Finding funding for entrepreneurs

Finding funding for entrepreneurs

There are brighter funding prospects for North East entrepreneurs with banks becoming more sympathetic and greater funds available. There is also likely to be more office and manufacturing space available. At BQ Breakfast we have picked the brains of the experts and followed the experiences of entrepreneurs to guide the business person through the opportunities.

BQ Breakfast has launched a series of BQ Breakfast Live forums to bring together entrepreneurial people of North East business, in convenient and friendly surroundings, to discuss and receive expert advice on major issues vitally affecting them. The first BQ Breakfast Live centred on Finding Funding For Entrepreneurs. Ninety people attended this joint presentation by the BQ Breakfast website, North East Finance, and South Tyneside, Sunderland City and Durham County Councils.

If you were unlucky and couldn’t attend the Quality Hotel, Boldon, on the day, you can catch up here and now.  This website is running a series of extracts. The first one follows…

Prospects rise for SMEs

A brighter funding horizon for aspiring entrepreneurs of the North East is forecast.

At the BQ Breakfast Live forum dedicated to finding funding, they were told how banks are likely to become more supportive, how the support of a major North East fund is likely to be extended, and how more office and manufacturing space is becoming available.

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Craig Iley, managing director of business banking at the soon to be launched new Atom Bank, based in Durham City, said that often only a figurative inch stands between winning or losing a pitch to a bank for support.

He recommended: "Entrepreneurs, once having made a close and objective study of their bank, should sell their idea as if it was to a sales customer they wanted to win."

They have to be totally transparent about the business and its key participants and explain its workings in detail.  They should ensure that they, and their business are correctly positioned in credit agency data by working with the agencies behind it to ensure it is upto date and accurate.

He says the British Business Bank, currently run by the Department for Business, Innovation and Skills, will be especially important for SMEs over the next 20 or 30 years. Many more banks besides the Big Four will feature, and switching from one bank to another more amenable to supporting a proposal should become easier.

Applications from new banks to operate, already being considered, may result in a broad move towards the German tiered model ensuring small players are not squeezed out in the bids for support and funding.

He said one problem for the banks in lending now is that regulation is driving a lot of capital into the housing market – both abroad as well as in Britain – and the playing field for small business and start-ups needs to be levelled.

Local enterprise equals prosperity

Andrew Mitchell, chief executive of North East Finance, which administers the £125m Finance for Business North East programme to drive growth in the region’s economy, says the region has many new businesses emerging, and funds may now be able to continue to 2020 and beyond.

The £125m fund (JEREMIE) has already supported 600 companies with more than £100m of backing over four years. This has drawn £125m of private sector co-investment. JEREMIE doesn’t deal with all the needs of small business. Many small businesses have specialised needs in financing – loans, overdraft facilities and so on. "But we’re not badly positioned here," Mitchell says. "However, we do need to do a lot more towards helping firms to access finance, and help them to make the most of that funding once it’s on board."

He says small companies, if they need capital to develop, will go where the money is. The assumption has always been it will be down to London or the South East. "Reality today, however," he says, "is that we are going to have a strong independent-ish neighbour up the road with money to spend and it will be very pro-active in trying to attract small and large businesses. So access to finance today is crucial in terms of keeping small businesses in the North East and South Tyneside.

"The way to do that is by making them feel at home by providing facilities such as location, funding, advice and support, whether through financial service firms or mentoring or whatever it might be. There’s a huge commitment in South Tyneside, Sunderland and County Durham towards supporting small businesses. The start-up of Atom Bank in Durham shows that the region can deliver in financial services.  We’ve invested more than £5m in South Tyneside, for example, and attracted about £4m more of private investment."

These businesses form an interesting variety, and many different types are starting to emerge. "They’re important because small businesses, as they grow, tend to stay put. One of the region’s past problems has been that large companies attracted, with very honourable exceptions, tend to be mobile. So whatever advantage the North East had, whether in labour cost or land prices, ceases to be advantageous since it’s relatively easy for large multinationals and even UK based companies to move their operations elsewhere."

Small business owners, on the other hand, tend to buy locally, tend to work with local professional service firms, pay taxes locally, send their children to school locally and as they get bigger – Sage being a classic example – the owners and those who made money out of those businesses tend to re-invest money into the community. The multiplier effect is incalculable over a long period. That is where the wealth and jobs will come for this region."

‘We can provide your space’

Councillor Iain Malcolm, leader of South Tyneside Council, stresses that South Tyneside is open for business despite a £100m cut in the funds it has had available since 2010. It has been losing businesses through lack of office space but hopes to promote officed businesses, manufacturing and tourism, and has riverside space for both offices and manufacturing which council officers and developers are now considering. He has invited expressions of interest. "We don’t have enough SMEs and start-ups," he said. "Plenty of people want to start their own businesses but a lot fall at the first hurdle because in this area families have tended to come from traditional industries like coalmining and shipbuilding. There wasn’t an entrepreneurial spirit. But I do see it coming on South Tyneside."

Working with Sunderland also, it expects firms emerging along the A19 corridor to become eventually as significant as Nissan has been - through development of the international advanced manufacturing business park north of Nissan’s plant. The councils have the support of both the Government and the North East LEP on this. Work on the infrastructure will start soon. The immediate aim is to accommodate 5,000 jobs, growing to anything up to 20,000 ultimately.

