Preparation equals success when it comes to fundraising

Journalist John Burbedge meets MHA MacIntyre Hudson specialists Tallat Mahmood and Chris Denning who are advising Thames Valley companies.

Many SMEs choose unsuitable funders as financial partners for business growth.

Funding type and timing can be crucial for successful growth say corporate finance director Tallat Mahmood and tax partner Chris Denning.

“There’s a lot of available funding out there, but it might not be the right money at the right time for your business, and importantly, not mutually beneficial for all parties concerned,” explained Mahmood.

Technology too can be a growth funding double-edged sword. In today’s rapidly digitising world, fast business growth can often be achieved by the invention, adoption or innovative use of new technologies.

But, Thames Valley companies within the technology-driven race for commercial advantage may find it all too easy to rush headlong into fresh but inadvisable funding to underpin ambitious growth.

In general, small to mid-sized businesses are often ill-prepared to gain extra funding, Mahmood and Denning agreed.

“They may already be high-growth businesses, but either they go to the wrong funding provider, haven’t prepared in the right way, or they’ll have unrealistic expectations of how accommodating the funder will be.

“Successful SMEs and high-growth businesses often don’t see that there is an onus of responsibility on them to stand out, present themselves in the right way, to articulate and demonstrate what the funding opportunity is for the investor.”

“A lot of potential investors see financial ‘hockey-stick’ growth plans from businesses operating within limited markets of well-funded competitors. Too often funding seekers fall down by not presenting realistic deliverable plans,” explained Mahmood.

“We can help them achieve a suitable presentation and, since we know and understand the funding markets well, we can advise on the right funding solution for their type, size and business maturity.” 

This ‘preparation to pitch’ is vitally important today, adds Denning. With technology assisting more businesses to start up and grow, cash-rich funding providers have the pick of a much larger market. “Businesses need to be ready to grasp suitable funding opportunities.”

Poor knowledge of funding opportunities can also lead businesses to unsuitable or unnecessary choices. 

Early stage and fledgling businesses seeking around £50,000 often go to family and friends or crowdfunding without at the same time investigating “the myriad of funding opportunities out there,” Denning noted. “People usually don’t realise how many government grants and sector subsidies there are.”

Mahmood added: “In the technology, engineering, science, and healthcare sectors there are lots of relevant initiatives to help businesses and reduce costs, but many dismiss them as too difficult to obtain.”

Later stage businesses may fail to maximise capital allowance claims, R&D tax credits or the benefits of tax-efficient EIS and EMI incentives – each effectively additional business funding – before seeking external funding. “EIS investment limits are double – £2 million not £1m – for investors in knowledge-based businesses,” Denning highlighted.

Experienced high-networth individuals and sophisticated UKBAA-registered Angel networks may often support funding up to £500,000.  Management team quality and additional boardroom presence are often key requirements within this arena.

Offering support up to £10m, venture capital, private equity, and mainstream debt funding investors tend to focus on the size of the market opportunity. “The VCs are interested in billions, not millions.”  Also, PE usually focuses on profitability, VC on revenue; both will expect strong management, recurring operational success and future potential.

PE and VC houses often agree funding, but then objectively stand back and expect the management team to deliver the business plan during the investment period.

“This is why it is important for those seeking funding to be able to fully explain their business plan, mitigate the risks, evaluate the returns,” said Mahmood.

Achieving international funding, now more prevalent within the Thames Valley, is another learning curve, involving different cultural and commercial appetites, corporate ambitions and currencies – a funding world where well-informed advice is vital. 

With funding often phased over 3-5 years and contingent on a business achieving certain ‘milestones’, MHA MacIntyre Hudson, as a full-service business adviser, is keen to support businesses in the Thames Valley with fundraising as well as providing ongoing advisory assistance to its clients.

 

macintyrehudson.co.uk