How funding can accelerate scale

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Total investment in SMEs doubled in 2017, but the latest data reveals that surprisingly few scaleups have secured external funding. Of the 35,210 in the UK, only 1,505 received investment.
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http://www.techcelerate.ventures
Helping tech companies raise equity investment
Total investment in SMEs doubled in 2017, but the latest data reveals that surprisingly few scaleups have secured external funding. Of the 35,210 in the UK, only 1,505 received investment.
About Techcelerate Ventures

Tech Investment and Growth Advisory for Series A in the UK, operating in £150k to £5m investment market, working with #SaaS #FinTech #HealthTech #MarketPlaces and #PropTech companies.
business invest fund growth company capital investor
How funding can accelerate scale
WAY TO 
GROW
2
(source: Beauhurst)
(source: Beauhurst)
2017
8.27bn
invested in 
1,505 
companies
2015
4.3bn
invested in 
1,010
companies
2014
3.4bn
invested in 
739
companies
2013
4.3bn
invested in 
488
companies
2016
3.9bn
Invested in 
1,436
companies
Total investment in SMEs doubled in 2017, but the latest data reveals that surprisingly 
few scaleups have secured external funding. Of the 35,210 in the UK, only 1,505 received 
investment.
The investment landscape
The number of deals being brokered is encouraging, but growth capital has plateaued over 
the past five years. Seed and venture stage funding still accounts for the majority of deals. 
Number of deals
2013
2014
2015
2016
2017
260
310
440
310
460
620
300
540
690
270
460
700
280
530
690
Growth
Venture
Seed
3
Scaleup companies matter. They 
are across sectors, in every area 
of the country and are generators 
of exports, jobs and growth in our 
local communities. They are highly 
productive, innovative, diverse 
and international. Increasing their 
numbers is vital for improving UK 
productivity and national economic 
growth. 
Over the past few years, the number 
of UK scaleups has grown. ONS data 
indicates that the number of businesses 
that can be classified as scaleups in 
the UK has risen from 26,985 in 2013 
to 35,210 in 2016. This is encouraging, 
with these businesses generating an 
estimated 900 billion in turnover and 
3 to 3.5 million jobs.
However, we still lag significantly 
behind international counterparts and 
we need to continue to step up our 
game if we are to realise our ambition 
to be the best place in the world to 
scale a business. While scaleups most 
need help on talent, access to markets 
and leadership, they also cite access to 
finance - and notably patient capital - as 
a barrier to their growth. 
Scaling businesses consistently point 
to the problems of finding long-term 
investors for Series B and above, 
which is why they have often turned 
to overseas investors. This requires 
deeper pools of connected capital in 
the UK, available through the lifecycle 
of a business to reach global scale, 
sustained growth and longevity.
When it comes to finance, scaleups are 
not just looking for cash: they want 
smart money which brings knowledge, 
skills and customer and market 
connections with it. 
Financial providers must work more 
closely with local communities to 
provide tailored solutions for scaleups 
where they are based. But it's not 
just a question of supply. It's also 
important to increase the provision 
of education about growth capital 
finance so that scaleup leaders are 
fully aware of all the available options 
so they can structure their companies 
appropriately. 
The economic growth that scaleups 
can generate will only occur if scaleup 
leaders understand where and what 
growth capital is available. We know 
that learning from the experiences of 
peers has the biggest impact. In fact, 
nine out of ten scaleups believe peer-
to-peer networks are vital sources of 
help when growing their business. 
The Supper Club, which we re-endorsed 
in 2017, has championed peer group 
networking and learning for the past 
15 years. With the emerging sentiment 
among our fastest-growing firms 
that the UK could become a harder 
environment in which to scale, it has 
never been more important to make 
sure the UK is 'match fit' for scaling up. 
We all have a critical role to play.
Together, let's make Britain the best 
place in the world to scale a business.
Irene Graham, CEO of the ScaleUp Institute underlines the importance of scaleups in 
today's economy.
WE NEED MORE SCALEUPS
FOREWORD
Irene Graham, CEO 
ScaleUp Institute
4
Contributors
Adam Blaskey, 
The Clubhouse
theclubhouselondon.com
Member insightpage 16
Aftab Malhotra, 
GrowthEnabler
growthenabler.com
Industry insightpage 32
Andrea Reynolds 
Swoop
swoopfunding.com
Industry insightpages 11 & 35
Christopher Baker-Brian, 
BBOXX
bboxx.co.uk
Member insightpage 31
Chris Hulatt
Octopus Group
octopusgroup.com
Partner insightpage 48
Duncan Cheatle, 
The Supper Club
thesupperclub.com
Founder insightpage 47
Edward Keelan, 
Octopus Investments
octopusinvestments.com
Partner insightpage 29
Henry Gladwyn,
BGF
bgf.co.uk
Partner insightpage 28
Irene Graham,
ScaleUp Institute
scaleupinstitute.org.uk
Forewordpage 2
Marcus Stuttard, 
London Stock Exchange
lseg.com
Industry insightpage 42
Matt Katz, 
Buzzacott
buzzacott.co.uk
Industry insightpage 19
Reece Chowdhry 
RLC Ventures
rlc.ventures
Member insightpage 25
Sam Smith, 
finnCap
finncap.com
Partner insightpage 43
Stephen Welton
BGF
bgf.co.uk
Partner insightpage 49
Stuart Andrews, 
finnCap
finncap.com
Partner insightpage 41
Tom O'Hagan, 
Virtual1
virtual1.com
Member insightpage 35
5
EXECUTIVE SUMMARY 
 
 
06
DOING IT FOR YOURSELF 
 
 
08 
FREE MONEY  
 
 
 
10
 
 
Enterprise grants 
 
 
11
 
 
R&D Tax Credits 
 
 
12
DAY TO DAY FINANCE 
 
 
13
 
 Working capital finance 
 
14
DISRUPTIVE DEBT 
 
 
 
17
 
 
Peer-to-peer lending  
 
20
 
 
Venture debt  
 
 
20
EXPLORING EQUITY  
 
 
21
 
 
Private equity  
 
 
22
 
 
Risk capital 
 
 
 
24
 
 
Angels  
 
 
 
26
 
 
Equity crowdfunding  
 
27 
 
 
Venture capital 
 
 
30
 
 
Corporate VC  
 
 
32
 
 
Growth capital 
 
 
34
 
 
Family offices  
 
 
36
AIM HIGH 
 
 
 
 
38 
 
 
Floating your business 
 
39
 
 
The cost of IPO 
 
 
40
CONCLUSION 
 
 
 