The audience at the BQ Breakfast Live forum heard first hand at the Quality Hotel, Boldon, how four local entrepreneurs in sectors as varied as dentistry and offshore health and safety, overcame any difficulties of funding.  Scott Hopkinson (Moneygate Group), Craig Huntingdon (Dentist Direct), Stephen Lovely (For Sale Sign Analysis) and Richard Pargeter (Green Marine Solutions) were interviewed for BQ by Caroline Theobald and also answered delegates’ questions…

Finding the cash

Stephen Lovely, 25 years an entrepreneur, has raised £20m and organised jobs for around 1,000 people in various SMES. His most recent businesses are For Sale Sign Analysis and Beyond Digital. He has used business Angel Jeremy Middleton for 10 years, who has been involved in both the businesses.

Craig Huntingdon spotted a gap in the dentistry market, doing there what Spec Savers and Vision Express do for the eyes, and Vets for Pets have done in the veterinary sector.  He has raised £400,000 with NEL for dentistry across the UK by franchise. Talking to banks didn’t prove fruitful at first. The NEL helped raise other significant capital which helped get access to more than £2m from Yorkshire Bank for acquisition of practices and expansion of the business. The key USP is that most of the dentistry can be done without a drill or anaesthesia. As the franchisees appeared to get a better deal his firm raised further finance to reverse franchise. "We have used other people’s money to prove the concept then have gone out and raised our own finance," he explains. "The aim now is to move forward with our own acquisitions.

Stephen Lovely got £10.25m in equity from a bank early on. "Those were the days," he recalls. A low point of his property business came when entrepreneur Jeremy Middleton walked away from it at one point. A fund manager insisted the business be put into liquidation the same day. "We went instead through a company voluntary arrangement where we could park the debts and be protected from them while continuing to run the business. The business survived and prospered." Jeremy came back six months later and said: "You’re still here. That’s surprising." And he rejoined, happily. "Being stubborn is a key business attribute. The biggest learning curve in that situation is just to address it. Don’t put your head in the sand. Talk to professionals who can help you. Deal with the things you can deal with. I don’t feel guilty. Some get into trouble along the way but still succeed while others fail completely. That’s the nature of being an entrepreneur." Jeremy despite his temporary departure helped fantastically, and has funded various other ventures at different times.

Richard Pargeter’s company maintains wind turbines. It was funded a year ago by the Accelerator fund of North Star Ventures. The company was formed by a group of five in a rising market, the offshore  industry on the rise. "We were at the right place at the right time. We were training other businesses and decided we could do it ourselves. We weren’t businessmen so it was a vertical learning curve. We wanted to go from the operational side of windfarms to building software. We didn’t know how to do it and obviously needed a lot of investment to build the systems we wanted." Having access to funds meant they could recruit a team, implement designs and push forward with clients already had on board. "Funders definitely look for the return but the final decision for us was the support, the guidance and the mentor that came with the funding. We got a non-executive director and he has been invaluable in guiding an entrepreneur who hasn’t done that kind of thing before. He told us of strategies and how to implement them, and how to work with other businesses in supply chains and manage risks as well that may arise when you’re setting up with a supply chain as a new company… not putting all your eggs in one basket, for example. Learning from the mistakes of others was really important to us."

Scott Hopkinson is a non-financier in a national finance advisory firm set up in 2007. It received funding last year from North Star and NEL. "I had come from a very big business and had money from the start. We have three non-executive directors on our board who came on as part of an investment, helping to oversee and to help us run the business. They have been invaluable in  helping us to grow, and very supportive in terms of follow-on money. So not only have they invested but also continued to support and re-invest in the business, which I think is key when you’re looking for your money." The first money came from America, family money from Switzerland, and now the two regional funds are involved also. "Having people who are local backing you makes it a bit more personal. Other investors may investing for money, whereas North East funders are helping you grow the business within the local environment. All investors want to do due diligence, want to crawl over the books, see the model, meet the management team, and understand what they do, what they contribute. The management team and the business model are the two key things for investors. Is the business sustainable? Can it Grow? You need those things lined up before you go looking for money."

Craig Huntingdon: "We had one model, then tried another. Franchising for us seemed the most obvious way to roll out our programme as we looked to get practices of around £400,000. Doing that quickly by traditional methods would have been very difficult. So we moved to a franchise model. We had looked also at a joint venture model. Ultimately we used proof of concept to attract additional finance through the banks. It’s critical to have good advisers. Getting that with the funds from the North East too seemed a bit of a mix in heaven. We had wasted a lot of time speaking to people who weren’t really interested in taking the concept forward. It’s important with professional teams to test that enthusiasm quite early. We did that by using means of contingency. Ultimately we paid something like 25% up front with the rest on completion. That was the test of various advisers we spoke to as we sought to find out who was really enthusiastic."

Richard Pargeter found that getting the company established can take longer than expected. "We didn’t know where to access. We came across North Star by networking and introduction. We looked around Sunderland, Tyneside, Durham, starting off on the small investment for growth just to get a website built and some flyers and go to trade shows. Engaging with one group that led to the next, and it took a year or so of following the breadcrumbs down the path and speaking to people. It wasn’t easy to identify the different groups. We didn’t come from a business background. We were seafarers entering a whole new discipline. It was difficult to identify the different groups, and who was available, and the different types of investment out there."

Stephen Lovely: "The market for raising funds has developed and is a lot clearer now than when I began. I had been a corporate finance director for a big firm. You can get to the route of the right funding for you, but different funders do very different things. It’s important you find the right one and it’s clearly signposted now."

Scott Hopkinson’s firm had a data room ready and a 10 year business model prepared when it looked for funds and had all the documents needed to go out and raise money. "So we were well prepared for speaking to North Star and NEL. But they still want to come and do due diligence. They still want to kick the tyres, speak to the management team and see you able to demonstrate the growth model you are providing so that it’s actually deliverable."

 

First in a series of four articles. The next in the series will be published tomorrow. Get the articles direct to your inbox by registering for BQ Breakfast - click here