Branching out. How Growth Capital can seed success. Review 2012/13

What would you do with £2–10m of growth capital?0845 266 8860

www.businessgrowthfund.co.uk

£2m, £5m, £10m?Well, we could recruit the

extra talent we need.Develop those new lines

we’ve been talking about.Streamline the supply chain.We could expand into China.

India. Maybe America.We could even acquireour biggest competitor.That’d turn ‘steadynational growth’ intoworld dominationpretty quickly.There’d be no stopping us.If only...

0 2 I N V E S T M E N T C R I T E R I A

0 3 C H A I R M A N ’ S S TAT E M E N T

0 4 F A C T S & F I G U R E S : B G F I N N U M B E R S

0 6 C E O ’ S R E P O R T

0 8 T H E C O N V E R S AT I O N : F U N D I N G A LT E R N AT I V E S F O R U K S M E s

M O V I N G F O R W A R D : H O W G R O W T H C A P I TA L C O U L D W O R K F O R Y O U

1 4 R O L L I N G O U T T H E S I T E S

1 6 C A P E X T O B U I L D G R O W T H

1 8 S T R AT E G I C A C Q U I S I T I O N S T H AT D E L I V E R

2 0 S A L E S & M A R K E T I N G

2 C O R E P R O D U C T & N E W P R O D U C T D E V E L O P M E N T

P A R T N E R I N G G R O W T H : H O W B G F W O R K S W I T H Y O U

2 6 TA L E N T N E T W O R K

2 7 Q & A : R A L P H K U G L E R

2 8 Q & A : K E I T H J O R D A N

3 0 I N V E S T I N G A C R O S S T H E U K

3 2 W H E R E W E F I T I N …

3 6 T H E B O A R D

3 8 T H E P O R T F O L I O : O U R I N V E S T M E N T S S O F A R

Contents

R E V I E W 2 0 1 2 / 1 3 01

What we do� We are looking for management teams with a good

track record, a proven business model and a desire to grow

� We initially invest £2m–£10m of growth capital for a minority equity stake and a board seat

� We back privately owned, profitable companies typically with a turnover of £5m–£100m

� We invest from our own balance sheet so have the flexibility to meet your needs, and we can also provide further funding as the company continues to grow

� We offer long-term funding of up to 10 years, developing a meaningful partnership based on shared goals and objectives from the outset

� We invest in all business sectors with the exception of financial services and property

� We have a strong local approach. With seven offices across the UK we strive to be close and relevant to the businesses we invest in

Our process� We provide early feedback and if we cannot invest

ourselves, make practical suggestions for alternative options

� We undertake due diligence on all investments, but we make this streamlined and cost effective by being very focused

� We can structure our investments in shares and/or loan stock (with an option in some circumstances), and we will consider an element of cash-out from our investment for existing shareholders

� We are transparent in our legal process and we adopt the same legal terms and documents for all our investments, which we are happy to share with lawyers across the country

� Typically a three-month process: 4–6 weeks to understand your business and funding needs, and 4–6 weeks to complete our investment

With £2.5bn of capital, BGF is a major new equity investor for growing British businesses

I N V E S T M E N T C R I T E R I A02

2013 is BGF’s second full year of operation, and I believe that we are now beginning to establish ourselves as a noteworthy element in a broadening funding environment for ambitious UK businesses. I am proud of what we have achieved so far, but BGF was never intended to be a quick fix; BGF is not a short-term solution to immediate problems. We now have the capability to invest up to £200m a year. To achieve that, we need to create awareness to stimulate demand, whilst looking at how we do business to be as efficient and easy to work with as possible. The key objective is to accelerate investment. In time, I believe that BGF can be a very important catalyst for the economy given its potential scale, geographic coverage and focus on growing SMEs.We have all been working hard to put in place the necessary building blocks.Internally, BGF has assembled a passionate and highly experienced team, committed to supporting ambitious British SMEs. Working as a single national team, they are still able to operate at a very local level, relevant to the businesses we want to support and engaged with the communities in which they live and work. Towards the end of 2012 we opened our seventh office, in Leeds. This decision was not through some misplaced desire to put flags on a map, rather it was a simple recognition of the opportunities we are seeing in the Yorkshire region. In fact we are seeing exciting and growing companies across all regions, as recognised by our High Growth Firms Barometer on the following page of this Review.It is no use having the right product, if nobody knows you exist. The team has also been working extremely hard get our message out to

entrepreneurs and to the banking and business services community that supports them. It is important to remember that BGF didn’t exist two years ago. We launched against a backdrop of new public and private sector funding initiatives. Some, like BGF, were intended to become new long-term solutions; others have already been and gone. New ideas were needed, and new initiatives and alternatives are always welcome. But it has meant that at times we have had to shout hard to be heard. In many ways we have not only had the job of launching a new brand – BGF – but we have also been re-launching the British growth capital industry. This is a work in progress, but I believe that we are beginning to win that battle. Our name recognition is rising. One measure is the number of unsolicited enquiries we receive every month by telephone and email. Just as importantly we are building a strong reputation for honesty, integrity and for delivering on our promises.All marketing people will tell you that word-of-mouth is the most powerful form of promotion. With every management team we invest in I like to think that we are also adding a new group of super-ambassadors to the team. I would certainly like to thank the CEOs that we have backed so far, for the time that they have taken to help explain what BGF can offer and answer the questions of fellow business owners. You can read about some of them in this Review, and if you want to know more have a look at our website. In my mind these men and women are real business heroes – taking ideas and ambition, and creating new jobs and delivering growth, in a whole variety of sectors and all across the country – exactly what our economy needs. We have also spent time making sure that we complement the UK’s existing investment industry. Through our co-investments, work with the fast-growing angel community, with trade associations, business organisations, government and, of course, with the UK’s extensive financial services community, we have shown that BGF can play a significant role on its own and as a partner, providing support and funding for companies on a national level in a way that has been lacking for a number of years. My ambition for BGF is so much more than just the sum of the companies we invest in. For example, whilst we simply can’t, and don’t, invest in every company that with whom we meet, I believe that we do have a duty to help them in any way we can. That could be suggesting an alternative funding provider such as an angel, a VC or PE house, or it could simply be pointing them towards an adviser or potential non-executive director who could help turn their potential into an investable proposition. It is the right thing to do, and who knows we may find that we want to invest in years to come. BGF is one of the most exciting opportunities I have had during long career in industry and commerce, working with some of the UK’s largest and most well-known businesses. I became involved because I firmly believe that the UK needs a new approach to funding small companies; one that starts with the businesses’ needs, not the funders’; one that is less self-serving and more supportive. That is why it is important that we challenge existing norms. BGF should genuinely add to the funding landscape, not simply ape others and operate at the fringes. We need to be bold if we want to encourage SMEs to take those crucial steps towards accelerating growth by investing now, forging new partnerships, and building the successful household names of the future.

Branching out by Sir Nigel Rudd

C H A I R M A N ’ S S TAT E M E N T 03

BGF in numbers

3,469

361.7m

People working within BGF portfolio

companies

Combined revenues of the BGF portfolio

(£)

22 days4The fastest BGF deal

completed in

Number of co-investments made by BGF

45Average age of portfolio

CEO

2.25m Smallest

single BGF investment

(£)

4.8m Average

investment size (£)

10m Largest

single BGF investment

(£)

10.2m Median turnoverSmallest (c.£2m)

and largest (£86m)

19Portfolio

acquisitions

10

19

277

8

76Countries

worldwide BGF portfolio is

exporting to

Awards won by portfolio companies

or management team

Non-execs appointed through

BGF Talent Network

New jobs created via BGF

investment

Average age of BGF portfolio

company

Consumer Manufacturing

Industrial Manufacturing

Business & Support Services

Telecom- munications

Media

Consumer Services & Leisure

Technology

Healthcare

8Number of

different sectors BGF has

invested in

F A C T S & F I G U R E S04

Total4,353

Despite challenging macro-economic conditions, there

are currently 4,353 mid-sized SMEs demonstrating high levels of growth across

the UK, according to Experian research commissioned by BGF. This is an uplift

of 9.4% compared to this point last year.

17.5% of an overall population of 24,955 UK companies with a turnover of £2.5m–£100m can be defined as high growth: recording aggregate growth of at least 33% in

the last three years.

Of the high growth companies identified, those with turnovers of between £2.5m–£10m continue

to perform most strongly. 51% of the high growth segment or 2,202 companies

had turnover of less than £10m.

Similarly, almost all industry sectors showed some increase

in the proportion of high growth small and medium sized companies. Business services companies continue to be the

best represented among the high growth segment, with 1,095 companies making up 25% of the total group. 20% of the high-growth segment (859 companies) is represented by Manufacturing, and Retail occupies 11%, with 478 high

growth companies identified.

Whilst London and the South East

remain particularly strong, the Barometer shows a greater incidence of high

growth companies in almost all regions of the UK, and notably Yorkshire and the

West Midlands.

HIGH GROWTH

FIRMS BAROMETER

1,082

2.5m to5m

£ 5m to

10m

1,120

10m to

20m

937

20mto

50m

937

50mto

100m

372

High Growth 2010/11

Ag

riculture

PublicC

onsumer Services

Property

Finance

Business &

Support Servi

ces

Tran

spor

t

Retail

Wholesale

Construction

Man

ufac

turin

g

High Growth

% Sector

Since this Barometer was published last year,

the picture is one of overall growth increase, albeit it at a

gentle level. It continues to show that growing companies can be found in a diverse range of industries and across all

regions of the UK.

2007 2008 2009 2010 2011Scotland 361 386 281 199 224 North East 126 135 109 81 80 North West 431 444 368 315 320 Yorks & Humb 365 372 278 219 269 East Midlands 335 333 231 167 194 West Midlands 390 404 294 181 249 Wales 137 150 112 88 85 East Anglia 527 576 445 343 358 South East 1,128 1,174 889 669 711 London 2,058 2,186 1,801 1,442 1,619 South West 391 399 302 241 244 Total 6,249 6,559 5,110 3,945 4,353