44
POLICY RECOMMENDATIONS 
 
46
OUR SUPPORTING PARTNERS 
 
52
ABOUT THE SUPPER CLUB  
 
54
Contents
Disclaimer: This publication has been prepared for the exclusive use and 
benefit of the members of The Supper Club and other contacts of The Supper 
Club and is for information purposes only. Unless we provide express prior 
written consent, no part of this report should be reproduced, distributed, or 
communicated to any third party. You must not rely on the information in 
this publication as an alternative to advice from an appropriately qualified 
professional. In no event shall The Supper Club or any of those contributing 
to this publication be liable for any special, direct, indirect, consequential, 
or incidental damages or any damages whatsoever, whether in an action of 
contract, negligence, or other tort, arising out of or in connection with the 
contents of this publication.
6
USE IT OR LOSE IT
From the rise of fintech and peer-to-
peer lending to R&D tax credits and the 
Enterprise Investment Scheme, there 
have never been more ways to fund 
scale. But too few founders are taking 
advantage of them. 
According to the ScaleUp Institute's 
latest survey of UK scaleup leaders, 
there is a general reluctance to use 
growth capital. Core bank finance 
(loans, overdrafts and credit cards) 
are still the most mentioned source 
(39 per cent) and a quarter of scaleups 
use leasing, money from friends and 
family, or third-party loans. 
Only 28 per cent report using equity 
finance and a mere 13 per cent plan to 
use it in the near future.
This might explain why there are 
so few scaleups and high growth 
small businesses (HGSBs), which are 
generally defined as those with over 20 
per cent annual average growth over a 
three-year period, an annual turnover 
of between 1 million and 20 million, 
and more than 10 employees.
While access to talent and digital 
infrastructure are frequently identified 
as obstacles, scaleups need funding to 
sustain and accelerate growth. 
IN THE DECADE SINCE 
THE 2008 CRISIS, THE 
GOVERNMENT HAS 
CREATED A BENIGN 
ENVIRONMENT FOR THE 
FINANCE INDUSTRY TO 
INNOVATE FURIOUSLY. 
BUT A RECESSION WILL 
BRING INCREASED 
REGULATION AND 
TOO FEW FOUNDERS 
ARE TAKING THE 
OPPORTUNITIES 
AVAILABLE TO THEM.
EXECUTIVE SUMMARY
Alex Evans, 
Programme Director, 
The Supper Club
7
We need scaleups to grow faster, and 
we need vastly more startups to scale. 
The figures are sobering. According 
to the Octopus High Growth Small 
Business (HGSB) report, despite 
creating 3,000 new jobs each week and 
contributing an astonishing 22 per cent 
to the UK'S Gross Value Added (GVA), 
HGSBs comprise less than one per cent 
of companies in the UK. 
That's a vast proportion of the UK's 
economic potential concentrated in 
the hands of relatively few firms and 
it demonstrates the huge economic 
incentive for Government to create 
and support more HGSBs.
Poor uptake of finance among scaleups 
is puzzlingand it's pivotal to the UK's 
competitive edge.
What's behind this dearth of demand? 
At The Supper Club's Foresight event, 
The Future of Finance, low awareness 
and limited understanding were 
frequently cited as contributors to this 
poor appetite for external funding.
Financial jargon was also highlighted 
as a barrier to investment, with 
founders having to educate 
themselves about different kinds of 
funding. It seems the finance industry, 
while laudable in its efforts to create 
a wealth of funding options, has done 
a remarkably poor job of helping 
business owners to understand them
particularly female founders. 
Speaking at finnCap's Ambition Nation 
event in March, Lesley Gregory, 
Chairman of Memery Crystal, called 
upon the funding industry to  
demystify finance.
But psychological barriers are 
paralysing many founders. Almost 
60 per cent of those surveyed by the 
ScaleUp Institute cite fear of losing 
control or poor comprehension of 
equity finance as obstacles to taking 
the funding plunge. 
The Supper Club has seen how peer 
learning can help founders overcome 
these barriers, with members sharing 
their experiences of different funding 
options to scaletheir average growth 
is 34 per cent year on year. 
We want to help all scaleups to 
understand the impact the right 
funding at the right time can have 
on their growth. We also understand 
that it's about more than money, and 
members have valued the support that 
should come with it. 
Clearly, the funding landscape has 
evolved faster than its perception. This 
guide to raising finance is aimed at 
closing that gap. It combines open and 
honest insight from members of  
The Supper Club  each of whom 
have used a broad range of external 
financing  with technical advice from 
supporting partners who have helped 
them. 
It's a reminder that scaleups shouldn't 
fear investment, but should expect 
more from it. This is a rare moment 
in British business history when high 
growth entrepreneurs are so revered; 
afforded so much Government 
support, and investor appetite.
Scaleup leaders have more choice, 
power and opportunity than ever. But 
if you don't use it, you might not have 
it for long. 
"Entrepreneurs can have a tendency to hold themselves back during scale-up. We're good 
at running a business; accessing capital is another skill. But there's only so far you can 
go organically: without external investment, you can plateau. There is a fear of giving up 
control that must be assuaged"
Shelley Hoppe, CEO, Southerly
8
DOING IT FOR 
YOURSELF
Maximising your own revenue will generate 
working capital and help you get better terms 
from lenders and investors.
9
While this guide is primarily concerned 
with the benefits of external funding, 
it's crucial to first ensure your own 
house is in order. 
A business that washes its own face 
will be an infinitely more attractive 
investment for scaling.If you need help 
financing the everyday operations of 
your company, many members of The 
Supper Club have implored peers to 
first investigate other options, rather 
than immediately reaching for working 
capital finance. 
To manage the perennial issue of late 
payments they advise keeping a close 
eye on the Cash Conversion Cycle
quicker money in from customers and 
slower out to suppliers with incentives 
to close the gap. 
An oft-used phrase within the Club is 
"cash is king, margin is emperor, and 
it's margin that puts cash in the bank." 
Many members believe that companies 
should first focus their time and energy 
on increasing profitability. 
This point is echoed by member, 
Stephen Sacks, who founded a new 
venture called Funding Nav to help 
scaling startups find cheap and even 
free ways to fund growth. 
Stephen finds that many young 
businesses are too quick to seek 
investmentwithout exploring the 
possibility of raising working capital 
through sales growth. 
In theory, it's the business' customers 
that should be doing the funding. 
Often the reason owners require a 
quick cash injection is because they 
haven't been charging enough or 
finding enough customers.
SELF GENERATED CAPITAL
Before considering any external funding, the key question any credible adviser will ask 
is: 'has this business already optimised its own ability to generate incremental cash?'
"I know some businesses who have gone on 
eight-month funding rounds, which seems 
crazy when they could be improving net 
margin organically"
Emma Wilson, founder, Harvest Digital
10
FREE MONEY
There are many sources of 'free cash' in grants 
and credits but they remain largely untapped 
because of low awareness and understanding of 
how to access them.
11
Enterprise grants
Andrea Reynolds FCA explains the types of enterprise grants available and how 
scaleups can increase their chances of qualifying.
Andrea Reynolds, 
CEO 
Swoop
Andrea Reynolds FCA is on the 
Board of South East Midlands LEP, 
a member of the Start-Up Advisory 
board for Enterprise Ireland, 
and provides access to finance 
masterclasses under the European 
Regional Development Fund in 
partnership with Virgin. 
She is also CEO of Swoop, a one-stop 
shop for business finance with over 
1,000 providers on its platform across 
equity funds, family offices, angels, 
grant agencies and loan providers in 
the UK and Ireland.
Grant schemes vary in size and 
complexity. Amounts range from as 
low as 500 to 10 million. The higher 
the amount, the more complex the 
process. Most grant schemes open and 
close several times over their lifetime, 
so it's a challenge to keep up with what 
is available and when. National and 
European Funds are focused towards 
research and innovation and improving 
competitiveness. The main national UK 
funding bodies are Innovate UK and 
the recently formed UKRI. European 
funding is also still available while the 
UK remains a member of the EU. 
The two main programmes  Horizon 
2020 and Eurostars  both require 
collaboration with other SMEs in other 
EU countries. These national and EU 
grants range from 25,000 to 10 
million. 
There are 38 Local Enterprise 
Partnerships (LEPs) across England, 
and each has their own grant 
programme. An example is the 
Growing Business Fund by New Anglia 
LEP and Suffolk County Council. The 
grant provides up to 500,000 in 
funding and covers a maximum of 
20 per cent of the overall cost of a 
project. For example, if you apply for 
400,000, you will need to find 1.6 
million to cover a 2 million project. 
The size and quality of grants vary 
greatly between regions, so it's worth 
contacting your LEP either directly or 
via the Government Growth Hub in 
your area. If you're exporting and your 
bank or credit insurer can't help, you 
may qualify for government-backed 
finance or insurance from UK Export 
Finance, the UK's export credit agency. 
Typically, UKEF helps businesses 
when the private sector finance and 
insurance market is unable to provide 
full support. Smaller companies may, 
for example, have trouble securing 
financial support in a situation where 
an important contract proves too small 
for private underwriters. UKEF offers 
different products and services across 
export finance and insurance.
12
R&D tax credits
Since being launched for small businesses in 2000, the research and development tax 
relief has helped to boost UK innovation but is still chronically underused.
R&D tax credits work by allowing 
claims against Corporation Tax 
liabilities for money spent on 
researching and developing innovative 
products or services. Since 2014, this 
can even mean a cash refund for loss-
making startups.
A total of 2.9 billion was claimed 
in R&D tax credits by innovative UK 
companies during 2015-16, according 
to HMRC, with the average amount 
of relief claimed via the SME scheme 
increasing from 56,223 to 61,514.
