotiation. Ask
how you’ll be able to access funds, if they will How serious are they?
be structured and released in tranches, and Before you sign the term sheet, you need
what conditions are attached? Also, find out in to be convinced the investor is committed
what form the funds will be offered. to the deal and will complete the process.
“Nine times out of 10, investors will Serious investors will start due diligence
structure their investment (or much of it) the day after you sign.
as a loan, leaving you having to pay interest, “Be warned, some hand out a term sheet
but still giving away equity. However, earlier to knock out the competition, but will then
stage companies are less able to service slow the process, which could weaken
debt, so are more likely to get pure equity. But your hand in future negotiations. It’s not
they’ll have to sell more of the business unreasonable to make them show they are
in return,” says Donaldson. serious,” says Donaldson. Make it a condition
He adds that interest on a loan note can of signing that they immediately start due
range from three to 15 per cent and is an diligence in return for exclusivity. n
area to negotiate on keenly. If you have more
than one offer, ask your corporate finance For advice on managing your relationship
adviser to run a financial model for you to with investors, see pages 49-50
see which method will cost you more.
Can you vet a proposed board member? Where to go next

VCs are reluctant to impose someone on a For more information, visit the BVCA
business. So ask about: their background website: www.bvca.co.uk/home
and why the VC has put them forward; what
section
3 After the event
Managing
investor
image: Shutterstock
relations
Funding from angels, venture capitalists or a flotation brings obligations.
By understanding them, all parties can enjoy a rewarding relationship
O
nce you secure finance, you’ll need What information do backers expect?
to manage the relationship with the n I f you have taken on debt, backers will
backer according to the terms agreed. want to see monthly management
Most expect regular reports, such as monthly accounts and audited annual accounts.
accounts. Equity investors may ask for the They may also want aged-debtor analysis
minutes of board meetings and input into your – not only details of what you are owed, but
business, including the right to veto decisions. also how long you’ve been owed it.
For more on the typical rights investors
expect, go to pages 36-41. In return, investors
will offer financial advice, strategic guidance Case study
and help recruiting management, as well as Bob Jones, former
contacts and market information. chairman of Swindon-
Delivering on profit and sales forecasts is based IT business
crucial to forming a successful relationship Equiinet, raised
with your backers. It builds their confidence £2.75m from venture
in your organisation, and, if you have floated, capitalists (VCs),
your share value will depend on it. business angels and trade investors.
“VCs and private investors have had a
positive impact. Monthly reporting is a
IN BRIEF investor relations
good discipline that helps us focus.
l Keep communication personal, “However, they shouldn’t interfere
whether face-to-face or by phone. A too much. You know your business
good relationship can benefit you both better than they do.
l Ask your backers what information “Private investors sometimes want
will be required, how often, in what to get involved in the business, but
format, and by whom that can cause confusion over who’s
l Funds can boost your business, but running things. Our VCs appointed a
may be withheld if targets are not hit, non-executive director who attends
and deals can even be vetoed the monthly board meeting. We report
l Make realistic projections; be honest figures and he asks probing questions
about bad news and gives advice.”
section
3
make your investor relationship work by asking key questions
1 What information do you require us 4 In what format do you expect it – as a

