Mike Hughes gets an insight into the work of Darren Hart, head of growth capital at Santander.
Darren Hart’s impressive CV marks him out as a man with a deep experience of the banking sector generally and growth capital in particular:
In his latest role he has £200m to invest (actually, firms have already received £50m, so there’s £150m left in the pot) to help strong firms become powerful as part of Santander’s Breakthrough programme. “Growth Capital is one of the pillars of Breakthrough,” explains Darren.
“We set it all up because we wanted to do even more for SMEs. They were telling us – and we had recognised this as well – that there was a funding gap between the likes of business angels and private equity.
“Angels are great for start-ups at a very early stage and then you get close to £1m turnover and really they’ve exhausted their resources. Yet you can’t really go down the private equity route until you’ve probably got to about £10m, because on a pounds, shillings and pence basis it’s just not interesting enough.”
The European Commission’s definition of an SME goes up to 50m Euros turnover, so Darren’s team of 11 professionals is focussed on that whole market. “There are alternatives like the Business Growth Fund and regional funds around, but they’re predominantly equity investors rather than lenders.
“We started out looking to support SMEs with an annual turnover of up to £10m, which we have now been able to increase to £50m.
If we were going to back a business, we set out to get comfortable that there will be enough cash flow to service and repay the debt. For example, is there a product that has been launched and is being sold that is being provided on a regular basis, proving the concept and the market.”
Change is what keeps us all on our toes. Approached in the right manner it can be exciting and a positive development of the work you are doing. So when Breakthrough broke through things became even more interesting for the manager and his 11 players.
He explains; “An old-fashioned way of a bank looking at a lending opportunity might be to think ‘right – what are the assets? Let’s go straight to the balance sheet, what are the premises worth, can we take a mortgage on them’ so that if things go wrong you have a chance of getting your money back.
“But that is very limiting in terms of what you can actually lend for – it has to be something physical. But a lot of firms today are asset-light. Their value isn’t necessarily in what they own and their growth aspirations aren’t going to be fulfilled by buying something.
“So the sort of things we want to facilitate are much more intangible, like sales and marketing campaigns, investment in new headcount, roll out strategies, overseas expansion and R&D.
“The way that we have become comfortable in this new landscape is by looking very carefully at the cash flows and understanding every aspect of the business,” says Darren.
“We will look at the market, competitors, really getting under the skin of the business so that we get a sense that there will be cash there to repay us – but over a period of time. We will also price properly to reflect the risk, 10 per cent over Libor, which is a lot more than a conventional bank loan but less than going down the equity dilution route.
“If we can get an entrepreneur to the next funding stage while he or she is still owning 100% of their business, then that is a very successful job done for us.”
This new set of circumstances gives an added edge to the world of growth capital – and it’s going down well. “There is no painting by numbers approach any more. You have to get to know your customer so you can advocate their plans in a compelling manner in front of risk colleagues.
“Now you start with a blank sheet of paper and say to the management team ‘right, what are your aspirations and how can we help you fulfil that potential.
“I had the great luxury of recruiting all my team from scratch and they have a broad range of backgrounds, from banking and private equity to industry. We have to support our frontline relationship colleagues, so my model is to have people dotted around the country so that deals are run and looked after locally.”
Those deals are coming in from all sectors, which is rewarding and impressive for the people backing them. “There are winners all over,” says Darren. “We just have to find them and see how we can help.”
And he is, of course, finding them in great numbers in Yorkshire. “The great joy for me and my team is going out and meeting the firms, not staying in an office shuffling papers. We want to walk around factories and offices and see what they are making. The businesses that I see are very dynamic and that passion rubs off.
“We have a lot of work in progress in Yorkshire – quite a concentration of really good prospects. And firms are returning to us for their next stage of funding. One of our Yorkshire clients is just going through its third round of financing, which says a lot for the region.”
This £150m man seems like a nice guy to have a beer with, which perhaps shows how far the sector has come while he has been a key player. It wasn’t too long ago that having a drink and a laugh with a growth capital expert might not have been at the top of everyone’s ‘to do’ list. But times have changed. It’s your round, Darren.