There are two schemes: one for SMEs 
and one for large companies. For the 
former, the Government has extended 
the standard definition of an SME 
(under 250 employees) to include 
companies with under 500 employees 
and either an annual turnover of less 
than 100 million or a balance sheet of 
less than 86 million.
In 2015, a new, simplified process was 
launchedthe Advance Assurance. 
Under this scheme, open to small 
companies turning over 2 million or 
less and with fewer than 50 employees, 
HMRC will allow claims without 
inquiring into them further.
While HMRC can claw back this money 
later if the relief has been claimed 
for projects that don't qualify, it's a 
big improvement on the previous 
system, which was offputting to small 
businesses and could take over a year 
to process. 
This is still a largely untapped source of 
capital because founders either don't 
know about it or if they qualify for it. 
In October 2016, The Supper Club 
called on HMRC to increase awareness 
and understanding of this scheme in its 
special report Britain Unlocked: A Tax 
Code for Global Ambition. 
HMRC updated its site in April 2018.
"R&D credits can be claimed in more areas 
than you might think. It's always worth 
claiming for failed projects written off 
because they were obviously risky. And, you 
can get the cash quicker than some other 
sources of capitalas little as 12 weeks."
Stephen Sacks, founder, Funding Nav 
To check if your 
project qualifies, visit: 
gov.uk/guidance/
corporation-tax-
research-and-
development-rd-relief. 
According to 
Forrester's 2016 
research, whilst 80 
per cent of companies 
intended to innovate 
in the next three 
years, only 20 per 
cent were intending 
to make an R&D tax 
credit claim.
13
DAY TO DAY  
FINANCE
While better cashflow management can provide 
some working capital, there are numerous 
alternatives to debt and equity.
14
Stock finance
For those looking to explore a more 
innovative investment vehicle, some 
companies use stock finance as a 
mechanism to release working capital. 
Here, lenders purchase the goods from 
the seller on behalf of the buyer or 
business owner. 
Invoice discounting
Another frequently-used working 
capital solution is invoice discounting. 
This releases funds from your unpaid 
invoices to help manage cash flow, 
while you maintain responsibility for 
collection of payments. By receiving 
cash as soon as a sales invoice is raised, 
the business will find that its cash 
flow and working capital position is 
improved. The business will only pay 
interest on the funds that it borrows, 
in a similar way to an overdraft, which 
makes it more flexible than debt 
factoring. 
Debt factoring
Debt factoring is a similar method to 
ease invoicing woes. Here, companies 
can sell their accounts receivable as a 
complete transactionceding control 
over collection altogether. This credit 
control and collection service is an 
additional benefit, enabling you to 
focus your resources on other areas of 
your businessparticularly useful for 
smaller businesses.
Watch out: 
While flexible and 
relatively quick to 
organise, stock finance 
can be costly and 
the security may be 
difficult to assign.
Watch out: 
Invoice discounting 
may make it harder 
to secure other more 
conventional loans as 
the lender will require 
accounts receivable as 
part of the collateral.
Watch out: 
Your credit ratio could 
be affected because 
your book debts will 
no longer be available 
as security. 
Working capital finance
A wide range of alternatives to traditional debt routes like overdrafts has emerged to 
shepherd companies through inevitable teething troubles in early stages of growth.
Founders are no longer restricted 
to overdrafts and business loans, 
but these vehicles remain the most 
common way to inject cash.
Where process optimisation and 
increasing profitability is proving 
difficult  or where a cash injection is 
needed sooner  traditional debt is 
still worth considering as it, too, has 
evolved. New lenders such as ESF 
Capital (part of Thin Cats) offers SMEs 
secure loans between 100,000 and 
5 million over a period of up to five 
years. Larger banks, such as Santander, 
have introduced flexible growth capital 
loans suited to the scaleup's needs.
Secured loans
Secured loans, which require collateral 
such as property or another tangible 
asset, usually yield higher amounts 
with lower interest rates than 
unsecured loans as the lender can 
repossess the collateral. A secured loan 
is like a credit card, with no need to 
provide collateral (some lenders may 
ask for a personal guarantee). 
Unsecured loans
Unsecured loans tend to have lower 
limits and higher interest rates but are 
quicker to secure. New players include 
online portal, Caple, where applicants 
input growth stats and forecasts for an 
unsecured loan at rates of 611 per 
cent.
15
Bridging finance
Bridging finance is another option. 
Bridging loans became very popular 
after the recession and, between 
2011 and 2014, gross lending more 
than doubled from 0.8 billion to 2.2 
billion.
Quick and flexible, they can be 
obtained in a matter of days, and 
improve your negotiating position 
as a cash buyer. However, interest 
compounds every month the loan 
remains unpaidand many default 
because of high-interest charges.
Pension-led funding
Pension-led funding is still a relatively 
unknown product within alternative 
finance, but for some firms, it's 
incredibly useful. If your business needs 
a loan, it can borrow money from 
the personal pension of one of the 
directors and pay it back with interest. 
Alternatively, the pension can invest 
directly in the business. Although it's a 
complex vehicle, there are significant 
benefits for businesses in certain 
situations, and it's well worth exploring 
as an alternative route to business 
finance. 
Firstly, it allows you to borrow funds 
from an existing pension within HMRC 
rules. The turnaround is relatively 
swift, with six to 10 weeks from quote 
to drawdown and it promises more 
security and independence than some 
traditional forms of lending.
Asset finance
Asset finance works by paying in 
instalments over a period, with the 
asset used as security until the last 
paymentwhen ownership transfers 
to you. Asset finance can be used for 
buying computer systems, specialist 
machinery, property or vehicles. It has 
grown in popularity, with 2016 marking 
its sixth year of consecutive growth. 
The advantages are improved cash-
flow and balance sheet strength in 
exchange for an increase in monthly 
operating costs over the life of the 
lease or hire purchase agreement. 
Watch out: 
Bridging finance rates 
are higher than other 
forms of finance and 
penalty interest rates 
can be extremely 
punitive.
Watch out: 
Remember that you 
can't claim capital 
allowances on a 
leased asset if the 
lease period is less 
than five years.
Watch out: 
Be aware that any 
business failures 
could have a drastic 
impact on your 
retirement finances.
16
The funding spectrum
Adam Blaskey, a former banker, 
developed high-end, central London 
residential property projects under 
the banner of Northbeach and 
Northbeach Capital Partners for 
over a decade. Having spent much 
of his working life meeting in hotel 
lobbies and coffee shops, he decided 
to launch The Clubhouse in 2012. This 
private business members club and 
meeting space has since grown into 
a network around London. Adam has 
raised finance from a wide variety of 
sources, from crowdfunding through 
Seedrs and venture debt from the 
British Business Bank to private 
investors from his club's membership. 
How have you raised investment and 
what types of funding have you used?
When pitching for investment, you 
need to present the problem you're 
solving, your understanding of your 
customer base, market potential, 
your operating model, your revenue 
streams, and a clear vision, mission, 
and purpose. We've raised different 
forms of funding, from equity to 
convertible loans, venture debt 
and asset finance. The first was an 
SEIS equity round where we raised 
150,000 from ten angel investors 
and we've gone on from there with 
different equity rounds. 
What did you learn from raising 
investment through crowdfunding?
We did a crowdfunding round on 
Seedrs a couple of years ago to allow 
some of our members to put their 
money where their mouth is. They've 
always been great fans and advocates 
of what we do, and when we were 
raising a bit of early-stage capital 
before going for larger venture debt 
or PE rounds, we wondered if our 
members would support us  which 
they did. Crowdfunding was great for 
profile raising and awareness but there 
are better solutions for higher levels of 
growth capital.
What has been the easiest source of 
funding, and what do you wish you 
had known before you started? 
To date, most of our funding has come 
from friends, family, connections, and 
various introductions. My advice to 
anyone raising money is to build in 
enough comfort room in your model 
and raise slightly more at the outset 
so you don't have to worry about 
cash flow as you're growing. You need 
to have an optimistic plan which is 
realistic at the same time.
What is the most valuable lesson you 
have learned about raising finance?
The best lesson I've learned is that 
there are lots of different sources of 
funding available. On the one hand, 
there is lots of money out there, but 
getting that money committed and 
invested in your business is not as easy 
as it may seem. It takes a lot of hard 
work. Remember that there are more 
options than equity.
My recommendation would be to look 
at everything from asset finance and 
discounting to venture debt. I used 
an adviser to help me find the right 
option, as they can help you to explore 
all options and answer the trickier 
questions during the due diligence 
process. 
Adam Blaskey, founder and CEO of The Clubhouse, explains the range of funding 
options he has used at different stages of scale.
MEMBER INSIGHT
Adam Blaskey, 
founder,  
The Clubhouse
17
DISRUPTIVE 
DEBT
There is a raft of new lenders and debt solutions 
challenging traditional lending terms to enable 
businesses to scale without surrendering equity.
18
The term debt alone can send a chill 
down the spine of some entrepreneurs 
and many have been deterred by 
conditions, financial covenants, hidden 
costs and redemption penalties. 
Mike Lander, founder of Ensoul and a 
member of The Supper Club recalls his 
experience of debt finance. 
"Having borrowed over 7 million 
between 2007 and 2009, I know only 
too well the impact of having a bank 
looking over your shoulder every 
month, especially if you breach any of 
your loan covenants.  
 