to provide – accounts, forecasts, Word document, PDF, Excel or other
analysis, commentary, etc? spreadsheet, PowerPoint presentation,
2 What areas do you expect to have or a perfect-bound document?
input on – management pay rises, 5 How do you like to receive it – by email,
acquisitions, appointments, new post, phone or face-to-face?
service, product launches, etc? 6 Who should provide our business
3 How often will we need to provide information and manage the
you with the required information relationship – another board member,
– monthly, quarterly, annually? the owner-manager or someone else?
nV
enture capitalists (VCs) will also expect sharing key decisions with lenders, as they
in-depth coverage of your profit and loss, will offer as much input as possible. “The
balance sheet and cashflow. An analysis lender can act as a useful sounding board,
of your company’s performance compared and it is important they understand why you
to budget is often required, as well as have taken certain decisions,” he says.
commentary on progress made against VC firms, however, typically expect a seat on
stated goals at the point of funding, and the board, usually as a non-executive director.
the forthcoming year’s budget Some angels want occasional contact, others
nA
ctive business angels may want similar daily. The input you accept largely depends
levels of information; passive ones will be on their stake. “You should listen to minority
happy with monthly or quarterly reports shareholders, but you don’t necessarily have
nQ
uoted companies’ shareholders must to follow their views,” says Donaldson. “Those
have equal access to formal information, with a larger stake have more influence.”
such as trading updates, profit warnings Like you, your backers’ want a healthy,
and information on takeover talks profitable and well-run business. Keep
nE
xpect frank questions from institutional them on-side early on, manage expectations
shareholders, and answer them honestly. effectively and the level of influence expected
Investors will be far more supportive if you will gradually diminish as their trust grows. n
do, and may be able to offer good advice
For advice on business angels and venture
How should information be provided? capitalists, see pages 30-41
The more detailed and personal the better.
Try to combine sending it with meetings or
phone calls. In general, management and
Where to go next
annual accounts are sent as Excel or PDF For further advice on financial
documents, but find out the preferred format. and management accounts, visit:
www.businesslink.gov.uk/equity
How much input should be expected? For more on investor relations, visit:
Advisory firm Baker Tilly’s head of M&A www.bvca.co.uk/PEVCExplained
and private equity, Rob Donaldson, advises
section
4 Government resources
Help for growing businesses

There are a number of schemes run by the Government to help businesses
grow. The kind of support your company is eligible for will usually depend on
your location, the type of business or the specific project you’re working on
A
s part of its commitment to helping appropriate schemes. They will then broker
businesses, the Government provides the service, putting you in touch with a
support through information and relevant local authority or RDA.
guidance; grants; tax credits and allowances; The products available include: Starting a
loans; training and events. Until recently, High Growth Business; Coaching for High
this help was provided by several bodies, but Growth (which provides help and advice
under the Business Support Simplification for managers of fast-growing companies);
Programme it has become much easier for and Understanding Finance for Business.
businesses to access the help they need. There is also help available to support
innovation, including grants for research and
Solutions for Business development, and collaborative research.
Almost all the Government- Please note, Solutions for Business is only
funded support programmes available in England. Government support
available have been brought for businesses varies in Scotland, Northern
together in Solutions for Business, a single Ireland and Wales.
portfolio of around 30 products. While For more information about Solutions for
these are delivered by several bodies, Business, please visit: www.businesslink.
Business Link offers a single point of gov.uk/solutions; or for Government
access. The advisers can provide an overall support, visit www.businesslink.gov.uk/
view of help available, and identify the most governmentsupportthebasics n
IN BRIEF government support

l The Government has a range of schemes to support companies. These include grants,
loans and allowances
l Grants might sound ideal, but eligibility criteria are stringent and the application
process can be long
l Grants are usually only allocated for a specific project or purpose
l Regional Development Agencies run schemes, often focused on innovation, to support
local businesses. The responsibilities of RDAs are in the course of being transferred to
other national or local organisations. The RDAs are making no new financial commitments
with a completion date beyond March 2011
l Businesses can also make use of subsidised consultancy services offered by experts
in given fields
l Some private firms may also offer awards and loans to businesses at preferential rates
section
Getting a grant
Your company may qualify for
government funding, which could
mean you don’t need to get into
debt or give up equity to raise the
money to grow. So check before
image: iStock
pursuing other forms of finance
M
ost business grants sound appealing Strict terms and conditions are applicable,
because your company will get an and you may have to pay the money back if
influx of cash that you probably they are not followed. Grants rarely meet
won’t have to repay. However, applying for the full costs of a project. You can expect to
a grant is not something to be taken lightly. receive 15-50 per cent of the money, so you’ll
The application process can be slow and need to find at least half of the required funds
will certainly be rigorous. To succeed, your from alternative sources to cover the shortfall.
company will have to meet stringent criteria. To find the right type of finance for you, visit
www.businesslink.gov.uk/righttypeoffinance
Who hands out the money?
Business grant schemes are available Applying for grants
from the Government, the European Union, Your local Business Link office can help
Regional Development Agencies, local identify relevant products or support under
authorities, Chambers of Commerce and the Solutions for Business umbrella,
County Enterprise Boards. By March 2010, together with relevant European grant
all Government grants will be accessible schemes. Before you apply for a grant, you
through the Solution for Business portfolio, will need to have the following:
with information available from Business n A detailed description of the project
Link at www.businesslink.gov.uk/solutions n An explanation of its potential benefits
n A detailed work plan and full costings
Which companies are eligible? n Information about your relevant experience
Grants are almost always for proposed Your proposal will be assessed on its
projects, not activities already underway. relevance to the grant’s aims, your approach
This may include opening up a new division and your expertise. Applications usually fail if
or branch in an area in need of economic the business plan is unrealistic, if the funds
regeneration, or could be tied to new activities requested aren’t matched adequately by the
in existing businesses, such as exporting applicant, or if it’s unclear how important the
or development. There are even grants to required finance is to the project’s success.
help companies benchmark their business Search for schemes in the Grants and
against their competitors. A grant will often Support Directory on www.businesslink.gov.
go towards covering the cost of bringing in a uk/support, or for grant applications see
consultant to help with these projects. www.businesslink.gov.uk/grants n
section
4
Types of grant RDA-funded facilities, such as business

