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Planning for successful funding

In the current economic climate, with the effects of the credit crunch still hurting and with a potential global recession drawing closer, attracting funding can be far from straightforward.  In the case of debt finance, the “Spectrum Plus” case has meant that banks are no longer be able to rely on the traditional security in place over book debts, and are often either seeking personal guarantees from directors some of which may be secured on personal assets such as the home, or switching funding to sales lead finance which may not suit all businesses.

Are Investors Investing?

In the UK many venture capitalists (“VCs”) have out-grown themselves in that they no longer provide ‘venture’ capital but rather they back large deals and generally don’t even consider deals under £2-3million.  As some of the VC funds have been so successful over the past few years they have taken advantage of their success and raised even larger new funds from investors, resulting in the VC’s concentrating only on larger deals.  This has even lead to the first take-private of a FTSE100 company in the UK when Boots was acquired with VC-backed money in June 2007.

Traditionally business angels could be relied upon for smaller investments, but many angels are now much more cautious with their money due to the losses they made in the late nineties and later.  Nevertheless, angels can still be relied upon to provide small or ‘seed’ investments (even without being as aggressive as their counterparts in the public eye in The Dragons’ Den) of amounts up to £500,000.

This has created an ‘equity gap’ (roughly £500,000 to £3million) between the size of investments that VCs and business angels are willing to make.  Whilst government proposals to address this gap such as the establishment of US-style Small Business Investment Companies are well meaning they have had little practical effect.  Some VC funds have found a niche by investing specifically within this gap, but in general it is increasingly difficult to raise investment within this range.

Investors, and the VCs in particular, are sitting on large piles of cash that they do need to invest, so opportunities for successful fundraising do still exist for a well-positioned opportunity.

If you Fail to Plan, you Plan to Fail

How can finance providers be convinced to loan or invest the funding that businesses need?  There will only be one opportunity to present a funding case to each investor or lender, and it needs to be carefully prepared and planned.

A well thought-out, watertight business plan is vital.  A thorough knowledge of the marketplace and the competitive environment should support the entire proposition.  The plan should contain evidence of historic and current performance, and detail the assumptions behind forecasts.  Cash flow projections, profit & loss accounts and balance sheets are of course essential and must be realistic.  There should also be evidence of the strength and suitability of the management team.  A relevant risk assessment, highlighting factors mitigating risk, and perhaps a SWOT (strengths, weaknesses, opportunities and threats) analysis, also add credibility.

The business plan should not be viewed as purely a fund-raising document, rather it is a live tool that management should update and use to monitor and control their business as well as shape future direction.

The success of an application for finance depends on the quality of your business plan.  This is where we can help.  A professional review ensures the plan will stand out and appeal to finance providers.  BKL Corporate Finance will assist you in the preparation of your business plan, prepare the financial information on your behalf, and introduce you to a range of financers suitable to your specific needs.

For more information about how we can help you, please contact us.

Daniel Shear

Partner, Corporate Finance

T +44 (0)20 8922 9321
E daniel.shear@bkl.co.uk

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