You can quickly find that what 
you thought was an arm's length 
relationship with your bank  with 
you in complete control  turns into a 
situation whereby they have significant 
and very real powers to force your 
hand."
Banks are most interested in lending 
over 2 million and tend to lend on 
1.52 times consolidated earnings, 
before interest, taxes, depreciation, and 
amortization (EBITDA). 
Because early-stage businesses are 
higher risk with generally fewer assets, 
they will often be asked for a personal 
guarantee from the owners and 
directors. This has deterred members 
DEBT FINANCE IS 
PREFERABLE FOR 
FOUNDERS RELUCTANT 
TO GIVE UP ANY 
CONTROL OVER THEIR 
BUSINESS, BUT IT 
OFTEN COMES WITH 
OTHER RESTRICTIONS
DEBT... 
BUT NOT AS YOU KNOW IT 
19
Matt Katz, Head of Corporate 
Finance at Buzzacott, offers five 
tips for avoiding or mitigating 
personal guarantees
1. Align your borrowing with 
a personal investment in 
the businessbanks will be 
more comfortable in waiving 
a personal guarantee if an 
entrepreneur is visibly investing 
themselves but timing is 
crucial. Banks often ignore 
'historic' investments, no 
matter how close to the loan 
application they were made. 
2. Build a good track record 
before askingthe better 
a bank knows you the less 
likely it is to ask for a personal 
guarantee.
3. Rule out a personal guarantee 
agreement at the outset
this may restrict the pool of 
potential banks but if you have 
a good business you are still 
likely to find a supportive bank.
4. Negotiate a limitationeither 
to a timescale (12 months 
for example), milestone (such 
as the investment reaching 
an agreed return) or size (a 
guarantee limited at 25,000, 
for instance, will in theory put 
you 'on the line' but shouldn't 
lose you your house).
5. Consider your lender 
carefullymainstream banks 
are unlikely to call upon the 
guarantees as long as you have 
'behaved' as an entrepreneur. 
Smaller banks and other 
lenders tend to enforce them 
more frequently whatever the 
circumstances.
REDUCING PERSONAL RISK
because a personal guarantee merges 
your business and personal risk, 
meaning that should your business be 
unable to pay off the loan, your savings, 
real estate and even valuables are on 
the line.
And there are hidden threats to look 
out for like Material Adverse Change 
(MAC)a contingency provision often 
found in venture finance contracts 
and lending agreements. It grants the 
lender a right to back out or call in 
debt in the instance of a 'major adverse 
change' in the company or even the 
broader market. 
The good news for borrowers is that 
MACs can always be heavily negotiated 
and  because a material adverse 
change is notoriously difficult to 
establish  are not commonly used to 
default a borrower. 
Indeed, recent case law restricted their 
scope considerably: most significantly 
ruling that the burden of proof is on 
the lender to show that a MAC event 
has occurred.
But the landscape is changingfast. 
Challenger banks have prospered by 
breaking these conventionsoffering 
different lending options and assessing 
risk by other factors like balance sheet, 
customer base, and growth potential.
"Being able to make quicker 
decisions based on data in a 
more informed way is the biggest 
disruption in lending because we 
can lend more to entrepreneurs at 
a cheaper cost"
Cristina Alba Ochoa, CFO, OakNorth
20
Four years on from Santander's 
landmark partnership with Funding 
Circle, peer-to-peer (P2P) lending is set 
to disrupt business lending further.
Players including Zopa have now 
gained full authorisation from the 
Financial Conduct Authority to offer 
innovative finance ISAs (IFISAs). 
Peer-to-peer lending
P2P lending has grown dramatically since the financial crisis and innovation is set to 
boost its uptake even further.
IFISAs allow individuals to use some 
(or all) of their annual ISA investment 
allowance to lend funds through P2P 
lenders with tax-free interest and 
capital gains. 
These, it is predicted, could help unlock 
an estimated 80 billion in cash ISAs 
for small business growth.
Watch out: 
If your credit score 
isn't great, a higher 
interest rate will cost 
you more in the long 
run so it's better to 
improve your credit 
before applying. 
Available earlier and in larger amounts 
than traditional bank loans, venture 
loans tend not to ask for personal 
guarantees.
OakNorth, which backed the Leon 
restaurant chain, lends between 
500,000 and 30 million at rates of 
between 5 per cent and 10 per cent. 
Co-founded by The Supper Club 
member Joel Perlman, it has disrupted 
business lending with faster decisions 
backed by its ACORN platform. Its 
impressive growth indicates that it has 
uncovered an unmet need; achieving 
unicorn status and 10.6 million profit 
in just two years. 
Silicon Valley Bank (SVB) was one of 
the first to accelerate venture debt 
Venture debt
Venture debt is becoming increasingly popular. These loans are provided by specialist 
lenders to pre-profit SMEs with an established business model. 
to the mainstream for early-stage 
businesses. Other venture debt players 
include Boost & Co and BMS Finance 
 funded by the British Business Bank  
and offer loan rates between 11 and 15 
per cent, depending on the risk of the 
business. 
Boost & Co lends throughout Europe 
and favours industries such as software 
services, internet, life sciences, 
hardware, and cleantech, while BMS 
Finance lends in the UK and Ireland. 
Traditional banks are trying to disrupt 
the challengers. Santander Growth 
Capital Loans are available to UK 
businesses with a turnover between 
2.5 and 50 million, and 20 per cent 
growth, at a rate of 10 per cent per year 
plus 10 per cent fee at the end.
Watch out: 
Venture debt 
can come with 
unattractive financial 
covenants which 
trigger defaults if 
certain metrics aren't 
met.
"UK banks don't understand tech companies and they're less tolerant of low or no profit. 
By contrast, Silicon Valley Bank gets tech companies and their growth potential"
Steve Phillips, founder, Zappi
21
EXPLORING 
EQUITY
Equity investment doubled in 2017, but are you 
prepared to relinquish some control of your 
business to achieve the next stage of growth? 
22
According to data from Beauhurst, 
8.27 billion was invested in SMEs in 
2017  more than double the previous 
year  with firms at every stage of 
development receiving more cash 
than any period on record. The biggest 
increase was at the growth stage, with 
investment leaping from 2.4 billion in 
2016 to 5.5 billion.
Although the number of high 
growth firms hasn't risen in line with 
the increase in funding available, 
they continue to have a hugely 
disproportionate impact on the 
economy. 
The third Octopus High Growth Small 
Business (HGSB) report shows that, 
despite comprising less than one per 
cent of UK companies (22,074 out of 
5.6 million), HGSBs created one in five 
new jobs and contributed 22 per cent 
of economic growth. So, if access, or 
attitudes, to finance is a barrier, it's in 
all our interests to remove it.
A common misconception amongst 
founders is that equity investment 
means ceding control. While it's not 
unheard of for investors to restructure 
leadership teams, they ultimately have 
an interest in making your business 
succeed. 
The spectrum of private equity 
investment is broad, from angels and 
equity crowdfunding to venture and 
growth capital. At the larger end, 
private equity tends to invest for a 
YOU MIGHT BE 
STEADFAST ABOUT 
AVOIDING DILUTION, 
BUT AN EQUITY 
INVESTOR CAN BRING 
A LOT OF VALUE 
AT BOARD LEVEL. 
THEY CAN HELP YOU 
FOCUS ON YOUR 
GROWTH PLAN, BRING 
VALUABLE BUSINESS 
CONNECTIONS 
AND KEEP YOU 
ACCOUNTABLE TO 
AGREED OBJECTIVES
PRIVATE EQUITY
23
majority stake in a mature, profitable 
company while earlier stage investors 
take minority stakes in younger 
growing businesses.
Blackstone, which recently acquired 
a majority stake in The Office Group 
for 0.5 billion, is amongst the largest 
private equity investors. ECI Partners 
invests in management buyouts and 
buy-ins for majority or minority equity 
investments in midsized UK growth 
companies, with deal sizes of 20 
million to 150 million, while LDC 
provides up to 100 million for buyouts 
and development capital transactions 
in UK unquoted companies. 
BGF is the most active investor of 
growth capital in the UK and Ireland 
with more than 2.5 billion to invest (it 
has backed 222 companies since 2011). 
BGF specialises in minority stakes and 
invests in a broad range of companies 
across all sectors, from post-revenue 
start-ups to more established 
businesses with revenues up to 100 
million, as well as listed firms. 
Each type of investor can offer value 
beyond capitalsharing relevant 
skills and experience, introducing new 
partners, sourcing the best advisers, 
and helping to secure big clients. 
Access to senior executives is another 
key area of value, and differentiation, 
with investment firms building more 
entrepreneurial talent networks to 
support investees.
"It's important that you look 
for investors who provide 
'Money Plus'. They need to 
be able to give you sound 
advice, introduce you to 
potential clients, or help 
drive the business in the 
right direction"
Suzanna Chaplin, MD, ESBConnect
Alistair Brew, Investor at BGF
"Chemistry is important. The 
founder should feel that the 
investor has empathy with 
their vision for the business. 
Hopefully, the entrepreneur, 
in turn, understands that a 
little more structure as it 
grows is going to help with 
that journey."
Watch out:
Corporate finance 
advisers warn that 
funds of 1 million 
could cost you 3 
million over the 
lifetime of the 
investment.
24
The range of options for equity 
investment is vast. For early stages 
of growth, a burgeoning fund 
management industry has grown 
around the Enterprise Investment 
Scheme (EIS) and Venture Capital 
Trusts (VCT). 
Investors can offset part of the cost of 
their investment in a small or medium-
sized business against their income 
tax and qualify for exemption from 
Capital Gains Tax on the sale of the 
shares. According to corporate finance 
partners and members, EIS and VCT 
tend to look for smaller multiples of 
five to seven times ROI within five 
years. Focusing more on sales than 
profit initially, investors look for 'J' 
curve businesses where the investment 
builds on a foundation for growth.
The Seed Enterprise Investment 
Scheme (SEIS) comes with 50 per cent 
relief but it's capped at 150,000 to 
the company. SEIS has been credited 
for the start-up boom of recent years, 
but raising finance is a lengthy and 
time-consuming process and 150,000 
will be used up quicklywith founders 
having to get follow-on EIS funding. 
It also encourages founders to deal 
with investors too early in the scaleup 
lifecycle when they could find other 
ways of raising working capital.
EIS and VCT offer income tax relief of 
30 per cent to investors who subscribe 
for shares in qualifying companies. In 
April 2018, under the new Finance Bill, 
the annual investment limit doubled 
from 1 million to 2 million, and from 
5 million to 10 million for 'knowledge 
intensive' companies. Entrepreneurs 
can also choose whether their firm's 
10-year eligibility for EIS is measured 
from the date of their first commercial 
sale, or the date from which their 
annual turnover first exceeds 200,000.
This will boost already growing 
investment through these schemes. 
VCTs raised 728 million in 2017/2018 
compared to 542m for 2016/2017. 
Octopus is the UK's largest VCT 
manager with more than 900 million 
invested on behalf of 30,000 investors 
since the scheme was launched. 
Risk capital
Tax reliefs to compensate for riskier investment in small private companies has been a 
game changer for SMEs and the UK economy.
Watch out: 
It can take longer to 
secure this funding 
than you expect: get 
the best lawyer you 
can afford to highlight 
the things to look out 
for and help you avoid 
awkward provisions 
in shareholder 
agreements.
2,360 companies 
raised a total of 
180m 
of funds under the 
SEIS scheme
In 2015-16
3,470 companies  
raised a total of  
1,888m  
of funds under the  
EIS scheme 
"VCT is a good source of patient 
capital but it takes a long time 
to get approval. Rules have been 
tightened to prevent abuse, but 
we nearly didn't qualify because 
our business started as a hobby.
This needs to be taken into 
account so it doesn't disqualify 
other scaling businesses"
Simon Hay, Co-founder, Firefly
25