incubators and science parks. Businesses
that are successful at the proof of concept
There are a variety of government stage may also benefit from help becoming
investment ready (see pages 44-45).
funding schemes available
For more details on these types of
depending on what you need the grant, visit: www.businesslink.gov.uk/
money for, all with different terms supportnetworksforrandd
Please note that the RDA network is being
Investment and research abolished and RDAs are making no new
Some Regional Development Agencies (RDAs) financial commitments with a completion
administer Grants for Business Investment date beyond March 2011. Responsibilities
(GBIs), a Solutions for Business product. will be transferred to other national or
These are available for a number of purposes, local organisations.
including the acquisition of buildings,
machinery and equipment, and programmes Collaborative R&D
that will help create or safeguard jobs. If your business is working on an R&D project
Many RDAs have also traditionally played with another company, it may be eligible
a key role in promoting innovation, although for a grant under Collaborative R&D, a
this varies from region to region. Some offer Solutions for Business product, delivered
support for proof of concept projects under by the Technology Strategy Board (TSB).
Grant for Research and Development (GRD), To qualify, the project must involve two or
a Solutions for Business product. At the early more collaborators, with one of those being a
stage of a research and development (R&D) business. The grants cover from 25 per cent
project, sums of up to £20,000 are available to 50 per cent of the costs of the project. For
to help companies prove there is a market more details, visit www.innovateuk.org
for a particular idea. European cross-border collaboration is
For instance, before launching an fostered through the European Union’s (EU’s)
expensive research programme, it is Seventh European Framework Programme
essential to know whether there is a (FP7), which runs until 2013 and has a budget
sufficient customer base to justify the time of more than 50bn euros. FP7 funds a variety
and cost involved, and also whether the of leading-edge R&D and support activities
intellectual property will be defensible. with grants of up to 75 per cent. It’s open to all
If the idea proves to be viable, the company types of organisation and usually requires at
can then apply for further research grants, least three partners from different countries.
usually of up to £100,000 (but higher for For more, visit: www.fp7uk.co.uk
some sectors) and development grants of up The Eurostars programme benefits
to £500,000. This funding is intended to take cross-border collaboration between small
a company up to the stage of pre-production to medium-sized companies (SMEs) that
prototype or small scale demonstrator. It dedicate more than 10 per cent of their staff
can also fund pre-clinical research and or turnover to R&D. For more on Eurostars,
intellectual property protection. visit: www.eurostars-eureka.eu.home.do
Businesses receiving support through Grants are available for technology
GRD may also be able to access specialist projects aiming to bring new products to
section
market. To qualify, at least half of the work