F A C T S & F I G U R E S 05

Growth Capital Is it what your business needs? by Stephen WeltonIn this year’s Review we ask a simple question: Is growth capital what your business needs? It is a question we ask business owners every day. Not everyone can answer it immediately. Let’s face it, and there is nothing to be ashamed of here, not everyone knows what we mean when we talk about growth capital. And that highlights a failing of the investment industry. Unconsciously, and sometimes consciously, over the years investors have created a language and process for raising money that ends up alienating and excluding the very people that they want to attract. This Review is a conscious attempt to break that mould. At its simplest the growth capital we provide is long-term, patient equity funding that the management team use to execute their strategic plans. Businesses need to be adequately capitalised because not many lasting successes are built on debt alone. This is one of the most enduring lessons of recent years. Part of BGF’s role is to help companies find the optimal financial structure for their business which sensibly weighs up risk, investment and timeframe against the strategic objectives laid out in a corporate plan.That is what growth capital is, but in this Review we want to focus on what growth capital can do for a business. When you know what it can do, then you can decide whether it is what your company needs. Would you like to acquire part of your supply–chain or even a competitor? In September last year we provided £7.25m to SkyDox, a London-based provider of cloud-enabled document collaboration software, to help them acquire Workshare, a document comparison and policy management business, with a strong position in the legal sector in the US as well as the UK. The combined business

goes from strength to strength. Growth capital can fund a site roll-out for a growing restaurant or retail group, as it is for five of our portfolio companies: Barburrito, Boost, Camino, Peyton and Byrne and Shuropody. In every case the management team came to us with a proven business model, lots of ambition and above all a backable plan. Likewise, the new money could be used for product development, for purchasing significant new capital assets, or for building the sales and marketing infrastructure a business needs to fulfil its potential. BGF companies are already selling goods and services to over 75 countries across the world and we know there is plenty more to come. What is growth capital? It is what you make of it. If you have a good business, real ambition and a good strategic plan, additional expansion capital could be exactly what your business needs. In January 2012 BGF began its first full year of operation. We set ourselves the challenge of becoming one of the most active investment institutions in the UK. I am delighted to say that we have made good progress towards this goal. At the end of December we had provided more than £100m of growth capital to 21 more great businesses, significantly expanding the level of investment going into the UK SME sector. These investments were made across the country, in companies employing just 11 to over 600 people, and in 8 different sectors – from healthcare to oil & gas services, and from leisure & hospitality to IT & telecoms. Good progress, but I am the first to recognise that we have only just started; there is so much more that needs to done. What we can say with certainty, however, is that there is genuine demand for the long term growth capital that BGF supplies. When we launched we were asked whether we were in danger of being a solution to a problem that didn’t exist. It did. And it still does. Our investment activity should be seen in the context of a growth capital industry that has historically only made around 60 investments a year. So it is fair to say that until now there simply has not been enough capacity to create profile and momentum for minority stake equity providers, and therefore, to see the market expand. Yet there are nearly 25,000 companies with a turnover of between £2.5m and £100m, and nearly 5,000 of them have reported sales growth of over 30% in the course of the past three years. And we know that sustained growth requires more money. Our own experience also bears this out. In the past 18 months we have started a dialogue with literally hundreds of entrepreneurs, and as our awareness and reputation builds we are seeing more and more enquiries and referrals every month. So there is genuine demand for long term capital, and with up to £2.5 billion committed by our bank shareholders, we are not constrained in our potential supply of funding. Our challenge then, is to convert the demand. We want to expand the market. We want to see more companies considering and taking growth capital, and more investors providing it. One of our key objectives this year is to introduce BGF and the idea of growth capital to hundreds of new companies; building our investment pipeline for future years. Our competition doesn’t come

C E O ’ S R E P O R T06

“…There is genuine demand for the long term growth capital that BGF supplies. When we launched, we were asked whether we were in danger of being a solution to a problem that didn’t exist. It did. And it still does.”

from other institutions; it comes from the business owners opting not do anything at all. That is what I mean by converting demand. We see and hear lots of reasons from entrepreneurs for not raising money today: macro-economic uncertainty – from the Eurozone to Chinese growth trends; a fear of losing control of their business; not being “investment ready”; not sure where to get help or who to trust; and raising money costs too much, takes too long and is too disruptive. I’m afraid we cannot really do anything about the global economic climate. Like everyone else we can only focus on those things we can control, and remind ourselves and those that we meet that some of the world’s most successful companies were founded and made their name in the toughest of economic times. In those areas we can affect, however, we have worked hard. We have dramatically reduced the time and the costs associated with raising finance. The quickest investment this year was made in less than 4 weeks from agreeing heads of terms to final completion. We can’t manage that every time – but we try hard and we often come close. Our due diligence is proportionate, and the costs are therefore significantly lower. Remember, we only ever take a minority stake, the business owner retains control and the majority ownership. And we are working hard, directly with business owners, and in partnership with the UK’s extensive advisory community, to promote better financial understanding and help companies prepare themselves to attract investment. One of the critical ingredients to converting demand is a good and credible business plan. In other words, what are you going to spend the money on? We have continued to develop our infrastructure as we recruited additional experienced investment professionals and opened our seventh office, in Leeds. Today we can boast a very effective platform around a strong local network and the basis of a scalable business model. Of significant note in this regard I would highlight: the recruitment of John Swarbrick as Head of Portfolio, completing the senior leadership team; the roll-out of a new CRM system, and overall IT infrastructure development; the steps we have taken to build an effective and best-in-class risk and compliance framework in what is still a very young organisation; and the strength of BGF’s own culture, mission and ethos. We have a committed and passionate team. Growth capital by definition is a long term investment. We need to show that we can build a volume investment business in a way which manages risk, provides the support and services that our investee companies require and ultimately delivers a return for the owners of these companies and for our own shareholders. The organisation and infrastructure we have built thus far is encouraging, and our approach is driven by a combination of experience and a real drive to create a new model. In order to achieve this goal we need both sufficient scale and diversification, in terms of company size, stage, sector and amount we invest, to ensure our risk is appropriately balanced. This is no easy task, and this is not a short term project. Whilst we undoubtedly made much needed progress in 2012, we are under no illusions that there is still a lot more to be done – and this is our focus for 2013.

C E O ’ S R E P O R T 07

Tim Breedon & Stephen Welton The Conversation: Funding alternatives for UK SMEsTIM BREEDON: Tim Breedon is the former CEO of Legal & General Group. He has served as Chairman of the Association of British Insurers, and a Director of both the Financial Reporting Council and the Investment Management Association. In 2011 he was asked to chair the UK government’s Non-Bank Lending Taskforce, an industry-led team that looked at the structural and behavioural barriers to the development of alternative debt markets in the UK. The “Breedon Report” was published in March 2012; Government and industry are currently seeking to enact many of its recommendations.

STEPHEN WELTON: CEO of BGF

T H E C O N V E R S AT I O N08

T H E C O N V E R S AT I O N 09

Stephen: Your report last year looked at non-bank lending. Do you think there has been too much focus on the major banks?Tim: The political and media focus had certainly been on banks, and possibly rightly so. But you are right; I thought it was important to take some heat out of what is still a very highly charged debate. First of all we tried to establish the nature and the scale of the problem we actually face. What is the shortfall in lending? Is this a problem of demand, or supply? And how is this problem likely to develop over time? I wanted to get beyond the blame game.The debate had become dominated by political rhetoric – and that undermines confidence, and then itself becomes part of the problem. Stephen: I think it still is, but at least an alternative and more constructive debate about what we can be doing is now happening – albeit quietly – alongside. Tim: Yes. It is certainly true that banks’ lending to SMEs has fallen … but it is also the case that demand for funding from businesses is down, and that is principally because of a lack of confidence in the broader economy and … a lack of ambition or drive from the companies themselves?It is well known that SMEs are currently net depositors with the banks. They are collectively sitting on records amounts of cash. But maybe – when the media and public policy agenda is dominated by austerity and bad news – it is rational to be risk averse. That doesn’t mean we shouldn’t be trying to change that. We need to provide the support, advice and confidence that businesses need to make them want to invest. Because not only are cash deposits at a record high, investment by small businesses is also at a near record low.Stephen: Yes – history tells us very clearly that what is arguably a rational approach in a gloomy economic climate, is storing up trouble for tomorrow. Under-invested companies will suffer ... and more than that they are simply missing so many fantastic opportunities to grow.Do you think much has changed since the Report was published?Tim: I do. At a macro level I am actually quite positive about the economy, and SMEs in particular. Stephen: I agree. It is very easy to paint a picture of doom and gloom – but we are seeing lots of growing and successful small businesses, strong pockets of growth and a new, emergent entre-preneurial spirit in the UK. We are also seeing a greater willingness to engage with different funding sources, and lots of product inno-vation from new entrants, as well as from the traditional banks.Tim: The call for more competition is interesting. I don’t believe we simply need more banks. We don’t need lots more institutions processing payments, holding retail deposits etc. What we do need is more alternatives for SMEs looking for finance. That means more competitive and alternative products … and these don’t all need to be provided by fully fledged banks. Stephen: You have also seen some progress on some of

the specific recommendations you put forward. Not least the proposed Business Bank … of which I am very pleased to have been asked to sit on the Advisory Group charged with helping to establish it.Tim: The Business Bank could be really important. It could make a real difference. In general I think we are beginning to see a more mature, more evidence-led debate. We have made some progress on advice, on supply-chain and invoice financing. And as you say we have, in the shape of the putative Business Bank, a new institution which could potentially take forward some of the ideas to encourage new institutional investment into UK SMEs.Stephen: Support and advice is an interesting area. I am constantly surprised by the number of businesses that don’t have a strategic plan. They have an idea, they have a sense of what they want to or could achieve, but they don’t have a plan. It isn’t written down and they find it difficult to articulate. It can be hard to

invest in that business! Tim: That is why advice is so important. One of our recom-mendations was a Business Finance Advice Scheme. This has been enthusiastically picked up by the accountancy profes-sion … small companies in par-ticular need help and guidance in getting the best out of a more diversified and complex financing landscape.Stephen: The Report talks about businesses needing to be “enabled to be better consumers of finance”. Advice is a big part of that. And companies need advisers to talk in a language they under-stand. Too often finance people talk down to companies. If you

can’t understand something an adviser or investor is saying, either it’s not being explained properly or they don’t want you to under-stand it. And business owners won’t put up their hand and say: ‘I don’t understand’. Tim: The other component of advice is simplicity … I think the proposed Business Bank has a real opportunity to play an important role here. It can also do a lot more besides. I am very interested in how it might aggregate SME loans and so enable and encourage some of the UK’s major financial institutions such as insurance companies and pension funds, to invest in SMEs.Stephen: I hope so. There has long been talk about establishing a bond-market for UK SMEs. There are many issues, lots of challenges involved with getting this up and running … but I think the Business Bank could prove to be a real catalyst in this regard.Tim: Absolutely. In the round, we definitely have the potential to see the emergence of a more diverse, vibrant environment for UK business; banks of course will remain very much at the core, but businesses of all sizes should be able to make an informed and rational choice, based on readily available advice, across a range of potential instruments and funding mechanisms. Stephen: It is interesting that you say that businesses should be

Tim: …Across the UK SME sector there is an artificial, subjective, growth ceiling. One of the problems is that businesses don’t know who to

turn to.

T H E C O N V E R S AT I O N10

able to make informed choices. For SME businesses, decisions are ultimately made by one person – the CEO, founder and main shareholder – all in one. Tim: True. These individuals are sometimes not as knowledgeable as they need to be. And sometimes they are not as tenacious as they need to be, or we might want them to be. For the Report we asked companies how many different options they looked at when they were seeking finance. The majority that took an idea to the bank – and had their request for funding turned down – didn’t then look anywhere else. They simply walked away. They gave up. Stephen: Perhaps they didn’t know where else to go. Or they feared going anywhere else. There is a general lack of trust across financial services. Tim: Our research also revealed that where companies did look beyond the traditional banks and products, especially overdrafts, there is an expectation that alternative funding sources will come with some element of grant or subsidy. Stephen: Companies require different types of support and different forms of funding at different stages in their growth. If you better understand where you are on that trajectory, you will understand the risk and return and the opportunity you present to a potential funder, and then you will have a much clearer sense of who to look to for funding, and how to approach them. Tim: I think this tells us a lot about the way in which our small businesses work and think. In recent years, for SMEs there has been a fixation on debt, and on bank debt and on overdraft facili-ties in particular. I can understand this; it was cheap and plentiful. Stephen: We see this, a lot: companies that have grown by using and extending their overdraft facility. I think some entrepreneurs even began to use the size of their overdraft facility as a measure of their current success – and then as a signal for how confident they can or should be. “If the bank is confident enough in me to double the size of my overdraft, maybe I should be confident enough to use it”. Conversely today – when many of these companies have seen facilities reduced, sometimes halved – the entrepreneurs are reading a signal that says now is not the time to take any risks? Of course the truth is that the overdraft was probably not the optimum way to finance their business then, and it certainly isn’t the best or only option to be looking at today.Tim: Yes … the challenge we face is about demand as much as it is about supply … in fact much more so. Why aren’t companies investing? It is a lack of confidence. We need to encourage businesses to want to invest.And we are not doing that. In fact there is a sort of indirect discouragement … a belief that the bank are likely to say no, and that simply asking the banks for anything at the moment is not a good thing to be doing. That needs to be reversed. Stephen: The crisis here is not really a lack of capital. It is one of missed opportunities. Of companies deselecting themselves.