Risk capital to scale
Reece Chowdhry has helped grow LandlordInvest into a multi-million-pound business 
in two years and is the founder of RLC Ventures.
MEMBER INSIGHT
What are the advantages and 
disadvantages of risk capital?
We used SEIS and EIS to support 
cash flow in the early stages of 
LandlordInvest. The tax breaks are a 
big advantage of SEIS for an investor, 
but it can attract the wrong type 
of investor if they are just trying to 
mitigate their tax bill. 
Debt is quicker to secure with far less 
documentation. It can take two to 
three months to process SEIS. But, 
like a lot of businesses, LandlordInvest 
wouldn't have got funding without 
SEIS. 
Greater awareness of investment 
opportunities in early-stage businesses 
and an increase in risk appetite from 
investors has brought more money into 
the small business community. 
It provided the lifeblood for 
LandlordInvest and the working  
capital for key hires. The value beyond 
capital has been strategic introductions 
from investors, access to senior talent, 
and getting some amazing investors 
on board. The rigour from investor 
expectations around due diligence also 
helped us professionalise the business.
Access to advice when you need it 
is invaluable. RLC Ventures set up 
a WhatsApp group for investors so 
entrepreneurs can reach out to us 
24/7. I would have benefited from this 
pastoral care in the early stages and 
implemented it in my own business.
Were there any challenges?
Time and legals were the biggest 
lessons. It always takes longer to secure 
funding than you expect, and you 
need the best lawyer you can afford 
to highlight the things to look out 
for. They can help you avoid awkward 
provisions in shareholder agreements 
that can come back to haunt you. 
LandlordInvest was approached by 
some investors who over-promised 
and under-delivered. I would be more 
patient, wait for better investors, and 
be clearer about expectations. You 
can't rely on a handshake so document 
everything in the right format to make 
it legally binding.
What advice would you give other 
founders looking for investment?
Understand where you are in the 
funding lifecycle: you can raise seed 
capital through friends and family. 
Also, don't fall into the trap of solely 
focusing on funding instead of growing 
your business. Get someone to find 
funding for you so you can continue 
making your business even more 
attractive for investment.
What needs to change in the current 
legislation?
You should be able to invest in startups 
with your ISA savings. There is an 
estimated 259 billion in UK cash 
ISAs and this could be optimised for 
seed-stage investment in growing 
businesses. 
It should be much easier to navigate 
and process S/EIS and there is still a 
poor understanding of tax- efficient 
schemes. There is little or no awareness 
of SITR (Social Investment Tax Relief) 
and it's such a good scheme that could 
boost social impact.
Reece Chowdhry, 
founder, RLC 
Ventures
RLC Ventures invests 
in startups; providing 
seed-stage capital 
for fintech, proptech, 
sports tech, and tech 
for good causes.
26
An angel investor uses their own 
capital to fund the growth of a small 
business at an early stage, often 
contributing their advice and business 
experience. 
EIS and VCT tax breaks have swelled 
the angel community, and the level of 
involvement of angel investors varies 
dramatically. Those who have built and 
sold their own businesses will generally 
feel a closer affinity to the founder.
"When looking for a good angel 
investor, the single most important 
factor is personal fit," says Andrea 
Reynolds, CEO of Swoop. "Do they 
understand the market you serve? Do 
you both have a good chemistry?" 
An interest in your business and 
proven connections within your 
market will make for a healthier and 
more impactful relationship. It's fair 
to expect a process with any investor, 
that each meeting is getting you both 
towards a decision. There should be a 
step forward every two weeks at most."
Andrea warns against time wasters. "Be 
wary of angel investors that put you 
through endless due diligence as they 
either get cold feet, never intended 
to invest, are hobbyists, or it's a delay 
tactic for the business to become so 
cash stretched they can get a better 
deal. 
Keep an eye out for other red flags 
alsoparticularly term drivers who 
offer, say, 500,000 to spark the round 
and then, as it gains momentum, start 
to reduce personal investment while 
seeking to gain shares or a position 
within your company."
Angels
Angel investment fills a vital gap in the early stages of scale, with budding businesses 
using this stepping stone finance before they transition into venture capital.
Investors will expect the founder 
to pitch the opportunity, but it's 
a good idea to have a financial 
director in the pitch to talk about 
the numbers. 
When compiling your pitch deck, 
make sure it includes the following 
points: 
1. The problem you're solving 
2. What is unique/differentiated 
about your solution 
3. Market size and growth 
potential 
4. Key competitors and your 
differentiators 
5. Customer segments and 
geographies 
6. Growth plan and roadmap 
7. Top line P&L and financial 
projections 
8. Leadership / Management 
team 
9. 
Investment required, how it 
will be deployed and the exit 
timeframe/valuation
10. Other ways the VC can support 
scale
TACTICAL TIPS
YOUR INVESTOR PITCH 
27
The UK industry is regulated by the 
FCA, highly competitive, and growing. 
Despite a dip in deal numbers in 2016, 
the crowdfunding boom returned 
last yearattributable to its inherent 
ease to both list and invest. As a 
bonus, those seeking investment also 
gain profile from a highly marketed 
platform and confidence in the founder 
and their business from a broad range 
of advocates. For those looking to 
invest, all of the research and due 
diligence is taken care ofpeople can 
either opt in or out. 
Advice from members who have 
sought investment through 
crowdfunding is to participate as an 
investor first to understand the process 
from both sides. Look for the most 
active platform for the best chance of 
generating interest. 
They also advise creating PR and 
marketing collateral for your company, 
product or concept and use this as part 
of your application. As with any form 
of investment, you need to be able to 
answer any question about why you 
need it and how you will deploy it. So, 
do your homework on the financials as 
people will ask probing questions.
Equity crowdfunding platforms 
vary, with different fee models and 
structures for raising capital. Many 
have a lead investor for each funding 
round and an expert panel to offer 
analysis and guidance to both investors 
and investees. 
Some platforms take an equity stake 
and arrangement fee for hosting 
a pitch. As a benchmark, equity 
crowdfunding fees range from 5 to 
7.5 per cent of a successful raise, but 
members warn to look out for other 
payment processing fees. Indeed, some 
platforms have begun to take a cut of 
investor profits. Remember that if you 
do manage to negotiate a better deal, 
you should ensure that this agreement 
also covers future rounds.
While valuations are primarily led by 
the founder, some platforms have 
an in-house investment team who 
will mediate valuations. Others can 
choose not to list you if they feel it's 
too overvalued. Platforms usually let 
the market decide if valuations are fair, 
but everything should be supported by 
evidence. 
While it's an intensely competitive 
industry, Crowdcube, Seedrs, 
SyndicateRoom and Venture Founders 
dominate by deal volume and size. 
According to Beauhurst, Crowdcube 
was the top-ranked platform by the 
amount of investment facilitated, 
whilst Seedrs participated in more 
deals. According to Off3r, a comparison 
site that lets retail investors compare 
investment options, Seedrs took the 
largest deal in 2017, raising 6 million 
in one campaignfor itself.
Equity crowdfunding
Crowdfunding has democratised equity investment. Now a key part of the finance mix, 
it bridges the gap between friends and family and angel or VC investment. 
Watch out: 
Equity crowdfunding 
boosts the profile of 
a business but failure 
is just as public and 
30-40 per cent of 
companies do not 
reach their target.
"Crowdfunding has democratised equity 
investment and brought more private capital 
into small businesses. We must give credit 
to the regulators for allowing innovation to 
flourish"
Stephen Welton, CEO, BGF
28
Investing growth capital
Henry Gladwyn, an investor at BGF's ventures team, offers insight into how to pitch 
for investment and what investors in earlier stage companies look for.
Henry Gladwyn, 
investor,  
BGF Ventures
What kinds of businesses do investors 
look for?
In contrast to private equity (PE)  
which looks for later stage, viable and 
profitable businesses with lower but 
steady growth  venture capital (VC) 
expects at least 50 per cent growth per 
year and over 80 per cent margin from 
SaaS businesses. 
In Europe, VC has almost exclusively 
invested in SaaS and marketplace 
businesses, but BGF looks at 
businesses across a range of sectors
from MedTech to extreme-sports 
brands.
Currently, there is a lot of money 
looking for investment and the more 
established the fund the more it needs 
to invest. 
That means PE funds are risking up to 
invest in earlier stages of growth and 
VC is considering lower growth.
How should earlier-stage business 
owners pitch for investment?
While PE investors are more interested 
in the numbers, earlier stage 
investors are more interested in the 
growth story and how it can support 
accelerated growth. 
So, present the problem you're solving, 
why you will dominate the market, and 
for how long. 
The most important numbers relate 
to the size of market and opportunity. 
The predictability of your business is 
a strong element when pitching, so 
think about all possible challenges.
Earlier-stage investors are looking at 
the idea and the management team. 
As a founder, you need to inspire 
confidence in your ability to lead and 
deliver growth, with a solid leadership 
team including a strong FD or CFO. 
Often, the decision to invest is made by 
the Deal Lead who you will speak to at 
the pitching stage. They will feedback 
to an internal committee and come up 
with questions that structure the due 
diligence process.
What board level input do investors 
expect?
BGF will often help companies appoint 
a chair or non-exec on your board 
(if you don't already have one) as 
a bridge between the investor and 
management team. 
A NED should typically spend two days 
a month on the business, one for board 
and one for the board pack. 
The NED should be right for your stage 
of scale, so if they aren't right for the 
next phase you should rotate them out 
to bring in someone more qualified. 
A good NED should be motivated by a 
genuine interest in your business and 
it's potential, so they are more likely to 
invest rather than look for fees.
How can founders get the best 
valuations for their business?
The market will set the valuation, not 
the business owner so you need to be 
realistic about your growth potential. 
The downside of excessively high 
valuations is having to deliver against 
unrealistic growth targets. 
PARTNER INSIGHT
29
Value beyond investment 
Investors should offer long-term 
support and funding to build up a 
strong relationship with management 
and become a trusted partner to the 
business.
Our team invests from the Octopus 
Apollo VCT, which is a sector agnostic 
fund specialising in providing patient 
capital of between 2 million and 
10 million, often through multiple 
funding rounds, to commercialised 
businesses with annual revenue in 
excess of 1 million. Investments are 
structured through minority stakes 
(10 to 30 per cent) and flexible debt to 
minimise dilution. 
Fast-growing businesses can get 
too caught up in the running of 
the business and this was the case 
with SCM World, as CEO and The 
Supper Club member Oliver Sloane 
explains: "When Octopus joined the 
board, they helped us focus on how 
we could make the business more 
scalable and less dependent on the 
founders. Together we identified 
the most effective KPIs to measure 
and use to drive strategic decisions. 
We also formalised processes 
for managing customer contract 
renewals, to improve retention, and 
we reconfigured and augmented the 
senior leadership team to position the 
business for rapid future growth." 
 
