Embed Size (px)
Citation preview
‘Let’s get real! – exploring different funding options for
your early stage company’In partnership with CW Business SIG
2
‘The Funding Landscape - the history,
the trends, and the future of
investments’
David Gill, St John’s Innovation Centre
/ Enterprise Europe Network
3
Funding Options for Early Stage Companies
David Gill
26th January 2016
Funding Landscape
• Recap – recent history
• Current trends – moving on from the Great Financial Crash
• Managing without grants?
‘Banking is necessary, banks are not.’ - Bill Gates….in 1994
‘The Second-hand Mortgages Department’
• ‘Financial innovation was critical to the creation of an industrial society; it does not follow that every modern financial innovation contributes to economic growth. Many good ideas become bad ideas when pursued to excess.’
• John Kay Other People’s Money (2015)
• ‘How many other innovations can you tell me that have been as important to the individual as the automatic teller machine, which is in fact more of a mechanical innovation than a financial one?
• Paul Volcker, Former Chairman, Federal Reserve, WSJ 14/12/2009
• ‘If banks don't change, let's change the banks.’• Jack Ma, founder of Alibaba (2009)
Was This Familiar?Why We Are Needed
The UK has the lowest level of business investment of all the OECD countries. The ratio of UK business investment to GDP is 8% compared to over 10% for the USA, Germany and France.
British Business Bank Strategic Plan – June 2014
Capital needs
Maturity/time
SEED START-UP EARLY GROWTH SUSTAINED GROWTH
HIGH RISK
LOW RISK
Co-investment Funds
Business Angels
“Real” Venture Capital
ExitIPO/Trade
Sale
PRE-SEED
Friends, Family,
Neighbours
The Funding ‘Ladder’
Seed/ Hybrid Funds
Expansion Capital
Bank Finance
Grants
“Valley of Death”
UK VC Investment by Stage – 2006-14 (£M) [BVCA]947
434
359
454
313
347
343
298
293
1836
1137
2968
1070
1653
1657
1471
685 8651132
2269
1110
486
987 12
85
1133
1064
305
5270
7520
3134
1751
4752
2950
2677
1840
2980
1042
212
1886
1029
533
304
143
223
276
2 006 2007 2008 2009 2010 2011 2012 2013 2014
Early/Venture Expansion Replacement MBO/MBI OtherLateStage
0
5
10
15
20
25
30
35
40
4.6
39.2
19.1
14.5 14.2 15.1 15.4
4.8
15.6 14.9
7.7
10-year Returns to End 2014 (IRR%) [BVCA]
Some Failure Inevitable, but:
“The failure of a single crowdfunding project or even of a peer-to-peer lending platform will be bad news for some investors, but it will be a drop in the ocean compared to the fall-out and systemic shock from the failures we’ve seen in the last decade in the mainstream financial sector.”
Stian Westlake
www.nesta.org.uk/news/2015-predictions/bust-funded-crowd#sthash.BEZcU0S4.dpuf
Angel Tax Breaks
• Seed (50%)/Enterprise (30%) Investment Scheme
• Set investment against income tax liability and
provide capital gains incentives
• Trade off uncertainty for tax benefit
• UK experience:• Angels = 3x venture funding at early stage
• 82% of angels used tax schemes
• 57% of investments made under tax schemes
Not a grant scheme but corporation tax relief
• For all companies with qualifying R&D revenue expenditure
• Allows 225% (SMEs) or 130% (large companies) of R&D expenditure to be deducted from profits for tax purposes
• For capital R&D expenditure, 100% capital allowance possible
• Some SMEs not in profit can surrender R&D tax losses for cash
• BUT: grants can reduce the amount of eligible R&D expenditure or deduction percentage, sometimes to zero
R&D Tax Credits
Patent Box
Favourable company tax regime for Intellectual Property
• Tax rate 10%, phased in over 5 years to 2018
• Company must own/have exclusive rights to IP• …be exploiting the IP commercially
• Complex, multistage calculations
• For new and existing patents
• Includes profits up to 6 years before grant
• Must have robust accounting systems
• EU restrictions to ‘home’ country profits only
See Also: Corporate Investment
Many large corporations have investment funds• Act like VCs; ring-fenced activity, strong sector focus• Unlikely to create conflicts of interest• Will have a clear process and ‘rules’
Some SMEs may act like private investors• Directors/shareholders interested in opportunities
they understand • Have synergy with their own business
Finding corporate funds is easy, finding strategic fit takes initiative
Better: Enterprise Capital Funds
• Public-private vehicle from 2006, 18 to date, £620M
• Min 33.3% private funding, eg £13.33M of £40M fund• Priority govt return ± interest charged on drawn capital
• Then capital repaid to all investors
• Then profits to private investors, with govt ‘override’
• No additional tax breaks
• Rules focus on funding-gap investment
• Some ECFs have ‘active angel investor’ participants
Worse: Comprehensive Spending Review
‘Innovate UK to convert £165 million of its grants into loans or other new financial products by 2019/20.’ 25/11/2015
• Details lacking…like student loans?