Tim: Government can play a role here too. Maybe through the Business Bank, maybe something else. But it does need to be something that sounds positive … that sounds friendly and that encourages companies to be confident themselves.Stephen: Whatever it is also needs to be properly promoted. My sense is that a lot of good initiatives have underperformed not because they were poor ideas or poor policy, but because business owners didn’t know about them. Promoting new products, and building new brands takes time and takes resources … but it needs to be done.Tim: I have always believed that government can play a role, and that well targeted interventions can help. Stephen: Your report also considered the practical steps that big business can take in procurement and prompt payment to support UK SMEs. Do you see progress here?Tim: I want SMEs to consider funding as part of their supply chain. They need to manage the way money flows “down” to them from

the banks, from investors, and from customers, just as effi-ciently as they manage the flow of materials and products from other suppliers. We need to apply the science and the partnerships of supply-chain management to the way we finance companies. We’ve just been talking about how many small companies rely on their overdraft to absorb the impact of short term fluc-tuations in sales. If we could free up some of that headroom, not only would it release immediate capital, it would also increase their propensity to invest. Prompt, certain payment and greater use of supply chain financing could make a huge difference. The Government are working hard to

get larger companies to sign up to a prompt payment code. I hope more can be done in this area.

Stephen: There is a lot going on, and my sense is that there is a new, and real, focus on small and mid-sized

companies. Tim: I’m optimistic and enthusiastic. Things are changing. The

economy is not as bleak as some people want to paint it, and it is already evident that small companies have a greater range of funding sources than ever before. BGF is a very good example of just that, and I am hugely encouraged by what you are doing.Stephen: Thank you. We are certainly positive. It is really important that we present the different routes open to SMEs, so there is real choice and higher awareness of what options exist. Equity investors, like BGF, need to work hard to explain what they offer and to earn the trust of business. And businesses themselves need to put aside some of their preconceptions, even miscon-ceptions, about equity and other non-bank finance and have the confidence to plan for growth with an informed and open mind. We need more collaboration and co-operation. That will generate greater confidence. And, as you say, it all starts from there.

Stephen: …We are also seeing a greater willingness to engage with different funding sources, and lots of product innovation from new entrants, as well as from the traditional

banks.

T H E C O N V E R S AT I O N 11

12

Moving forward: How growth capital could work for you

13

Two years ago, Richard O’Sullivan, the managing director of Boost Juice Bars, realised he had a problem. His ten-strong chain of juice and smoothie bars was trading strongly despite the recession, as it capitalised on booming consumer demand for healthier products. And having previously built up one retail business, Millie’s Cookies, to 100 stores before selling up for £24m, he recognised he had another potential smash hit. The question was how to fulfil that potential.“We felt the opportunity was rising all the time but our ability to fund that was definitely challenging,” O’Sullivan explains. “With four years of trading behind us, we knew our original business plan was going to be delivered and we had the ambition to do much more – it just wasn’t going to be possible to realise it with our finances as they were.”O’Sullivan considered the best way forward culminating in Business Growth Fund investing £2.5m in the business in December 2012. The money has enabled O’Sullivan to begin turning ambition into reality.“We’ve been able to turn on the hosepipe, not least because the money has given us real credibility when we talk to landlords about securing leases” he says. “We’ve already got four new stores at the final stage of legal discussions and we expect to add ten more in each of the next three years; we could never have contemplated that sort of growth prior to this funding.”Andy Gregory, a regional director of BGF, led the engagement with Boost and has taken a seat on the company’s board. The dilemma facing O’Sullivan is, he says, common amongst fast-growing retailers and leisure businesses, which often don’t generate sufficient cashflow to realise their potential. Bank debt may be a solution, where it is available, but, Gregory argues, it’s not well-suited to businesses looking to fund an aggressive roll-out of new sites. “Equity is a better source of growth capital for businesses in this position because it provides a more stable platform,” he says.“Roll-out programmes often don’t work out as expected, so you need balance sheet security in order to get past any nasty surprises. Debt may require you to accept covenants that mean you could lose the business if the roll-out programme goes wrong, but equity puts a slug of long-term capital into the business so you can take your time preparing to make the leap and then really go for it.”

Rolling out the sites

“Roll-out programmes often don’t work out as expected, so you need balance sheet security in order to get past any nasty surprises…equity puts a slug of long-term capital into the business so you can take your time preparing to make the leap and then really go for it.”

� Barburrito

Camino �

� Shuropody

� Peyton and Byrne

� Boost

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Oliver Peyton, the founder of Peyton and Byrne, recognises this analysis. With three strands to his company – a chain of restaurants, a business offering catering services to iconic venues and a growing string of bakery and café outlets – he too found himself struggling to capitalise on the potential for growth.“We felt we were at a turning point where we had to decide whether to really go for it,” Peyton says. “When you reach a certain scale, your growth needs to become more exponential, and we felt the economic environment was going to throw up the opportunities to achieve that – it felt like our moment, but we knew what we wanted to do required much more capital than we had available.”Peyton had several concerns in mind as he began looking for new sources of finance last year. He recognised the company would not be able to secure sufficient funding from the banks to realise his vision for it, but having founded Peyton and Byrne with his sister, he wanted to continue trading as a family business rather than giving up control. He was also aware the company would need more than just financial support as it scaled up.“We had to consider whether we had the ambition and expertise to turn our family business into something that would be much bigger,” Peyton says. “Whilst we talked to a range of private equity firms – that didn’t work for us. We chose BGF because they were only interested in a minority stake and they really seemed to understand our growth plan.”In December 2012, BGF invested £6.25m in Peyton and Byrne with the cash earmarked for an acceleration of the company’s plans to roll out more of its bakery stores and to launch new restaurants. Crucially, in addition to the cash, BGF introduced the company to Mike Johnson, a former chief executive of Whitbread’s restaurant division, who has now joined Peyton and Byrne as a non-executive chairman to help provide that new expertise. This support, financial and non-financial, has given the company breathing space to focus on the next stage of its development. “Instead of worrying about cashflow, we now worry about growth, which is a much happier problem to have,” Peyton says. “In the past we’ve definitely missed out on opportunities because we didn’t have the funding to cope with more than one project at a time.”The story at Wear Inns, one of the first examples of a business where BGF investment has fuelled a site roll-out programme, is similar. Like Oliver Peyton, John Weir, the chief executive of Wear

Inns, was confronted by more opportunities than his business, which buys up underperforming pubs with the aim of turning their fortunes around, could cope with.Weir was also concerned the company would miss out if he didn’t find a way to move more quickly. “It would have been possible for us to grow organically, but we might never have achieved our full potential because there’s a real window of opportunity in our business just now,” he says. “We’ve been able to buy at a time when pub prices are low, but that will no longer be true in 15 months’ time.”The £8m investment BGF made in Wear Inns in May 2012, alongside additional funds from existing investor NVM, immediately enabled the business to add 11 new pubs to its 15-strong portfolio. “We think we have opportunities to pick up another ten while still being very selective,” says Weir. “But BGF has given us more than just the cash – they’re a supportive minority investor keen to learn more about our business but without breathing down our necks.”Andy Gregory says it is the long-term and flexible approach BGF is able to take that is proving so compelling. Too often institutional investors focus on their own exit plans, which may not sit comfortably with the site roll-out programmes envisaged by the business seeking funding. “Equity should be long-term flexible capital that enables the business to take strategic decisions without having to “just think about short-term cashflow” Gregory argues. “It gives the business the confidence to go out and execute their growth plans aggressively; plus you get an investor whose interests are aligned with the company – in our case over ten years or more if needs be.”To secure that commitment, however, businesses must prove their mettle. Above all, says Gregory, this is an investment in people. “Quality of management is incredibly high on my list of priorities when I’m considering whether to invest in a company,” he says. “If we’re going to have a minority stake for that sort of period, it’s crucial we’re confident we can develop a partnership that really works.”

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Aberdeen-based STATS Group and South Wales’s SHS Integrated Services (SHS) may be hundreds of miles apart but the two businesses have much in common. Both specialise in large-scale project management and engineering services for demanding clients; both have exciting growth plans that are dependent on capital expenditure; and both have turned to Business Growth Fund for help.Without external investment to fund that expenditure, both companies would probably still be struggling to fulfil their potential. With the money, however, the two businesses are building reputations as leaders in their fields: STATS provides maintenance, repair and modification of oil and gas installations and pipelines, onshore and offshore, while SHS erects and dismantles large-scale scaffolding constructions on technically demanding projects.“When I arrived in 2011, SHS was operating with a significant overdraft and was having to turn down opportunities to bid for new work,” recalls Gavin Payne, the company’s finance director. “We did have a finance line with the bank that was facilitating some growth, but cash was massively constrained and we were never going to be able to move to the next level – we turned away £6m of business in the first two months I was here simply because we didn’t have the capital to commit.”SHS’s difficulties started with the pressing need for capital spending, Payne explains, because the projects where the company specialises, working at refineries in the petrochemicals industry, require so much equipment.“We needed to spend sizeable sums on the basics of our business – on tubing, boards and other scaffolding kit,” says Payne. “And we wanted to think longer-term – for example, we’d always bought wooden boards, even though steel boards last much longer, because our cash was so short we needed the cheapest option even when it turned out to be a false economy.”Another issue was cashflow, adds Payne. “Payment terms in this sector are generally 60 or 120 days, which makes life very difficult for under-capitalised businesses.”It is a story that Pete Duguid, the chief executive and founder of STATS Group, recognises very well. Duguid first launched STATS in 1998 and spent most of the next ten years battling with the company’s constrained finances. “I vividly remember my bank manager telling me I couldn’t build a business on enthusiasm alone

Capex to build growthA story of two businesses... hundreds of miles apart but with much in common.