Once integrated into the business, 
the investor's skills, experience and 
expertise can bring strategic value 
to the board and help them execute 
key decisions. Having invested in 
well over 100 companies, we're able 
to introduce portfolio companies 
to one another or outside agencies 
that can help them. When we first 
invested in Care & Independence, it 
was effectively four small companies 
acting independently. Working with 
Chairman Peter Toland, we introduced 
branding and marketing consultants 
to bring these companies together 
to create one clear brand and a fresh 
face for the company. 
When there was a downturn in 
the oil and gas sector in 2015, TSC 
Inspection Systems came under 
some pressure. Due to the speed in 
which the market turned, customers 
naturally paused before signing new 
contracts and this put both strategic 
and financial pressure on the business. 
"Octopus helped by providing 
emergency funding," explains CEO 
Chris Walters. "They also created a 
new incentivisation scheme for the 
management team, assisted with 
a business improvement plan, and 
helped us identify an appropriate 
long-term owner for the business." 
This bought time to work together 
on finding a suitable owner for the 
business best able to benefit from the 
technology and invest for growth. 
It's important to understand the time 
horizons of your investment partner. 
Fundraising can take up a significant 
amount of time and founders don't 
want to be thinking about how they 
are going to finance their business 
every three years. We supported 
Clifford Thames' rapid growth with 
four funding rounds over eight years, 
while helping it to develop new 
products and explore new areas of the 
market. This took time to bed in, so 
our patient capital allowed it to make 
long-term strategic decisions. 
Edward Keelan, a growth capital investor at Octopus Investments, explains how 
investors can make a positive impact on businesses beyond just providing finance.
Edward Keelan, 
growth capital 
investor, Octopus 
Investments
PARTNER INSIGHT
30
VCs invest in companies at an early 
stage of development who need cash 
for talent and technology, accelerating 
scale and increasing market share. 
Fundraising can be very distracting, so 
members recommend getting an MD 
or COO who can run and manage the 
business on your behalf, and a good FD 
or CFO who can get your accounts in 
order. 
They also advise that you tidy up your 
accounts and get clarity on how your 
key metrics are calculated at least a 
year before going out to pitch.
If you don't have a management team 
in place, have a plan for building one 
as a VC will expect to see it. They will 
want a chairman on the board to act as 
the intermediary between the founder 
and investor, so try to recruit one 
before pitching for investment or try 
to influence the recruitment decision 
to get a chairman who understands 
entrepreneurial businesses and 
founders. 
A chairman will add structure and 
accountability to board meetings, 
make them more impactful, focused 
on decision making and less of a 
reporting function. Before looking for 
VC, members advise that you draft 
a three-to-five-year plan of what 
the business would look like with an 
injection of VC funds and the impact it 
will have on growth. 
A good corporate finance adviser who 
understands your objectives will have 
a better idea of the funding landscape 
and what differentiates each VC. 
Try to find a VC that truly understands 
your proposition and market. Members 
advise talking to other members or 
founders that have worked with the VC 
you are considering to glean feedback. 
Ask the VC to model out an exit with 
you to set expectations for both 
parties.
Due diligence works both ways, 
and VCs will look for any red flags 
in your business. They may contact 
current and churned clients; so if 
you have any disgruntled customers, 
manage them before you enter 
into the investment process. They 
may also insist on psychometric 
tests on the management team to 
understand how they work, how they 
like to communicate, and what their 
strengths and weaknesses are. 
To maintain the best ongoing 
relationship with investors, maintain 
regular communication and avoid 
keeping bad news from them as it will 
always come to light. Some members 
send investors a quarterly newsletter 
outlining updates, successes, new 
additions, and plans. One member 
created a Futures Board where 
representatives from each department 
present ideas and updates to the 
founders and VC investors to highlight 
new areas of growth. 
Venture capital
Venture capital (VC) is designed to nurture high potential businesses and prepare 
them for the next growth phase. 
Watch out:
Speak to businesses 
that have gone into 
liquidation after 
raising with the fund 
as well as those who 
have been successful 
(if the fund doesn't 
offer up names, this 
could be a red flag). 
Watch out: 
US-style VC is looking 
for unicorns that will 
provide the returns 
for the rest of the 
portfolio, so be wary 
of those inclined to 
focus their attention 
on the two or three 
most promising and 
less on the others.
"Equity is all about timing. You don't want to 
give too much too early. But, take it too late 
and it holds backs growth meaning a lower 
valuation"
Simon Hay, Co-founder, Firefly
31
Working with VC
Christopher Baker-Brian co-founded 
BBOXX in March 2010 to design, 
build and distribute electrification 
solutions for developing economies 
across Africa and Asia. In 2013, after 
developing its growth plan, BBOXX 
secured their first round of series A 
funding in the summer of 2013 and 
raised a series C round of $20 million 
in August 2016. In February 2018, 
BBOXX announced a partnership 
with Bamboo Capital Partners on the 
pioneering BEAM platform. 
This will initially deploy $50 million in 
equity for distributed energy service 
companies (DESCOs) to provide off-
grid energy to consumers in Africa 
and Asia. BBOXX now employs over 
550 people across three continents. 
What value beyond capital did you 
gain from your VC investor?
It really helped us to improve our 
financial reporting for growth in 
the early days; but at every stage 
we have learned something new, 
from technical assistance around 
product development to financing our 
customers. 
I would definitely advise looking for 
smart money with knowledge behind 
it. We got a lot of support from our VC 
on our finance model. They were able 
to provide someone who specialised 
in running microfinance which was 
critical for us.
What other areas of support would 
have been beneficial?
We had to learn some big lessons on 
our own, like how to manage growth 
across three continents and scale 
to over 500 people. We would have 
benefited from someone who had not 
only done it but had done so more 
recently and in a similar industry. 
Investors can help you find non-
executive directors from their network 
and we had one good and one bad 
experience. 
The bad one came from a consultancy 
background and his knowledge was 
out of date, like a lot of NEDs. 
We need people with up to date 
knowledge of technology and trends 
as well as experience of scale; 
preferably those who have built their 
own businesses.
Were there any unexpected 
challenges that other business 
owners should be wary of?
We underestimated the financial 
reporting cycle and how honest and 
open you should be. We were used 
to managing cash flow but had to 
learn how to present our accounts for 
investment.
Christopher Baker-Brian, co-founder of BBOXX, recounts his first VC investor 
experience and reflects on how his expectations matched up with reality. 
"The normal economics about how you price 
businesses and how you value businesses 
don't apply in this hyper-growth, global scale 
enterprise buy and build. 
They're more focused on top-line revenue 
growth and your addressable market"
Dan Scarfe, CEO and founder, New Signature UK
Christopher Baker-
Brian, co-founder, 
BBOXX
MEMBER INSIGHT
32
Typically, CVCs have a mandate to 
'seek out disruptive innovations and 
business models' that have high growth 
potential within their industry. 
The net lifetime value (LTV) of a single 
investment is determined not only by 
the rate of return  via an exit or follow-
on round  but also its business impact. 
High-performance CVCs win by 
discovering startups and scaleups 
with innovative business models and 
proficient leadershipproven to thrive 
in diverse markets. And, of course, 
strong products that can not only 
scale but also be leveraged inside the 
corporate itself.
With that in mind, there is no one-
size-fits-all answer. Whether investing 
for a financial ROI or with the intent 
to integrate the technology/solution/
innovation back into the core business, 
leading CVCs are clear on their purpose 
from the outset.
As ever, CVCs rely on their personal 
network, company brand, events 
and intelligence tools, to refine and 
automate this scouting process. 
We frequently find that there's a lot of 
merit in the old clich 'if you don't ask, 
you don't get'. And so, once a startup 
sees a fit with a CVC's investment 
priorities, then reaching out to them 
directly is clearly of value. 
This is where hustle and persistence 
pay off. It's always better to deal with 
an individual, as opposed to a generic 
contact address. As with VCs, many 
CVCs only deal with referrals. This is 
where Dale Carnegie's guidance on 
winning friends and influencing people 
comes into its own.
Referrals, as ever, are often far 
stronger than cold outreach, but 
notoriously difficult to get hold of. 
Leveraging trusted partners, events 
and/or scouting agents certainly helps 
advance the possibility of a meaningful 
referral. Ultimately, in the eyes of 
the CVC, a referral accelerates the 
qualification process.
CVCs are often at the mercy of internal 
corporate processesmeaning they 
are significantly slower to act. Look at 
their track record. 
The CVC fund size, current portfolio, 
exit ratio, and success stories 
determine whether the CVC is both 
suitable as a partner and if it can add 
meaningful value; beyond just financial. 
As ever, startups ought to evaluate 
what the corporate can bring to the 
table; both in terms of funding, but also 
opportunities and growth guidance.
Corporates are investing heavily in 
digital innovation. Growth is being 
enabled by building digital ecosystems, 
creating new products and driving 
new revenue streams. This is best 
executed when disruptive startups and 
scaleups are aligned to actual business 
problems. Be it partnering, procuring 
or investingeverything is on the table 
and being pursued. 
Beyond capital, CVCs provide business 
expertise, access to new markets and 
customers, technology skills and talent, 
leadership mentoring, global reach and 
infrastructure, and of course, a strong 
brand endorsement.
Corporate venture capital
GrowthEnabler's Aftab Malhotra explains why corporate venturing is on the rise and 
the value exchange for scaling businesses.
Watch out: 
Your company could 
be overvalued by the 
CVC, which can deter 
potential co-investors 
and make it difficult 
to raise subsequent 
financing rounds at a 
higher valuation.
Aftab Malhotra, 
co-founder and 
chief growth officer, 
GrowthEnabler
33
CVC funding in 2014 was  
$18bn from 140 CVCs 
compared to  
$32bn and 248 CVCs  
in 2017 
Source: GrowthEnabler
Over 
1.78m  
tech startups are founded 
globally every year
Source: Global  
Entrepreneurship Monitor
Churn of FTSE100  
has seen  
76 companies 
disappear  
inside 3 decades 
(1984-2012) 
 