• Grants as means of making investment go further
• Grants as validation
• A step removed from the funding ladder?
Development Stages & Funding
Initial Ideas Feasibility Prototyping Deployment
Own cash; friends, family & supporters
Grants (Government, EU, Foundations) Bank Loans
Business Angels
Venture Capital
Consultancy or other earned income to live on
Sales!
19
We help ambitious businesses to innovate and grow internationally:
Partnering: Finding commercial, technology development and research partners Access to Finance: Helping business to access funding through Innovate UK competitions and European finance programmes including Horizon 2020Innovate2Succeed: Bespoke programme of coachingNetworking events: Focused around accessing financeEuropean Information: eg. VAT, EU Policies and Directives, EU LegislationPublic Procurement: Public procurement rules, tenders alerting service
Your voice in Europe: EU consultations, feedback mechanism relating to EU policies
Enterprise Europe Network Services
20
‘Crowdfunding: supporting entrepreneurs
for years to come’
Goncalo de Vasconcelos, SyndicateRoom
Crowdfunding goesMainstream
Goncalo de VasconcelosCEO and Co-Founder
@SyndicateRoom
@GoncaloTV
SyndicateRoom
Why we started?
@SyndicateRoom
Why SyndicateRoom started
Company-ledCrowdfunding
Why SyndicateRoom started
Investor-ledCrowdfunding
Company-ledCrowdfunding
Why SyndicateRoom started
Investor-ledCrowdfunding
Company-ledCrowdfunding
@SyndicateRoom
The Investor-led Model
Sophisticated Deals
Sophisticated Investors
Professional Investors
Crowdfunding myths
@SyndicateRoom
Process
► It’s easy
► It’s dumb money
► It’s quick
► Therefore I’ll get on with it at the
last minute
Sectors
► It’s for breweries and
restaurants
► The crowd won’t understand
what my company does
Amounts
► It’s all about £10 investors
► I don’t want them in my cap
table
► I don’t want a long cap table
Investment
► No business angel / VC will
touch this but the crowd will
never know
► I can raise money and do
whatever I want with it
Crowdfunding 2.0
so much more than restaurants and breweries
@SyndicateRoom
Sophisticated Deals
£1.8m
£1m
£1m
£1.9m
Sophisticated Deals
£1m
£1m
£1m
£2.3m
SyndicateRoom
Achievements
@SyndicateRoom
SyndicateRoom achievements
► +2 years
► +70 British companies
► +£40m
► Average investment
► Over £15,000
► Average funding round
► Over £600,000
► Better for entrepreneurs:
► +80% of deals successfully
funded
► Better for investors:
► 2 failures out of over 70
companies
The first and only crowdfunded AIM IPO
in the world
“Cambridge-based SyndicateRoom Makes AIM History”
“SyndicateRoom is the first company to harness investment both from private investors via crowdfunding and institutional buyers for its IPO.”
SyndicateRoom vision
@SyndicateRoom
A million people 1,000 great companies
Investing £1bn / year
Disrupting today.
And tomorrow.
www.breedreply.com
Matthew Scherba
Cambridge Wireless – Start-up Funding SIG
Start Me Up
Accelerators vs. Incubators
• Central workspace
• 6-12 mo+ programme / support
• Early stage+
• Office space / infrastructure
• Mentor/coaching – entrepreneurs/investors
• Larger initial equity investment (venture)
• Fund-raising assistance
• Fewer companies
• Central workspace
• 3-4 month program
• Primarily early stage
• Office space / infrastructure
• Mentor/coaching - entrepreneurs/investors
• Smaller initial investment
• Angel funding assistance
• More companies
Differences?