Cennox �

Magma Global �

� STATS Group

� SHS Integrated Services

� Springfield The Grange

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and in truth, while there was always growth, we were constantly fighting working capital,” he says. “That was fine in 2007 when the banks were offering very easy access to credit but then the financial crisis came along and the oil market collapsed.”In the years following the crisis, STATS faced a challenge simply to survive – not because of any flaw in its business model or products and services, but because it did not have the capital buffer needed to ride out a difficult trading period comfortably.Fortunately, the business made it through, but Duguid realised he needed help to take STATS on to the next level. He could see clearly how the company could expand its range of products and services, and had plans for international expansion. But STATS still lacked the resources for the capital expenditure required to turn that vision into a reality. “By the end of 2010 we’d stabilised but banking support had disappeared,” Duguid says. “I had to make a call – we knew we had to do something different and that’s when I began looking for outside investment.”The search ended in March 2012 when BGF invested £7.8m in STATS, in what was then only the fund’s fourth investment. Six months and 11 other investments later, BGF and SHS agreed a £5.4m injection of growth capital in the scaffolding business.“What’s clear in both these cases is that the companies had no chance of any significant growth without taking on additional capital,” says Paul Oldham, a BGF regional director based in the Bristol office. “They could have opted to go for much slower growth, but they were ambitious, which is one of the things we look for in a company when we’re considering whether to invest.”Oldham believes growth capital of this type – as opposed to debt – is ideal for companies with large capital expenditure requirements. You’re not going to be able to arrange debt for a period of longer than five years, which isn’t a great basis for long-term capital investment,” he argues. “Even as you’re investing, you’re already worrying about when you’ll have to roll over the borrowing.”In contrast, Oldham says, with a slug of capital to fall back on, businesses can concentrate on worrying about growth rather than

financing. “What our money has done in both these cases is take away the constraints from these companies and level the playing field with their larger competitors,” he argues. “That’s what BGF does – we invest in smaller companies whose skills are just as good, or better, as those of larger companies, and whose products and services are of equally high quality, or higher, so that they’re no longer at a disadvantage just because of their balance sheet.”SHS’s Gavin Payne shares that analysis of the value of growth capital, but says he had particular reasons for choosing BGF.“We spoke to a number of potential sources of funding, and while BGF’s terms were competitive, more important in the end was our impression that there was a greater willingness to work with us,” he says. “It didn’t feel like a traditional private equity involvement – they’ve only taken a minority stake and while we welcome their support and advice, it’s still us running the business.”At STATS, Pete Duguid had similar anxieties. “My concerns were all about whether I was working for a new master and about how the decision making process would work,” he says. The fact the fund was happy with a minority stake in the company helped allay those fears. BGF also introduced Duguid to oil industry veteran Graeme Coutts, who subsequently became chairman of STATS and now plays a crucial role in helping the company realise its plans for international expansion.In the end, says Paul Oldham, this is the type of edge that BGF needs to communicate to companies looking for investment. “If all we were offering was money I think we would have done a lot fewer deals than we have done – our network of contacts is often an important part of businesses’ decision to go with us.”

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By the beginning of 2012, Anthony Foy, the chief executive of SkyDox, a business offering secure file sharing facilities that use cloud technology, was facing exactly this dilemma.“We were a small and innovative company that was a leader in its field, but we were growing in incremental steps, mostly thanks to business angel investors,” Foy explains. “We came to the conclusion that making an acquisition would enable us to realise our ambitions more quickly.” He identified Workshare, a US company with a very complementary document management business, as the perfect target. The question was how to finance the deal.“It was a slightly unusual transaction because we were hoping to buy a company that was both older and bigger than us,” Foy says. Securing sufficient debt from risk-averse banks was out of the question and equity investors were wary too. “We did pitch to several private equity companies, but I wouldn’t say imagination is a particular hallmark of that industry,” Foy recalls.The solution proved to be an injection of growth capital from BGF. In September 2012, it invested £7.25m in SkyDox, with Scottish Equity Partners also participating in the financing. The acquisition of Workshare was completed a few weeks later.“Raising money is never easy – it’s a painful and humbling process and you have to really believe in what you’re doing,” says Foy. “We chose BGF because they had the intellectual capacity to see beyond the immediate risk of the deal to the longer term potential of bringing these companies together – they had the capital we needed to grow, but they also offered a partnership where our interests were aligned.”Nevertheless, Foy says he thought hard about whether he had the drive to make the deal work. “The pain is something you put up with in order to realise your ambition,” he says. “Not everyone desires that and part of this process is deciding whether you really want to go for that growth, or whether you prefer to run a lifestyle business.”That’s a familiar refrain for Chris Hodges, an investment director in BGF’s London office. “Our single-biggest competitor is the ‘do nothing’ approach,” he says. “The reality is that it’s tough out there and ambition is a crucial ingredient of business success.”This is one reason, why, says Hodges, the quality and attitude of the management team are priority considerations when he is

Strategic acquisitions that deliver

For businesses determined to grow quickly, a strategic acquisition can be the transformative moment in their evolution. But buying another company requires both deep pockets and the skill and experience to integrate two organisations in a way that realises their combined potential. Many growing companies have the ambition to expand this way, but lack the means to do it.

� Springfield Homecare

Wear Inns �

� Workshare

� Statesman Travel

� GCI Com

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mulling an investment in a business. “I need to get a sense they’re open to the bigger picture, to really strategic thinking,” Hodges adds. “We only take minority stakes, but equity dilution can be an emotional thing, so we need managers who recognise that growth capital can really turbo-charge their business.”For those managements that meet these tests, an equity investment – especially from BGF – is the ideal way to finance an acquisition, he argues. “Equity capital is far less restrictive than bank debt, where the borrower is subsequently required to perform to very tightly defined criteria where failure may mean losing control of the business.”Mervyn Williamson, the joint managing director of business travel management specialist Statesman Travel, points to another advantage of growth capital he says was crucial when his business was considering fund-raising options.“Bank debt wasn’t going to be practical – the problem we pose for the banks is that we’re not an asset-backed business so there’s no security for a lender – because our model depends entirely on earnings,” he says.“But even if we had been able to borrow the money to do the deal we wanted to do, we wouldn’t have gone down that route because we were also looking for additional expertise at the boardroom table, ideally from someone outside the business travel sector who would bring a different mindset to our company.”Like SkyDox, Statesman was also on the acquisition trail. “My partner and I had bought Statesman in 2007 and we grew it from £28m of annual revenues to £50m three years later,” he says. “But we needed to be bigger than we were in the eyes of some of the larger potential clients, who felt uncomfortable dealing with a company where they’d be a disproportionately large customer.”That posed a chicken-and-egg problem, with larger clients unwilling to come on board until the business grew bigger while the business struggled to achieve that growth without the bigger clients. “We began looking for acquisition targets and having identified Commodore Travel, we had to think about how we would finance the deal,” Williamson adds.Having decided growth capital was the best fit for his business, Williamson began talking to a number of interested private equity firms. But he didn’t want to give up control of the business and he was concerned about the “churn factor” in the industry. “Three

years after they buy you, you can find yourselves sold to someone else who you may or may not like,” he complains.Finally, Statesman was introduced to BGF by its banker, Lloyds Banking Group. In October 2011, the company became what was then only BGF’s second investment, accepting a £4.25m injection of funding, which was crucial in clinching the acquisition of Commodore. “We did think long and hard about bringing in a third party, but we’re happy to have ended up with a minority investor whose interests are aligned to our own,” Williamson says. “We also like being part of a portfolio family – we’ve been able to offer our services to some of the other companies in which BGF has subsequently invested and to source from those businesses at a competitive rate.”A year-and-a-half later, Williamson says both the rationale for the acquisition and Statesman’s choice of funding solution are proving themselves. “The combination of our two companies has given us a great deal of additional credibility in the market place, boosted our procurement power and given us real strength in depth – we’ve totally raised our game,” he says. “We’re also continuing to invest, which costs money, but there’s going to be a return on that investment and we’ve had the support of BGF as we’ve made those commitments.”All of which is music to the ears of BGF’s Chris Hodges. “More people need to recognise the attractions of growth capital,” he argues. “It became deeply unfashionable for a period, amid the first dot.com boom and the years of easy credit that followed, when leverage and debt were all the rage, but this really is an excellent way to develop a business.”

“More people need to recognise the attractions of growth capital,” BGF’s Chris Hodges argues. “It became deeply unfashionable for a period, amid the first dot.com boom and the years of easy credit that followed, when leverage and debt were all the rage, but this really is an excellent way to develop a business.”

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It’s a common theme amongst successful business founders and entrepreneurs. If getting the business off the ground was difficult, making the leap to scale and global reach can be even more challenging and nerve-wracking. One of the biggest problems is that building a sales and marketing infrastructure capable of acting as a springboard for that leap requires financing and specialist expertise. Growing businesses are often short on both.At Unruly, founded in 2006, the business had reached a critical moment by 2011. “We’d run almost 2,000 campaigns but when you hit a certain size it feels uncomfortable to start taking even bigger risks without a cash cushion on the balance sheet because there are inevitably going to be problems to overcome at some stage,” says Wood.Unruly had made a big splash in New York but was desperate to open an office in Chicago, while also needing to get a Berlin presence up and running and move into Asia. “Geographical footprint is so important when you’re dealing with Fortune 100 companies,” says Wood. “The trouble is it takes the same investment of time and money for a business like us to open new offices and subsidiaries as it does for a huge multi-national, but they have much greater resources to play with.”To make matters worse, time was pressing. “We knew organic growth wouldn’t be quick enough,” Wood adds. “There were no market leaders in the US or Germany, so this was a real window of opportunity.”It was at this stage Unruly began negotiations with BGF. “We considered other types of financing, including debt, but we wanted backers whose interests were aligned with our own,” Wood explains.Tim Whittard, a BGF investment director based in Birmingham, says the sort of growth capital Unruly sourced is perfect for growing companies that want to develop sales and marketing with the aim of taking the business to the next level. Such companies need new people, as well as infrastructure that may range from scalable IT platforms to physical property, but none of this spending generates an immediate guaranteed payback.“Investment in sales and marketing is all about preparing the ground for growth but it is cash-burning and speculative – you’re just not going to be able to raise debt to support that,” Whittard argues. “In any case, even if you could fund these investments with

Sales & Marketing

“We call it the ‘ugly duckling syndrome’,” says Sarah Wood, Chief Operating Officer and co-founder of Unruly, a London-based company that is one of the world’s leaders in social video campaigns. “Businesses like ours reach a stage where they’re no longer a fluffy chick start-up, but nor have they become a Google-like beautiful swan – yet they still have to compete against both of them.”

Wow! Stuff �

Celaton �

Broadband-choices.co.uk �

� Primrose

� Bullitt

� Unruly

� Benefex

M O V I N G F O R W A R D : H O W G R O W T H C A P I TA L C O U L D W O R K F O R Y O U20

debt, there are good reasons not to: with an equity partner, and particularly with BGF, you’ll also get commercial support, including a presence on the board, and hugely valuable access to networks of useful contacts.”This was exactly what Richard North, chief executive of toy development company Wow! Stuff, was looking for when his business reached critical mass.“We were making good money but we were also aware there was a ceiling,” North recalls. “As an entrepreneur, you always wonder if you could do something really big, but you also have a fear of failure, and we felt we’d reached a crossroads – that if we were really going to go for it, which we had the ambition to do, we’d need help.”Wow’s discussions with BGF were completed over the course of a few weeks early in 2012, securing a £4.8m investment in the company. North wanted the cash to fund an Asian office that would oversee local production and quality control, to fund expansion into the US and to beef up product development, but the arrangement was not simply a financial one.“Running a business is lonely – very often you don’t even know what it is you don’t know,” North says. “With BGF, we’re in it together and I’ve come to see that as just as important as the money they’ve provided – more so really.” Not least, they have introduced an exceptional non-executive director to the company with toy industry experience at the highest level, whose networks have already helped Wow to move closer to mass market volumes.Software business Celaton has also been in recruitment mode since securing a £2.5m equity investment from BGF in January 2013. “The difference this money has made to us is that we can invest in the right people to go for growth,” says Celaton’s chief executive, Andrew Anderson. “Good sales directors and marketing directors don’t come cheap and we’ve already made some fantastic hires.”However, Anderson points out that development of sales and marketing requires more than just additional people. “It is also about the effort that goes into marketing and sales; BGF encouraged us to spend three months conducting some good old-fashioned market analysis that we’d simply never had the resources for in the past,” he says. “You can waste an awful lot of time and money doing the wrong things and that analysis is already

providing us with some priceless intelligence.”Anderson did at least consider other sources of finance when he realised Celaton’s growth potential was being curtailed by its lack of capital. “Our bank was very supportive, but it brought out its standard lending models and we just couldn’t get the boxes ticked,” he says.Celaton also held talks with several other equity investors before settling on BGF. “They were only interested in a minority stake, but, also, they were prepared to work with us,” he says of the decision. “With the venture capital firms we met, we always felt we were working for them – they gave short notice of meetings, for example, and were hugely demanding about the information they wanted and then their key people wouldn’t turn up.”In the end, it’s the relationship that matters most, says BGF’s Tim Whittard. Sales and marketing investments require patience – and while they’re waiting to see those dividends start flowing, both investor and investee have to be able to work together constructively.“My personal checklist when I’m thinking about whether a company has investment potential starts and stops with my assessment of its management – and its CEO in particular,” Whittard says. “He or she needs to be genuinely looking for a partner rather than being solely focused on the money – the chemistry is hugely important given that we’re going to have such a long-term relationship.”