 
Source: Imperial College
Influencing trends for CVCs
Source: Yale University: S&P 500 Life 
Expectancy Time-series Study
AVERAGE LIFESPAN OF 
S&P500 IS DECLINING: 
67years  
to  
15 years
34
As venture debt has evolved to attract 
later stage scaleups, private equity has 
innovated to appeal to earlier stage 
high growth businesses.
Typically, private equity funds invest 
in more established companies with 
the aim of reducing inefficiencies 
and driving scale through increased 
margins and new sources of revenue 
growth.
There is now a broader spectrum of 
equity, with growth investors like BGF 
and Octopus specialising in minority 
stakes so management retains control 
while benefiting from experienced 
investors and non-execs at board level. 
This equity investment is also more 
patient, investing up to 10 years. 
BGF specialises in minority stakes, 
where management is still in control, 
and takes a long-term equity stake, up 
to 10 years if necessary, and invests 
between 1 million and 10 million for 
between 1040 per cent equity. The 
Octopus Apollo VCT invests between 
2 and 10 million through minority 
stakes (10 to 30 per cent) with flexible 
debt to minimise dilution.
Growth capital is generally taken by 
those that are more mature than VC 
funded companies that are profit-
making but aren't able to generate 
enough cash to fund acquisitions, 
new product development, sales and 
marketing initiatives, or offices in new 
territories. 
In addition to investment, growth 
capital provides validation of your 
model and the backing of a large 
fund which has helped members to 
secure big client contracts and recruit 
senior talent. 
Advice from members is to ensure the 
growth plan is achievable, so don't 
over-promise and under-deliver. 
"If you start to fall behind plan because 
you've overpromised, that can get 
tricky," says Alastair Stewart, CEO of 
etc.venues. 
"Get some thick ice underneath you, 
so that when the inevitable things that 
go wrong try to crack the ice it's not so 
thin that you fall straight through."
Members also recommend that 
you look at the stage of the fund's 
investment cycle, both for follow-on 
funding and to determine if they are 
likely to push for an exit sooner than  
you planned.
Growth capital
A need to adapt to the demands of scaleups has driven innovation in private equity 
with minority stakes overcoming traditional barriers.
"Raising money can help you to scale faster. 
Having sourced investment, and now an 
investor myself, I look for people who know 
what they want and why they need it. It 
inspires more confidence if you're looking 
beyond the investment and asking for sector 
experience, contacts, access to talent, or 
chairman support"
Jamie Waller, founder, Firestarters
35
Taking growth capital
Tom O'Hagan is founder and CEO of 
Virtual1, which delivers cloud and 
connectivity services exclusively 
to the wholesale market and runs 
the fifth largest network in the 
UK covering 180 towns and cities. 
In 2016, it secured 10 million of 
growth capital investment to invest in 
additional network infrastructure and 
support longer-term growth plans. 
 