must be done by an SME, and the research
should involve participants from at least
Other sources
two EU countries.
You can also get finance through FP7 of government
finance
for Joint Technology Initiatives. These
are public/private partnerships bringing
businesses and public research bodies
together to develop cutting-edge technology
Alternative sources of public support
in specific areas.
and funding for growing businesses
Additional expertise
The Government also provides funding Loan guarantees
to help small companies work with For viable businesses that lack the security or
knowledge-based institutions, such as track record to secure a normal commercial
universities and colleges, to develop new loan, your lender may consider use of the
products and services. The process is run Enterprise Finance Guarantee (EFG), a
through Innovation Vouchers, a Solutions Solutions for Business product. Under the
for Business product, which is being rolled EFG, accredited lenders can offer loans of
out in England by RDAs. The vouchers £1,000 to £1m, to qualifying small to
provide small companies with grant medium-sized UK businesses with a turnover
finance to purchase the necessary of up to £25m. The Government provides a
expertise from the relevant education 75 per cent guarantee to the lender, for which
or research institution. the borrower pays a premium of 2 per cent
A company identifies a short-term problem a year. EFG is available to most business
that can’t be solved internally, and finds an sectors, however some restrictions to certain
institution that can help. It then applies for
a voucher to buy specialist support from the
institution. Support worth up to £10,000 is
available, but typically the amounts involved
are between £3,000 and £7,000.
For more information about Innovation
Vouchers, visit: www.businesslink.gov.uk/
innovationvouchers
Help for disabled entrepreneurs

Enabled4Growth provides access to financial
services that recognise the value of working
with disabled business leaders. For more
details, visit: www.enabled4growth.com
Business Link has also produced the guide
Starting a Business as a Disabled Person.
image: iStock
For more details, visit: www.businesslink.

gov.uk/startingupdisabled n
section
4
sector apply. An accredited lender can assess

your eligibility. Or you can check if you qualify Case study
for the scheme at www.businesslink.gov. Newcastle software
uk/guaranteedlending. Lenders have 20 developer Nonlinear
days from receipt of an application to reach a Dynamics has
lending decision. The EFG has been extended claimed 24 per cent
until 31 March 2011 and is accessed through of its qualifying
participating banks. For more details, visit research and development (R&D)
www.businesslink.gov.uk/solutions. costs under the R&D tax credit scheme.
Funded by the European Commission and Chief Executive Will Dracup explains
the European Investment Bank (EIB), the Risk the process:
Sharing Finance Facility (RSFF) provides “We spend a lot on R&D. But annual
loans and loan guarantees linked to research claims under the R&D credit tax
and development (R&D) that either forms scheme have clawed some of this back.
part of a Seventh European Framework Initially establishing the basis of the
Programme (FP7) or are compatible with claim and setting up the necessary
FP7 objectives (see page 53). For loans under audit trail was hard work, and needed
7.5m euros, the scheme is accessed through good management information
participating banks. For higher amounts, systems. Since then, claiming has been
interested companies go direct to the EIB straightforward, and has provided real
(www.eib.org/products/loans/special/rsff). motivation to keep investing in R&D.”
Loan and equity finance equipment and premises, and stamp duty
There are also equity and finance schemes relief in disadvantaged areas.
run by Regional Development Agencies This Autumn the Government is consulting
(RDAs), through which you can also apply with business to review the taxation of
for European Regional Development intellectual property, the support R&D
Fund finance. Contact your local RDA for tax credits provide for innovation and the
more information. proposals of the Dyson Review set out in the
publication Ingenious Britain.
Research and Development Tax Credits For more information on R&D Tax Credits,
Tax relief is available for R&D that aims to visit: www.businesslink.gov.uk/taxbreak
achieve a scientific or technological advance.
This applies to companies with less than SBRI Contracts
500 full-time staff, and the rate of relief is Public sector development contracts are
175 per cent of qualifying R&D expenditure available through the SBRI scheme, where
when calculating profit for tax purposes. companies can bid for technology-based R&D
Businesses not in profit may be entitled to a contracts. The tender process is designed to
24.5 per cent cash payment for every pound appeal to small and medium-sized companies.
spent on R&D. From 1 April 2008, the rate The SBRI website hosts competitions where
of relief that larger companies can claim businesses are asked to provide innovative
increased to up to 130 per cent of qualifying solutions and products for specified problems
expenditure. Other tax breaks available and unmet needs. Successful companies are
include capital allowances for investment in awarded commercial contracts to prove the
section
4
is available to bring a
recent graduate in to help
businesses provide an
answer to a problem they
cannot solve internally. The
Government will provide up
to 67 per cent of the cost.
Funding is provided
for projects lasting one
image: iStock to three years, but a
short scheme of 10-40
weeks is being rolled
out. The scheme benefits
the institution (through
research material),
the graduate (through
experience) and the
participating businesses.
For more information
technical feasibility of their proposals, typically on the Knowledge Transfer Partnership
within six months and for up to £100,000. scheme, visit: www.KTPonline.co.uk
The most promising technologies will get a
further contract for demonstration of product Knowledge Transfer Networks
capability, to be completed usually within two Funding is also available for Knowledge
years, and for up to £1m. Transfer Networks, part of the Solutions for
Topics addressed in competitions to date Business Networking for Innovation product,
cover a wide spectrum of areas, such as to bring together businesses, academics
health, defence, low carbon buildings, crime and the Government to share knowledge in
prevention and transport. For example, one emerging technologies. There are currently
competition invited proposals for improving 25 networks operating, funded by participating
hand hygiene in hospitals; another sought businesses, educational institutions and the
ways of improving mobile phone security. The Government’s Technology Strategy Board,
intellectual property usually remains with the which provides grant support. For more
company, although the Government may retain information, visit: www.innovateuk.org
certain rights. SBRI is being championed by
the Technology Strategy Board, and details of Helplines
current competitions can be found at www. n For help with exports, visit the UK Trade &
innovateuk.org/sbri Investment website at www.uktradeinvest.
gov.uk or call 020 7215 8000
Knowledge Transfer Partnerships
Like Innovation Vouchers, Knowledge For details on more support, including help
Transfer Partnerships (KTP), a Solutions for with finance, premises and manufacturing,
Business product, fosters cross-fertilisation visit: www.businesslink.gov.uk/solutions
between education and business. Funding and www.businesslink.gov.uk/support n
section
4 Non-government resources
5
Additional funding
opportunities
image: Shutterstock
It’s not only the public sector that provides support and
grants for businesses. Many private organisations also
offer awards and assisted loans that may prove invaluable
The Carbon Trust to spend €600m (split equally across private