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Take AFG Media, the company behind the Morphsuit phenomenon. After its three founders racked up £1m of sales in their first year, having launched the business in their spare time with just £3,000 of their own money, one might have expected the company to catch its breath. Not a bit of it – instead, AFG’s focus has been on developing its core product, the spandex all-in-one suits that have brightened up so many Halloween parties and stag-dos, while launching two new product lines.“Once we were able to give up our day jobs, we became much more ambitious,” recalls Fraser Smeaton, one of the trio of founding directors at AFG. “We started to think about going after licensing deals with the Morphsuit product, as well as launching into the children’s market,” he says. “And we launched two new ventures – Foul Fashion, selling outlandish party shirts, and Royal & Awesome, which sells golfing trousers.”Still, despite its stellar organic growth since that 2010 launch year – AFG’s sales hit £11m in 2012 – the business could never have pursued such an aggressive product development strategy without support from investors.“As we scaled up, we really started to think about equity finance,” says Smeaton. “Our cashflow was incredibly tight and while we were able to get limited trade loans, we were paying through the nose for them because the banks want to see that you have a backer with deep pockets and we didn’t have that.”For AFG, the answer was growth capital, in the form of a £4.2m investment in the company from BGF, which completed in June 2012. BGF took a minority stake in the business, rather than buying its founders out, as other private equity firms might have wanted. And the company no longer had to beg for funding from the banks.Duncan Macrae, an investment director in BGF’s Edinburgh office, who joined AFG’s board following the deal, says the company impressed from day one. “AFG had great management even though they were young – they had followed their convictions and committed themselves fully to maximising the potential of their idea,” he says. “But they really needed capital to pursue those licensing opportunities, which are huge but can require a financial commitment that might take two years to pay off, especially as they were also developing other product lines.”Growth capital is ideal for growing companies concentrating on product development argues Macrae, because it gives them the

Core Product & New Product Develop-ment

What is it that fast-growing businesses have that enables them to leap forward when so many companies are simply coasting? The answer, very often, is an unerring commitment to product development – both of the existing range and of new goods or services.

AFG Media �

� Wow! Stuff

� M Squared Lasers

� Magma Global

M O V I N G F O R W A R D : H O W G R O W T H C A P I TA L C O U L D W O R K F O R Y O U22

time to bring the right offer to market. “If AFG had gone to the bank and asked for millions of pounds with no security to sit on the balance sheet so that they had the confidence to go after licenses, for example, we think that most debt providers would have laughed them out of the building,” he says.However, says Smeaton, it wasn’t just money that attracted AFG to equity investment and BGF in particular. The company’s founders were acutely aware that while they had developed one smash-hit product, they had no experience of developing a business capable of repeating the trick. “We were three young guys who had previously worked in middle management and we had no idea about how to build a multi-national company,” he concedes.To that end, BGF introduced AFG to Ralph Kugler, who joined the business as chairman. Kugler, whose career has included stints on the board at consumer giants Unilever and InterContinental Hotels, has provided AFG’s founders with the experience they so sorely lacked. “He is someone who the company would just never have met, let alone persuaded to join, without our introduction,” says Macrae.The tie-up between AFG and BGF has already begun to pay off, Smeaton says. “We were already profitable but this money has given us a platform that has really set us on our next stage of growth.”The company’s new brands are beginning to take off, it has appointed a developer to work on a new offering for the thousands of fancy dress shops that already stock its products and, in October, AFG announced its first licensing deal – within days, Power Rangers Morphsuits hit the streets (literally, since Facebook-organised flashmobs are one of the company’s most successful marketing tricks).AFG’s product development and diversification strategy is one that is familiar to Graeme Malcolm, the chief executive of M Squared Lasers, another of BGF’s portfolio businesses. For Malcolm, who co-founded the high-tech business in Glasgow in 2005, has been on a similar growth trajectory.By 2011, M Squared was already producing strong growth, with an impressive roster of science-focused blue-chip clients for its precision laser technology. “However, we were at an inflexion point,” says Malcolm “We knew our existing technology had a wide variety of different applications that could push it into new industry sectors, and we had also developed a new product using our lasers for

remote sensing that would take us into a whole new market.”However, the company needed capital to exploit those opportunities – partly to develop the infrastructure to support sales and marketing, particularly in export markets, but also to commercialise all its potential technology applications as quickly as possible. “It’s possible we could have chosen to go for further organic growth, but it would have been significantly slower,” says Malcolm. “In an emerging technology, you need to be one of the first movers in the market and we would have missed that opportunity.”Duncan Macrae, who was also involved in BGF’s decision to invest in M Squared – the fund injected £3.85m of growth capital into the business in April 2012 – says the deal was recognised as the right way for the company to pursue its ambitions. “Would M Squared have got debt funding for their core product? Maybe, but cashflow lending is very limited and if you need to build a product to sell, rather than having the order upfront, you won’t get it,” he says.“The business certainly wouldn’t have got funding for its products in development – you couldn’t finance that in any other way than with equity – so their growth potential would have been really limited.”Malcolm shared that analysis, but he was also wary of investors that would have wanted to buy the company outright or take full control. Together with his co-founder at M Squared, Gareth Maker, he had launched a similar business in the mid-nineties which the pair eventually sold to a US technology company that subsequently reaped all the benefits of its growth.This time around, the BGF deal has worked out much better, Malcolm says. “The money has already had a substantial impact on our business,” he explains. “We’ve been able to scale up in order to really confront those technical and marketing challenges and we’ve already made inroads into those new sectors – we’re really excited about where we go from here.”

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Partnering Growth: How BGF works with you

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Talent networkThe expertise of management teams is at the core of the way the BGF does business. As well as partnering with some of the UK’s most ambitious SME management teams, we are building an external Talent Network specifically to develop relationships with a broad range of experienced business leaders from across the corporate spectrum who can offer valued executive and non-executive support. Already, we have introduced 19 non-exec chairman and four other non-exec directors to companies we have invested in. These directors come from a wide range of backgrounds, but their common link is a commitment and drive to encourage and help great small and medium sized businesses with ambition to grow.

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How did you come to this role?I worked at Unilever for many years in general management, latterly as a member of the main board. When I left, I was keen to get involved with entrepreneurial businesses, and for the last seven years that’s what I’ve been doing – either as a non-exec chairman or director, often investing myself and frequently backed by private equity.What do you enjoy most about the role?It’s all about the people. At AFG, I found a great team of young, dynamic entrepreneurs and that is highly motivating. I’m also a businessman. I’m excited by growth and this was a business with great products and brands, operating in an exciting space and demonstrating real potential.My starting point is always the relationship between the key people – the founder/entrepreneur, the CEO and management team, other shareholders and the non-exec. In the case of AFG, we have complementary skills and we get on well; there is a mutual sense of respect, and everyone is pulling together in the best interests of the business.This is very different to working in a plc board?What I think is fundamentally different with working with smaller businesses is that you need to roll your sleeves up and get involved. It’s not just a matter of sitting down at the board table. You need to be available to the business as it needs you and regular interaction with the CEO is key.But it’s also important to realise that it is management making the decisions at the end of day. As a non-exec, you are helping them to make better decisions. Small and medium sized businesses – many of which are still young – have particular needs. What is it that they get from a non-exec? SME businesses with a strong proposition and growth potential are spoilt for choice. Sometimes it is hard for them to step back from the day to day and non-execs bring objectivity and an ability to prioritise. One of your jobs is to help management make the right choices.With AFG, where have you seen an immediate opportunity to make an impact?We’ve been talking to a large retail customer – and it’s somewhere I have been before. We’ve thought about how to approach these discussions, what our priorities are and where we will and won’t negotiate. It’s been an engaging and rigorous process.There are all sorts of ways that this discussion could have been played; there was no one right or wrong answer. But we thought it through carefully, we agreed, disagreed and debated.As a non-exec, it is helpful to be the one to facilitate disagreement so that issues can be looked at from all directions, and then you stand behind the outcome.What are the qualities needed to be a good non-exec? How do you make it work to best effect?I think the most successful non-execs in small businesses are

informal and their most important role is that of mentor to the CEO and management. This means regular dialogue outside formal meetings.Style is important – in my view it’s best to be frank, honest and straightforward. If there’s a generational difference then it’s important to make sure there’s a good rapport and shared values between individuals. When you go into a business for the first time, the immediate challenge is to listen before you speak. I realise that the management knows more about the business than I do, so I listen and learn. And a non-exec mustn’t swamp the management and try to become a quasi-CEO themselves. When you come in from the outside, you also need to appreciate that everyone on the board may not of be of the same mind. Different viewpoints are healthy and the job of the non-exec is to make sure that they are discussed and that everyone can have their say.Sometimes management will make decisions that you don’t agree with. That is their prerogative. Some humility is important. A non-exec needs to remember that they are being employed for their experience not for their ego. Are you always expected to have the answer?No, but you are expected to be confident in helping to tackle the issue at hand. You need to help the team to achieve the best outcome and this is likely to be a collaborative process. Sometimes we get it wrong and when we do, it’s important to learn from it.Does it help to bear some of your own battle scars?Working with young businesses is not always plain sailing. All businesses hit roadblocks. What’s important is how they recover from them. As a non-exec, you also need to learn from your mistakes and bring the benefit of that insight to the board table. Being able to see when a large influential customer is being unreasonable for example. It can be a very difficult thing for a young business to have the confidence to walk away. So you advise and you support.What is your level of commitment? At any moment, I hope my businesses think that they are my priority. The time commitment becomes superfluous. It’s about where I can add value.Certainly the role is more diverse than attending board meetings – and there are misconceptions out there, particularly among people who have never before worked with a non-exec. The agenda has to be driven by the CEO but certainly I’ve been to trade shows with management, met and paid respect to important license partners and customers – the role is varied and that is part of the appeal.What do you see as the main obstacles to growth for SMEs? Financial resource, of course. And human resource – it is important to make sure that you have people who are capable for the next phase of growth. You need good leadership and an entrepreneur who is employing a group of mates is very likely not to be doing the best for the long-term health of his or her business. Small businesses also need to invest in training,Lastly, innovation. Good ideas can be copied and superseded. So you need to continue to innovate and retain your unique position or someone else, probably a larger competitor, will eat your lunch. SMEs can go up like a rocket and come down like a stick if they don’t stay ahead of the game.

