What kind of growth finance can help you scale your business? Britain’s investors weigh in
5 min read
15 August 2018
The Supper Club’s Way to Grow report believes business leaders need more education around growth capital finance. Here, investors identify different types of finance – and the information specific investors look for.
“Competitive advantage doesn’t go to the nations that focus on creating companies; it goes to nations that focus on scaling companies,” serial entrepreneur Sherry Coutu said in 2014.
The quote came alongside research which estimated 238,000 jobs and £38 billion would be added to the UK economy as a result of more scaleups. But our ability to scale is sorely lacking in comparison to international counterparts.
Limited access to finance keeps popping up as a reason why. The Supper Club’s Way to Grow report chalked it down to business leaders needing more education around growth capital finance – and what information specific investors look for.
Tapping into the experience of its exclusive high-growth members and partners, the organisation highlighted how companies can get that needed money dose.
One of the featured partners, BGF, claimed business leaders often fail to research what types of business investors look for. As BGF investor Henry Gladwyn explained, those involved in private equity (PE) have a different set of requirements from venture capitalists (VC).
“PE investors look for later stage, viable and profitable businesses with lower but steady growth,” he said. “VC investors, on the other hand, expect at least 50% growth per year and over 80% margin from SaaS businesses.
“Also, PE funds are risking up to invest in earlier stages of growth and VC is considering lower growth.”
The moral of the story is not to cross your fingers and hope you’ve found the right investor. Actively seek those you know will be interested, because your pitching style will need to change accordingly.
“PE investors are more interested in the numbers, while earlier stage investors are more interested in the growth story and how it can support accelerated growth,” Gladwyn said.
“If you choose the latter option, then present the problem you’re solving, why you will dominate the market, and for how long. The most important numbers you’ll mention – in either case – relate to the size of market and opportunity.
“The predictability of your business is a strong element when pitching, so think about all possible challenges. Earlier-stage investors are looking at the idea and the management team.”
It’s highly important that you inspire confidence in your ability to lead and deliver growth, with a solid leadership team including a strong FD or CFO. Choose who you bring along wisely. Seeing someone standing around and not giving input can say an awful lot.
What you also need to be prepared for is the amount of board level input investors expect. BGF itself often appoints a chair or non-exec as a bridge between the investor and management team. By no means should this be seen as daunting, so don’t let that dissuade you from seeking growth capital.
“A NED should typically spend two days a month on the business, one for board and one for the board pack,” Gladwyn opined. “But it’s crucial that the NED be right for your stage of scale, so if they aren’t right for the next phase you should rotate them out to bring in someone more qualified.
“A good NED should be motivated by a genuine interest in your business and its potential, so they are more likely to invest rather than look for fees.”
Part of the reason why capital growth is of interest is the affiliated expertise. Investors can make a positive impact on your business beyond just providing finance.
Octopus Investment’s growth capital investor, Edward Keelan, said part of an investor’s role is to deliver long-term support. After all, fast-growing businesses “can get too caught up in the running of the business”.
Scaling a business isn’t easy – and sometimes you need someone from the outside to point you in the right direction.
“Once integrated into the business, the investor’s skills, experience and expertise can bring strategic value to the board and help them execute key decisions,” Keelan said.
At the end of the day, there’s more to growth capital – and securing it – than you think. But with Brexit looming and scaleups struggling to get an edge over global competitors, it’s worth at least thinking of tapping into the investor pool.