Companies working with technologies that and public sectors) between 2008 and 2013
could cut carbon output may be eligible for on technology projects to help elderly people.
financial support from the Carbon Trust In addition to engaging on research that
through Carbon Trust Investments. To meets the necessary criteria, applicants must
date it has co-invested £19.2m across 19 be involved in cross-border collaboration. For
companies, which together have raised more information, visit: www.aal-europe.eu
£127m. For more information, visit:
www.carbontrust.co.uk/investments/ NESTA
invention and innovation scheme
venturecapital/ The National Endowment for Science,
Through its Innovations programme, Technology and the Arts (NESTA) runs an
the Trust also helps develop commercially invention and innovation programme that
viable, low-carbon technologies through supports people with outstanding ideas for
partnership, funding, expert advice and new products or services, often at a much
large-scale demonstrations. earlier stage than other funders. For a
Applied research funding of up to £500,000 directory of schemes available in your
is available for business and academia. For area, visit: www.nesta.org.uk
more details, visit: www.carbontrust.co.uk/
technology/appliedresearch/ Community
Development Finance
The Trust also runs an incubator scheme Providing funding services to generate both
and investment-readiness workshops. For social and financial returns, Community
more information, visit: www.carbontrust. Development Finance Institutions (CDFIs)
co.uk/technology/incubator/ lend and invest in deprived areas and
The Carbon Trust Entrepreneurs Fast underserved markets that cannot access
Track provides research and development mainstream finance. Average loan sizes
funding, expert advice and enhanced range from £5,000 to £50,000, with larger
networking opportunities to clean-tech loans available for social enterprises.
ventures with the highest growth potential. For details on CDFI’s that lend to social
For more details, visit: www.carbontrust. enterprises, visit: www.cdfa.org.uk.
co.uk/emerging-technologies/fast-track The Community Development Venture
Fund (CDVF) invests from £150,000 to £2m
Ambient
Assisted Living Programme in businesses located in the most deprived
Part-funded by the European Union, the parts of England. For more information,
Ambient Assisted Living Programme plans visit: www.bridgesventures.com n
Think your business needs finance to
grow to the next stage, but not sure
where you can find it?
If you run a successful business and are looking to expand, there are a range
of potential finance options. The No-Nonsense Guide to Finance for High
Growth and Innovative Businesses can help you locate the most appropriate
one for you, and advise you on the best way to secure it.
This guide includes:
l Working out how much funding you need

l Funding options and how to secure them
l Getting the most from your relationship with your investors
l Government schemes to help innovation and encourage growth
Business Link
This guide is brought to you by Business Link on behalf of the Department for
Business, Innovation and Skills. Contact Business Link for a wealth of information and
support services to suit your individual needs:
Tel: 0845 600 9 006
www.businesslink.gov.uk
Other No-Nonsense Guides available from Business Link include:

The No-Nonsense Guide to Small Business Funding
Starting a Business – The No-Nonsense Guide
For business support and advice:

l In Scotland, contact Business Gateway; (Scotland)
0845 609 6611; www.bgateway.com
l In Wales, contact Flexible Support For Business; 03000 6 03000;
www.business-support-wales.gov.uk
l In Northern Ireland, contact Invest Northern Ireland; 0800 027 0639;
www.nibusinessinfo.co.uk
The material in this guide is for information purposes only and is not intended to be, nor does it constitute, legal and
financial advice. No user should act or refrain from acting on the information in this guide without first verifying the
information and as necessary obtaining legal and/or other professional advice. Users are recommended to consult their
own independent advisers in relation to their own circumstances.
Every reasonable effort has been made to ensure the information contained in this guide is accurate, but neither the
Department for Business, Innovation and Skills nor Business Link accept any responsibility for any errors or omissions.
First published January 2005. Latest update September 2010.

Department for Business, Innovation and Skills. www.bis.gov.uk © Crown Copyright. BL/Pub URN 09/RDA654

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last updated: SEPTEMBER 2010

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1. Preparation High growth and innovation����������������� 2

Managing investor relations�������������� 49

Help for growing businesses������������������� 51

Additional funding opportunities������������� 57

Drawing on the experiences of businesses

This guide is only a starting point. We hope

Finally, if you are a new or early-stage

key skills and expertise. In fact, the profile of Case study

12 QUESTIONS TO ASK YOURSELF

IN BRIEF BUSINESS INCUBATION consider equity finance. In the early 2000s,

in supporting young, Case study When Essex-based

Find the right finance solution

Funding moderate to high-risk, 3-6 months, Legal and accountancy fees up to 5%

Funding moderate to high-risk, 3 months Corporate finance fees of 5%*, plus 5%

Funding moderate to high-risk, 3 to 6 months, 7.24%* of funds raised on average,

Funding moderate to high-risk, 3-6 months, 10.5%* of funds raised on average,

Funding moderate to high-risk, 6-12 months 10.5%* of funds raised on average,

* Typical amount – fees are negotiable

Bring in the experts

The right advice is essential when raising

further points to think about

What are the costs? Case study

Attracting equity investment

Banks and specialist lenders

repayment holiday) from the start or

loan in the form of a personal guarantee.

Case study What is the loan dependent on?

Negotiating the terms ­­­­­­Alternative specialist lenders

Borrowing against your invoices

provides credit protection against debtor’s Case study

Should you buy or lease assets?

In sectors more suited to longer-term angel finance

and direction, which not all companies

What are my chances of securing finance?

any funds it raises to achieve specific

What do angel investors expect? Where can I find business angels

you attempt to get funding. VCs do not venture capital finance

uk finance for growth

corporate finance and

The Enterprise Investment Scheme

rate of between £200-400 in London, or Venture Capital Trusts

find it difficult to access. VC investors that exit strategies

largely disappeared Case study Janine Woodward is

Making the perfect pitch

QUESTIONS INVESTORS ASK

1 Are you filling a gap in the market? Who

Agreeing the terms of the deal

unacceptable terms. Personal relationships

Will they offer further fundraising?

original investor’s stake being diluted. Try to

before you jump headlong into negotiations…

A pproach the discussions over the

Can you vet a proposed board member? Where to go next

make your investor relationship work by asking key questions

1 What information do you require us 4 In what format do you expect it – as a

Help for growing businesses

IN BRIEF government support

Types of grant RDA-funded facilities, such as business

market. To qualify, at least half of the work

Help for disabled entrepreneurs

1. Preparation High growth and innovation�� 2

Managing investor relations�� 49

Help for growing businesses�� 51

Additional funding opportunities�� 57

Negotiating the terms Alternative specialist lenders

1 Are you filling a gap in the market? Who

1 What information do you require us 4 In what format do you expect it – as a