Q&A RALPH KUGLER Non-Executive Chairman of AFG Media

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What is it that attracts you to working with small and medium-sized businesses?Their dynamism. They’ve often got management teams that are more focussed on the business opportunities than getting drawn into bureaucracy and the politics of a large group. I look for SMEs who are still in the growth phase of their development. What is it that makes a particular business or a particular management team stand out for you?What attracts me is either a sector that offers fresh growth opportunities; or if the sector is mature, then a business that has got something special; some sort of ‘disruptive technology’ or an edge that can set them apart. As far as the management team is concerned, I’m looking for commitment, energy and openness to external involvement.An awful lot of management teams don’t understand or want any form of non-executive involvement in their companies. I’m looking for the team that says, “Yes, I’d really like somebody with me because this is the first time I’ve driven the business above X size,

and somebody who’s been there before – possibly several times – can help me.” What do you think that they really need from the non-executive and how would you see that evolving as the business develops?A one word answer would be “structure”. Structure makes for proper action plans, targets and KPIs – the discipline that you’d expect from a well-run business. But at the same time, you need to ensure that structure doesn’t stifle the very creativity or entrepreneurialism that created the company initially. It’s a very careful balance. Hopefully you are also bringing something additional to the party, whether it be experience of a particular sector or a new activity, for example exporting for the first time. In these cases a non-exec who’s been there and done it before can be invaluable. What would you see as the main challenges of working with smaller businesses from a Non-Exec perspective?Three things: attracting talent, building a sustainable customer base, and securing funding.Generally the smaller the company, the more difficult it is to attract talent at a senior level. Really good people tend to migrate towards larger companies. They look at SMEs and see more risks, and possibly less immediate rewards. This is a real challenge.Secondly, small companies are more vulnerable. Larger companies will generally have a broader customer base. For some SMEs, losing a single major customer can be almost terminal. Finally, I would say finance. Most SMEs are independently financed and life is never as straightforward and as simple as everybody

Q&A KEITH JORDAN Non-Executive Chairman of Cennox

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would like. So an SME that hits a few headwinds in the marketplace or loses a customer can suddenly face huge challenges so far as keeping the cash flowing and the business solvent. Are there particular qualities that you feel that are important for an SME non-exec?Yes, but whether I’ve got them or not, others will have to judge! For me it is about empathy, understanding what drives the guys and where they’re going. Management need to know that you’re part of the team or you may never really find out what is going on at the heart of the business. You need to be able to bring professionalism where it is needed; but make sure that you don’t smother the company. You need to be approachable, but you can never forget that you are also the independent director on the Board and therefore you must retain that independence of thought and deed. Chameleon qualities can be useful.Do you think that it’s helpful from an experience perspective for a non-executive to bear some battle scars of their own?Of course. Young management teams often don’t really understand what the role of a non-exec is, and it’s our job to explain. In this life you earn respect, you don’t just get it because you’ve got the name Chairman or non-exec on your business card. What makes real impact is being able to say I have been there; I raised money; I’ve worked with third party investors; I’ve been in a small business’ I’ve also been in a large business; I understand what it’s like when your customer doesn’t pay you and he’s late; I understand when the bank is getting shirty.How can a CEO get the most out of the relationship?Firstly, be open-minded; see this person as a potentially valuable addition to your team, rather than being an imposition. Secondly, get to know each other. Get to know each other as people, but also get to know what the non-exec’s key skills and qualities are so that you know where they can make most impact. Lastly, don’t be afraid to ask questions. Some entrepreneurs are very good at it, but others think they’ve got to have the answer to everything. They don’t and a non-exec is there to help find the right one.What sort of time commitment should a management team expect from a non-executive? I don’t think there’s a simple answer in terms of days or months a year. I think that era’s been and gone. It’s about what each individual business needs.At the extreme, last year I spent 120 odd days in one of my busi-nesses – a turnaround situation. It was about half my capacity for the year and a big commitment. At the other end of the spectrum, it may be a couple of days a month in the business, one of which is a Board Meeting; but time can also usefully be spent on phones and emails, meeting

customers and suppliers, mentoring the management team. On average, I probably spend about four days a month in each of the businesses that I support, but it really does ebb and flow.It also tends to be front and back loaded. At the beginning, you need to invest time in getting to know the people and the business and finding out what makes it tick. Also, helping the business get to know you. I want to know the whole team, not just the Board so it’s important to spend time physically within the business. It is also often more involved as the company moves towards a sale or exit.What would you say is critical for the Board to work together really effectively?We can’t be friends all the time, that’s for sure. However the chemistry between management and the non-exec, the way that they interact and the mutual respect that they have will ultimately determine how effective the Board can be.As far as Board Meetings are concerned, I think efficacy depends on three key things. The professionalism of the person who’s chairing the meeting, the way the agenda is structured, and the CEO feeling that real progress has been made. He or she is my number one audience. The Board pack is important – what goes in and what doesn’t. But it needs to be reviewed and challenged from time to time. Sure, there are things that always stay on the agenda, but you need to try and ensure that the discussion is kept alive and appropriate. Don’t get stuck in a rut.What do you think are the biggest obstacles holding back SMEs?Three things: Nervousness or lack of confidence in the outside world; the huge gulf between being national and being international; and access to working capital. Going from national to international is a big step for any company and many entrepreneurs are intimidated because they haven’t done it before. Directors will often build up a business to a certain size and then stop. They accept the status quo. They may feel that stepping from being a national business to an international business is just not for them, or a bridge too far. This is a critical moment. You either say: ‘Well okay, this is as far as we’re going to take this business with this team; we can keep it ticking over, or perhaps now’s the time to exit and sell.’ Or you can say: ‘This is an opportunity for the taking; let’s strengthen the Board; lets bring in people who feel comfortable doing overseas business; and let’s put a plan in place to make the leap.’ These are precisely the situations where a non-exec can make a real contribution to an SME, as well as personally benefiting from a highly rewarding and stimulating experience.

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Businesses need their sources of finance to act as locally as possible but to think globally. That is why we have recruited nearly 50 experienced investors and a strong support team based in seven offices across the UK. This team gives us the ability to find new investment opportunities and to forge long-term supportive relationships with companies and with

the established financial advisory communities in all our major cities.However, we know that stand-alone regional investors can find it difficult to provide the national and international perspective that many growing companies require. These companies need a partner with a national presence and international understanding. BGF is that too.

Investing Across the UK

INVESTMENTS� Broadbandchoices.co.uk

(London)� Camino (London)� Cennox (Camberley)� Peyton and Byrne (London)� Statesman Travel (London)� Unruly (London)� Workshare (London)

INVESTMENTS� Benefex (Southampton)� Bullitt (Reading)� Magma Global (Portsmouth)� Primrose (Reading)� SHS Integrated Services (Barry)� Trunki (Bristol)

INVESTMENTS� AFG Media (Edinburgh)� Aubin (Aberdeen)� M Squared Lasers (Glasgow)� STATS Group (Aberdeen)

INVESTMENTS� Barburrito (Manchester)� Boost (Manchester)� Springfield Healthcare & Springfield

The Grange (Yorkshire) � Wear Inns (County Durham)

INVESTMENTS� Celaton (Milton Keynes)� GCI Com (Lincoln)� Shuropody (Coventry)� Wow! Stuff (Wolverhampton)

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Office21 Palmer Street London SW1H 0AD0845 266 8860

LONDON & SOUTH EAST

OfficesAtholl Exchange, 6 Canning StreetEdinburgh EH3 8EG 0845 266 8863

1 Carden Place, Aberdeen AB10 1UT 0845 266 8863

� Richard Bishop� Mark Bryant� Marion Bernard

� Catherine Clarke� Andy Gregory � Simon Munro

� Paul Oldham� John Swarbrick� Stephen Welton

SCOTLAND

Office45 Church Street, Birmingham B3 2RT0845 266 8862

MIDLANDS

OfficeHartwell House, 55–61 Victoria StreetBristol BS1 6AD0845 266 8864

SOUTH WEST & SOUTH WALES

OfficesLevel 10, Tower 12, 18-22 Bridge Street, Spinningfields Manchester M3 3BZ 0845 266 8861

1 City Square Leeds LS1 2ES 0845 600 0142

NORTH, NORTH WEST & NORTHERN IRELAND

PeopleRegional Director: Marion BernardInvestment Directors: Alistair Brew, Chris Hodges, Rory PopeSenior Investment Managers: Erin Hallock, Mark Nunny, Jon Simon

BGF’s London office is also home to Stephen Welton (CEO), Tim Clarke (Director of Resourcing), Matt Reed (Director of Finance and Risk), Jon Rhodes (Director of Marketing & Communications), Jenny Chandler (Head of HR) and Cate Poulson (Head of Talent Network)

PeopleRegional Director: Simon MunroInvestment Directors: Duncan Macrae, Mike SibsonSenior Investment Manager: Patrick Graham

Mark Bryant (Business Director) and David Murray (Head of Risk & Compliance) are based in Edinburgh.

PeopleRegional Director: Andy GregoryInvestment Director: David ColcloughSenior Investment Manager: Richard Taylor

John Swarbrick (Head of Portfolio) and John Eggleston (Director IT Strategy) are based in the Leeds office.

PeopleInvestment Directors: Ian Downing, Mark Freer, Tim Whittard

BGF’s Birmingham office is also home to Richard Bishop (Head of Investments) and Catherine Clarke (Head of Legal)

PeopleRegional Director: Paul OldhamInvestment Director: James AustinSenior Investment Manager: Ned Dorbin

Stephen Welton (CEO), has overall accountability for investment and operational decisions. Regional Directors run each of BGF’s five teams across the UK, reporting to Richard Bishop (Head of Investments). Stephen chairs BGF’s Investment Committee which provides the ultimate consideration and approval for all investments. Whilst the appraisal and investment process is led

from the regional office closest to the company, BGF has the scale and flexibility to resource specific deal teams to make best use of the relevant experience and sector specialisms of individual investment team members.Neither the BGF Board (other than the CEO) nor its shareholders are involved in investment decisions.

INVESTMENT COMMITTEE MEMBERS

Investing Across the UK

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Where we fit in…

Richard Bishop, Head of Investments:BGF is becoming established as part of the mainstream menu of options for businesses looking to raise capital. It came into existence because of a perception that there was an equity funding gap inhibiting many businesses with the potential to grow and there is now no doubt that gap is very real. The fact that BGF has come along and invested over £125m in growing businesses has proved there is room for someone looking to provide long-term capital to entrepreneurs.However, BGF is only part of the solution for SMEs that need funding and that is why we seek to work very closely with all sorts of other organisations that play their part in different ways. Potential investee companies are introduced from a very diverse range of sources. Naturally we partner very well with our shareholder banks. We enjoy fantastic support from them at very senior levels and they are an increasing source of new company introductions. The intermediary community of accountants, lawyers and financial advisers, business organisations and trade associations is also a very valuable source of referrals. Equally, BGF regularly comes across companies that look as if they might be great investments but which are outside mandate, so we pass them on to others – it’s a two-way street.Certainly, when BGF first launched, there was an understandable fear in some parts of the finance sector that it represented a threat – that we would go beyond our remit of investing £2m to £10m for take minority stakes in growing businesses. But I believe we are now very widely accepted. We are doing what we said we would do, and not what people feared we might. We have shown how we can work in conjunction with other investors by making a number of co-investments, with private equity or venture capital funding businesses raising capital for the first time, and also companies with existing investors but which now need further funding. BGF’s flexibility enables it to work with a wide range of different investors while the interests of all shareholders remain aligned.We offer a proposition that is different to anything else out there and that gives entrepreneurs an additional choice as they consider whether to raise money. In the end, BGF is there to grow the market for growth capital investment and it’s really encouraging to see that there is already more interest amongst advisers, companies and other stakeholders – the fund is really playing a part in rejuvenating the idea of growth capital and that can only be good news for SME funding.