Accelerators Incubators
Funding Lifecycle
Grants
Crowd
Loans
Banks
Suppliers
The Statistics
• 400k new UK businesses in 2012*
• 20% fail in year 1
• 50% fail by year 3
Reasons
• Business Plan
• Management
• Business Visibility
• Competition
• Legislation
• 92% survival when involved with a
programme**
*Bis.gov
** Wayra
Where Are They?
Over 60 UK start-up programmes
• London (12 incubators, 24 accelerators)
• Birmingham
• Cambridge
• Edinburgh
• Glasgow
Incubators
• Breed Reply
• Set Squared
• Imperial
• Mewe 360
• EcoMachines
• London City
Accelerators
• Techstars
• Wayra (Telefonica)
• Microsoft Ventures
• HAX
• Y Combinator
Corporate
• Virgin Media
• Barclays
• John Lewis
• Red Bull
• AstraZeneca
Who Are They?
Universities
What makes a good IOT start-up?
Management team
Vision
Business model
Addressable market
IP?
Competitive advantage
Market Buzz
It Depends…….
Funding
Seed and Early stage
Tailored support
Duration
Go-to-market
Commitment
Amount
Conditions
Smart Money
Runway
Duration
Location
Strategy
Management
Sales & Marketing
Technology
Office space
Ecosystem
Presence
Vertical market
sectors
Next Round
47
‘Early Stage Companies, can your bank
help with funding?’
Mark Wiseman, Barclays
Early Stage Companies – can
your bank help with funding?
Headlines• Banks want to lend money to help businesses grow.
• Funding for working capital, international trade,
asset purchases, owner occupied premises.
• Normally be secured lenders.
• No appetite to fund equity.
• Need to show current demand, sales revenue,
profits and cash to evidence debt serviceability.
• Trading losses, owners drawings - responsibility of
owners.
• Bank’s responding to needs of customers and
finding ways to support earlier.
Are you ready to talk to your Bank?
Many sources of potential funding.
Banks will look for similar things to other financiers:
What you need to impress your Bank:-
An effective management team
A healthy balance sheet
Proper accounting and documentation
A business plan including risk assessment
Demonstration of current demand
Third party interests
How Bank’s look at lending requests
Bank needs to see:
• Financial Trading Accounts
• Management Accounts
• Business Plan
• Financial Forecasts
• Budget Planner
• Statement of Assets and
Liabilities
• Bank Statements
Tools to help at barclays.co.uk/lendingkit
How Bank’s look at lending requests
C Character
A Ability
M Margin
P Purpose
A Amount
R Repayments
I Insurance
Some things you may not know
Many existing customers have pre-assessed limits.
Your Bank Manager will want to help, stay close.
You may be eligible for:
Enterprise Finance Guarantee (EFG)
Can be used for those who have a viable lending proposition but lack the
necessary security the bank require in order to lend.
Government provides bank with 75% Guarantee.
Borrower still liable for the full loan.
Fee payable for guarantee, generally 2% per annum.
Loans up to £1.2 million, with a choice of terms.
Something else you may not know?
You may be eligible for other schemes.
eg European Investment Fund Loan
• Fund innovative companies with high growth potential.
• Bank will need to see current demand, profits or clear path to profits on back
of secured contracts.
• Bank funding in after Angel Investors
• Purpose – working capital, investment in assets.
• Loan sizes from £100,000 to £5,000,000
• Loan term up to 10 years.
• EIB Guarantee for 50% of loan losses.
• Fee payable on the guaranteed portion of the loan.
Case Study
Consider Company XYZ Ltd
• Young business, raised equity from external investors.
• Rapid sales growth, doubled in each of last two years.
• Small number of blue chip customers.
• Loss making in each year.
• Forecast to be profitable in next 6 months.
• Loan requested to fund working capital – acquire new stock and
growth in debtors generated by increased sales.
• Bank was able to support.
Disclaimer
"The views and opinions expressed in this presentation do not
necessarily reflect the views of the Barclays Bank PLC Group nor
should they be taken as statements of policy or intent of the Barclays
Bank PLC Group. The Barclays Bank PLC Group takes no
responsibility for the veracity of information intimated by a third party
and no warranties or undertakings of any kind whether express or
implied, regarding the accuracy or completeness of the information are
given. The Barclays Bank PLC Group takes no liability for the impact of
any decisions made based on information contained and views
expressed in this presentation or article”
57
Open forum debate with all speakers and
Peter Hiscocks, CEO of Executive
Education at Cambridge Judge Business
School