In the two years since its launch, BGF has found its place in a diverse ecosystem of funding for small and medium-sized enterprises. Richard Bishop, Head of Investments, explains where he thinks BGF fits in, while twelve other key players in the sector offer their perceptions.

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Andy Turbutt, managing director, sales & business development, Royal Bank of Scotland

“BGF is a welcome addition to the funding options available to growing UK businesses. It fulfils an important role in providing growth capital, whilst taking minority stakes in businesses to allow owners to retain control. BGF also brings extensive capability to these businesses through its experienced directors and investment professionals, as well as its commercial network. ”In the vast majority of cases, BGF will work in conjunction with banks to provide the business with the optimal funding and capital structure to support their growth.”

Ally Scott, managing director and head of corporate banking for Barclays in Scotland:

“What we’ve learnt when talking to clients across the UK is that there has been a growing funding gap emerging between the angel investor network and traditional private equity. It is evident to us that since its formation BGF has shown its desire to help fund the growth ambitions of SMEs across a range of industries and is helping to fill both a funding void and, in turn, contribute to the wider economic recovery. “We hear consistent feedback regarding BGF’s speed of execution, pragmatism and added value, and in that sense, we look upon BGF as offering more than purely meeting a financing gap”. “Experience tells us that in most capital structures there is scope for a variety of forms of finance and many of those companies which are prospering in today’s economy are not over reliant on one particular funding stream. As we work increasingly closely with BGF we see many opportunities to partner effectively in the pursuit of our joint objective to present progressive funding ideas to clients”.

Dr Adam Marshall, director of policy and external affairs, British Chambers of Commerce:

“Many new and growing businesses in the UK sometimes hit a wall because they can’t get the funding they require to sustain their growth ambitions. That’s why the British Chambers of Commerce speaks up for greater competition in the banking sector, for the creation of a British Business Bank, and for the expansion of initiatives such as Business Growth Fund – which offers some of these growth companies an equity financing solution that’s both attractive and accessible. “Any organisation that exists to provide dynamic businesses with the finance they need to grow is a potential partner for the BCC and the UK Chamber of Commerce network. If we can identify a Chamber member, anywhere in the UK, that could benefit from the services of BGF, any alternative finance provider, or indeed any of our high-street banks, we will do our best to link them up and start up a productive conversation. To date, some great Chamber member companies have secured investment from BGF – and we hope that many more will do so in future.”

Simon Walker, director-general, Institute of Directors:

“Business Growth Fund is making a real difference to many UK businesses and the thousands of workers they employ. At a time when access to orthodox bank finance is uncertain, it has encouraged and enabled the ambitions of companies across the country.”

Many new and growing businesses in the UK sometimes hit a wall because they can’t get the funding they require to sustain their growth ambitions. That’s why the British Chambers of Commerce speaks up for greater competition in the banking sector, for the creation of a British Business Bank, and for the expansion of initiatives such as Business Growth Fund.

� Where we fit in…

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Dr Will Barton, head of manufacturing, Technology Strategy Board

“Companies that have the potential to grow quickly and become key players in the UK supply chain need as much help as they can get. With IPOs hardly an option today for such companies, BGF has the potential to be immensely valuable to UK plc – its strong industry focus, and its interest in reaching out to organisations such as the ours to help it identify the right targets bodes well.“Organisations such as the TSB, by assessing many grant proposals and selecting only the best to fund, are a valuable source of ‘technical endorsement’ to funders such as BGF, so the relationship we are trying to develop is one of partners.”

Daniel Howlett, head of UK corporate banking, HSBC

“With confidence re-emerging in the UK there are a number of financing options open to UK businesses. Organisations such as BGF provide a distinctive opportunity to smaller, growth companies looking for flexible funding and experienced guidance whilst retaining ultimate control of their business.“As a bank we welcome equity finance as it presents an opportunity to strengthen the balance sheets of emerging British businesses, which in turn, allows greater debt capacity so that our organisations can work together to maximise the growth potential of our mutual and prospective clients.”

David Hare, Manufacturing Advisory Service and Growth Accelerator

“Businesses are continuing to hunt for niche markets in order to grow and it is important that funding options exist which match their needs. Encouragingly, we have seen a growth in alternative providers both online and offline who are trying match those needs. The funding provided by BGF is a welcome addition to the market place and is adding capacity in the “patient capital” space.“Business funding is becoming more diverse, moving away from a model of sequential funding to a more parallel model of multiple funding routes for different needs at the same time. A key challenge facing management teams will be to ensure the risk profile of this multifaceted model is fully understood.”

“Supporting the economic prosperity of the communities in which we operate is critical to re-establishing the growth aspirations of UK plc and we are delighted that Lloyds and BGF have been able to work closely in funding a number of fast growing businesses including the recently completed Aubin transaction. BGF’s partnership approach with both the management team and the bank, combined with speed of execution, the ability to follow their money and a local coverage model that stays close to our SME and Mid Market client base provides a fantastic opportunity for UK companies to access finance and assist them in building a sustainable platform for growth.”

Businesses are continuing to hunt for niche markets in order to grow and it is important that funding options exist which match their needs.

Alisdair Gardner, Regional Managing Director Scotland – Commercial Banking, Lloyds Banking Group

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Paul Johnson, partner, Baker Tilly Corporate Finance

“There is a wide diversity of funders, but all too often we hear management teams question the appetite of certain funders to actually invest (and the complexity of the process). From my experience, BGF doesn’t fall foul of these assertions. In addition, BGF can take a longer term view on investments and isn’t seeking to invest in the more traditional private equity MBO market. Hence, I see BGF clearly adding to the mix.”

Mauro Biagioni, director, NVM Private Equity

“NVM Private Equity worked alongside the BGF in 2012 to provide further investment to managed pub chain Wear Inns, a company that was already in NVM’s portfolio. The extra funding has enabled the business to build-up its pub portfolio, and Wear Inns benefits from the support of both investors. We would probably consider BGF as both partners and rivals; NVM Private Equity supports management buy-outs as well as development capital deals, something that BGF doesn’t do.”

David Petrie, head of the corporate finance faculty, ICAEW

“Our research has found that banks have not always been particularly good at signposting sources of equity for growing businesses. For BGF, on the other hand, which is backed by five of the biggest banks, the high street network is clearly a very strong source of leads – that works well for both sides and we’ll no doubt see many more investments come through. Growth capital has traditionally been a problem, but BGF is really beginning to address that.”

Jenny Tooth, chief executive, UK Business Angels Association

“The funding landscape in the UK is extremely diverse from the perspective of angel investment including individual angels, angel network groups and syndicates with a wide range of individuals coming into the market place to get involved in angel investing. But there is invariably a point when a successful new business needs a considerable injection of finance and the angels need liquidity to reinvest into further early stage businesses. And there is not enough venture capital funding available to take on these growth potential businesses, which in any case frequently do not meet the venture capitalist’s risk profile – plus there is little chance of an exit via a trade sale at this stage either.We are working very closely with BGF, which is a strategic sponsor of UKBAA. We are supporting the development of strong links between the angel community and BGF around the country to raise awareness and encourage take-up for next stage finance for their portfolio as well as a means to achieve liquidity.”

Business Growth Fund fulfils an important role in the finance ecosystem, offering a vital pool of patient growth finance for high growth potential businesses, and offering potential liquidity to angels.

Richard Anton, partner, Amadeus Capital Partners

“There is clearly a shortage of sources of equity capital for UK SMEs. This actually predates the financial crisis – it goes back to the credit bubble a few years previously diverting capital to other sectors. So BGF is a welcome addition to the environment and we are happy to partner with them in the technology sector, where we specialise.”

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CHAIRMAN SIR NIGEL RUDD:Sir Nigel is best known as founder of Williams plc in 1982, which went on to become one of the largest industrial holding companies in the United Kingdom until its demerger in November 2000, creating Chubb plc and Kidde plc. He is presently Chairman of BAA, the technology company Invensys plc and the UK Business Angels Association.Sir Nigel was knighted in 1996 for services to manufacturing. He has a long record as an active angel investor in small and medium-sized businesses, and has been Chairman of some of the largest companies in the UK, including Pilkington, Alliance Boots and the UK’s largest car retailer, Pendragon, the company he founded with one dealership in 1982. He was a Director of Barclays PLC for 13 years, latterly as Deputy Chairman.Sir Nigel became Chairman of BGF in February 2011.

CEO STEPHEN WELTON:Stephen chairs BGF’s Investment Committee. He has over 20 years’ experience in the development capital and private equity industry. He joined BGF after 10 years with CCMP Capital (formerly JP Morgan Partners) a global private equity firm. He has extensive experience as an investor working with private companies, most recently as Chairman of Edwards, the global engineering group headquartered in the UK. Before this, he was Chairman and CEO of TV Travel Shop prior to its successful sale to a global media group. He has 10 years of UK private equity and growth capital experience as Managing Director of Barclays Private Equity and at Henderson Ventures, which he co-founded. In January 2013, Stephen joined the advisory group formed specifically to guide the UK Government on the direction and priorities of the proposed Business Bank, a Government funded institution looking to provide lending and support to small and mid-sized businesses. Stephen started his career in banking and is a qualified Barrister-at-Law. Stephen became Chief Executive of BGF in May 2011.

the Board

Chairman

8

9

15

4

3

2

7

6

CEO

T H E B O A R D36

1 AUDREY BAXTER: Following a successful early career as a merchant banker in London, Audrey returned to the family business, Baxters, in 1988. She became Chairman and CEO in 2000.Baxters was founded in 1868 and Audrey is the fourth generation of the family to run and expand the business into new markets. Today, Baxters is a global company, with operations in Eastern Europe, Australia, South Africa, and North America. Since becoming CEO Audrey has grown the business by more than 50 per cent, and annual turnover currently exceeds £150m. Audrey is also a member of the Court of Aberdeen University.

2 JOHN BURGESS: John has had a long and distinguished career as a private equity investor, during which he was a non-executive director of a number of UK and European-based businesses, both large and small. He is currently Chairman of the External Investment Committee of Partners Capital, a wealth management firm, and a non-executive director of C&C Group, which owns the Magners and Gaymers cider brands and Tennent’s beer.He was a co-founder and Managing Partner of BC Partners until he retired in 2005. BC Partners is a leading European private equity firm that has played a major role in the development of the large buy-out market in Europe over the last 25 years. Prior to BC Partners, John developed his private equity experience with Candover Investments and F&C Ventures, following eight years with the Boston Consulting Group in Paris and London.

3 NEIL JOHNSON: Neil is currently Chairman of Synthomer plc and e2v plc. He also chairs Motability Operations plc, a major finance and leasing company owned by the UK banks.Neil was formerly CEO of the RAC, and chaired telematics company Cybit Plc through IPO and ultimate sale to a US Private Equity house in 2010. After directing the European automo-tive interests of British Aerospace, he served a term as director general of the Engineers Employers Federation and later set up a transatlantic trade and business promotion body, British-American Business Inc. Following an early career in the Army he began his business career with a series of roles within Lex Service Group, British Leyland, Jaguar and Land Rover. Neil also sits on a Ministry of Defence Advisory Board. Neil is the senior independent director on the BGF Board and was, until 2012, an Independent Member of the Metropolitan Police Authority.

4 STEPHEN MURPHY: Stephen Murphy currently serves as Chairman of Jumeirah Group LLC, the major international UAE based luxury hospitality company, and Chairman of The Garden Centre Group, the UK’s largest horticultural retailer and Chairman of The Learning Clinic Ltd, an innovative medical technology company based in the UK. He is also a non-executive director of Ren Ren, a major China based, NYSE listed social networking company and as an Advisory Partner at Ashcombe Advisers LLP, a boutique corporate finance advisory firm. Mr. Murphy is also the Principal of his own advisory business. Stephen previously served as the Group CEO of The Virgin Group from 2005 to 2011, having held a number of senior positions within Virgin included serving as Chief Financial Officer from 1994–2000 and as Chairman of Virgin Atlantic from 2006 to 2012.

5 TIM BOAG (RBS): Tim is responsible for the UK lending activities in areas such as acquisition finance, energy, infrastructure and public sector. Tim began his career as a graduate with NatWest and has fulfilled a number of roles across RBS Group. He has worked in both the Corporate and Investment Banking areas, and was Finance Director of the Global Structured Finance Business in 2005/6.Tim is actively involved in sponsoring a number of pan-RBS and divisional initiatives, including the development of professional standards with the Chartered Banker Institute and supporting enterprise.

6 JAMES CHEW (HSBC): James is Group Head, Regulatory Policy & Development in the Financial Services Policy Unit. After joining the HSBC Group in 1993 James worked in joint ventures, including with BSkyB for the launch of digital television in the UK. James has been both Group Head of Planning and Group Head of Acquisitions and Disposals. Amongst other transactions, he was a key player in HSBC’s disposal of the French Regional Banks in 2008 for $3.2bn.As part of the Business Finance Taskforce in the UK, James was the interim CEO responsible for the establishment of BGF.

7 RICHARD HOLMES (Standard Chartered): Richard Holmes is CEO Europe, a position he has held since 2008. Prior to this, he was Chairman and CEO of American Express Bank Ltd., American Express Company’s international banking subsidiary, based in New York. Richard has more than 30 years’ experience across a wide range of functions in international banking, having served in finance, operations and financial market positions at Wells Fargo Bank and at Bank of America.Richard is Chairman of the CBI’s Financial Services’ Council, sits on the Board of Trustees for Asia House and is a member of the Board of Directors of British American Business.

8 ALAN TURNER (Barclays): Alan co-heads the management of the suite of products and services offered by Barclays PLC throughout the world via its Corporate Banking division. He is a member of the Executive Committee of the Corporate Bank and the Group Credit Committee of Barclays Bank.Alan joined Barclays in 1991 and has held a variety of roles within the retail, corporate and investment banking divisions of the firm. Prior to his current role, he managed the lending arm of the Corporate Bank and previous roles included leveraged finance and high yield bond origination in London, head of the leveraged finance business in Asia Pacific and a number of structuring roles within the syndicated loans group in London, Asia and Australia.

9 KAREN BOTHWELL (Lloyds Banking Group): Karen leads the Regulation & Governance teams within Lloyds Banking Group’s (LBG) Commercial Banking Credit Risk function. The role includes governance & assurance responsibilities for LBG’s Commercial Banking credit processes, regulatory interpretation and risk oversight of the LBG private equity portfolio. A qualified lawyer, Karen has worked within Bank of Scotland and LBG since 1987, in roles within Legal, Structured Finance, Joint Ventures and Growth Capital Investment. Karen is also a Fellow of Chartered Institute of Bankers (Scotland).

INDEPENDENT NON-EXECUTIVE DIRECTORS

SHAREHOLDER DIRECTORS

T H E B O A R D 37

AFG MediaFancy dress and party fashion, including MorphsuitsSector: Consumer goodsBGF Investment: £4.2mNo of employees: 14Turnover: £10–15mCompany location: EdinburghBGF Region: Scotlandwww.morphsuits.co.uk www.foulfashion.co.uk www.royalandawesome.co.uk

AubinSpecialist cementing and stimulation chemicals used in drilling and preparing wells for productionSector: Oil and Gas ManufacturingBGF Investment: £2.25mNo of employees: 20Turnover: <£5m Company location: AberdeenBGF Region: Scotlandwww.aubin.co.uk

BarburritoFast-casual Mexican restaurantsSector: Leisure & HospitalityBGF Investment: £3.25mNo of employees: 115Turnover: £5–10mCompany location: ManchesterBGF Region: Northwww.barburrito.co.uk

BenefexSoftware supporting online employee reward and benefit schemesSector: SoftwareBGF Investment: £5.8mNo of employees: 103Turnover: £5–10mCompany location: SouthamptonBGF Region: South Westwww.benefex.co.uk

Boost Juice BarsNational chain of juice barsSector: Leisure & HospitalityBGF Investment: £2.5mNo of employees: 123Turnover: less than £5mCompany location: ManchesterBGF Region: Northwww.boostjuicebars.co.uk

BullittDesign and manufacture of high quality, high durability mobile phones for both the consumer and industrial sectorsSector: TechnologyBGF Investment: £3.5mNo of employees: 24Turnover: less than £10–15mCompany location: ReadingBGF Region: South Westwww.bullitt-group.com

CaminoLondon based group of authentic Spanish tapas bar-restaurantsSector: Leisure & HospitalityBGF Investment: £3mNo of employees: 128Turnover: £5–10mCompany location: LondonBGF Region: Londonwww.camino.uk.com

CelatonSoftware automating the handling of inbound information streams into and through organisationsSector: TechnologyBGF Investment: £2.5mNo of employees: 63Turnover: less than £5mCompany location: Milton KeynesBGF Region: Midlandswww.celaton.com

CennoxSpecalist ATM products and servicesSector: Business ServicesBGF Investment: £3mNo of employees: 88Turnover: £5–10mCompany location: Camberley, SurreyBGF Region: South Westwww.cennox.com

Broadbandchoices.co.uk Price comparison website and software for consumer broadband, TV and telecomsSector: TechnologyBGF Investment: £10mNo of employees: 54Turnover: £10–15mCompany location: LondonBGF Region: Londonwww.broadbandchoices.co.uk

GCI ComIntegrated telecoms and data servicesSector: Communications and data servicesBGF Investment: £10mNo of employees: 228Turnover: £50–55mCompany location: LincolnBGF Region: Midlandswww.gcicom.net

The Portfolio as at 30 April 2013

Our Investments so far.

P O R T F O L I O38

MagmaDesign and manufacture of high performance carbon fibre pipe for subsea oil and gas applicationsSector: Oil and Gas ManufacturingBGF Investment: £8.82mNo of employees: 90Company location: PortsmouthBGF Region: South West & Scotlandwww.magmaglobal.com

Peyton and ByrneBranded public catering, restaurant and bakery businessSector: Leisure & HospitalityBGF Investment: £6.25mNo of employees: 466Turnover: £15–20mCompany location: LondonBGF Region: Londonwww.peytonandbyrne.co.uk

PrimroseOnline retailer of garden productsSector: Consumer goodsBGF Investment: £4mNo of employees: 123Turnover: £15–20mCompany location: ReadingBGF Region: South Westwww.primrose.co.uk

SHS Integrated ServicesHigh specification industrial scaffolding servicesSector: Industrial servicesBGF Investment: £5.4mNo of employees: 130Turnover: £10–15mCompany location: Barry, WalesBGF Region: South Westwww.shs.uk.com

ShuropodySpecialist footcare provider and retailerSector: RetailBGF Investment: £3mNo of employees: 450Turnover: £15–20mCompany location: CoventryBGF Region: Midlandswww.shuropody.com

WorkshareTechnologySector: TechnologyBGF Investment: £7.25mNo of employees: 98Turnover: £10–15mCompany location: LondonBGF Region: Londonwww.skydox.com www.workshare.com

Sector: HealthcareBGF Investment: 4.4mNo of employees: 703Turnover: £5–10mCompany location: YorkshireBGF Region: Northwww.springfieldhealthcaregroup.com

Springfield HomecareDomiciliary healthcare provider in Yorkshire and Humberside

Springfield The GrangeResidential care home and private independent living

Statesman TravelTravel management for corporate and private clientsSector: Travel managementBGF Investment: £4.22mNo of employees: 150Turnover: £80–90mCompany location: LondonBGF Region: Londonwww.statesmantravel.com

STATS GroupIsolation services for onshore and offshore oil and gas pipelinesSector: Oil & gas manufacturingBGF Investment: £7.8mNo of employees: 158Turnover: £15–20mCompany location: AberdeenBGF Region: Scotlandwww.statsgroup.com

UnrulySocial video distributionSector: Digital video advertisingBGF Investment: £4mNo of employees: 117Turnover: £15–20mCompany location: LondonBGF Region: Londonwww.unrulymedia.com

Wear InnsFreehold community pub estateSector: Leisure & HospitalityBGF Investment: £8mNo of employees: 327Turnover: £5–10mCompany location: County DurhamBGF Region: Northwww.wearinns.co.uk

Wow! StuffToy development and distributionSector: Consumer goodsBGF Investment: £5.35mNo of employees: 52Turnover: £10–15m Company location: WolverhamptonBGF Region: Midlandswww.wowstuff.co.uk

M Squared LasersDesign and manufacture of lasers and photonic optical instrumentsSector: Design & manufacturingBGF Investment: £3.85mNo of employees: 34Turnover: <£5mCompany location: GlasgowBGF Region: Scotlandwww.m2lasers.com

TrunkiDesigner and manufacturer of innovative, multifunctional travel products for childrenSector: Consumer goodsBGF Investment: £3.92mNo of employees: 74Turnover: £5–10mCompany location: BristolBGF Region: South Westwww.trunki.com

P O R T F O L I O 39

It started with a good idea.People liked it.

It grew. Pretty quickly.You took on more people.

The idea got bigger.And so did the opportunity.

All by yourself you got towhere you are today.

Here.There.You need to developnew products but youdon’t have the resources.You want to expandoverseas but you don’twant a pile of debt.You want to do businesswith the big boys but youdon’t have the network.That’s where we come in.

What would you do with £2–10m of growth capital?0845 266 8860

www.businessgrowthfund.co.uk

BGF is one of a range of initiatives designed to forge better, more effective relationships between the banking sector and UK businesses. BGF works in close collaboration with the British Bankers’ Association as well as with other key business organisations and government across the UK. BGF is authorised and regulated by the Financial Conduct Authority.

Aberdeen 0845 600 3699Birmingham 0845 266 8862Bristol 0845 266 8864Edinburgh 0845 266 8863Leeds 0845 600 0142London 0845 266 8860Manchester 0845 266 8861

Website www.bgf.co.ukEmail enquiries@bgf.co.ukTwitter @bgf_team

Get in touchBusiness Growth Fund has been established to help Britain’s growing, smaller and medium sized businesses. Growth potential is the key criterion. BGF will invest between £2m and £10m per business in return for a minority equity stake and a seat on the board for a BGF director. BGF has up to £2.5bn with which to make long-term equity investments in growing companies across the UK that today do not have access to this source of capital.

BGF is an independent company, backed by five of the UK’s main banking groups – Barclays, HSBC, Lloyds, RBS and Standard Chartered. BGF also works closely with other key business organisations.BGF has specifically been set up on a local basis to be close to the businesses we invest in.

If you want to understand more about BGF or talk about how we might support your business, or your clients, please get in touch with us.