Why did you take growth capital?
I got to the point that I couldn't fulfil 
my growth ambitions without it. I was 
able to grow the business organically 
for a long time, always re-investing, 
but there was a pivot point around 
20 million when we needed external 
funding to meet our ambitions. It was 
too big for the banks, so we looked at 
growth capital investment. 
 
How did you prepare?
Steve Scott, a former COO of 
Bridgehouse Capital who was already 
a NED and mentor, had experience 
with external investment and 
between us, we prepared the pack 
and shortlisted investors. We already 
had good structure, governance and 
financial reporting, with a Deloitte 
audit and monthly board meetings
even when we were only five people. I 
wanted to prepare the business to be 
fit for purpose but it's also just good 
housekeeping.
What were the main challenges?
You need the right senior leadership 
team around you and the right 
management team below them. It has 
taken years to build and we're working 
on the middle management layer 
now. I initially brought over people 
from a large global carrier I worked at 
and have since recruited from other 
carriers, people with good corporate 
experience. We've been successful in 
attracting entrepreneurial people who 
are frustrated at big companies, giving 
them the freedom and pace of a scale 
up to make an impact.
How did you choose your investor?
We met a lot of potential funders, but 
we chose BGF because of its minority 
stake proposition and its patient 
capital approach. Unlike some of the 
PE investors we spoke to, with BGF 
we felt reassured that we wouldn't be 
forced to make an exit before we were 
ready. They also brought a wealth of 
board-level talent and we have really 
valued their advice. I took time to 
research investors and talked to BGF a 
lot before taking investment. We got to 
know themit was good for them to 
see us delivering over that time; it built 
confidence and helped with valuation.
Any unexpected benefits?
It's enabled us to win larger customers. 
We sell to the big carriers and there 
is a perceived risk for them in working 
with an owner-managed business. The 
backing of an investor with 2.5 billion 
gives us more gravitas and reassures 
bigger clients. 
Any other advice?
Be clear about why you're using the 
investment and make sure the investor 
is aligned. Don't do it just to take 
money off the table. 
Tom O'Hagan, founder and CEO of Virtual1, talks about his experience with growth 
capital and provides tips on how to reap the benefits and avoid the hazards.
Tom O'Hagan, 
founder and CEO, 
Virtual1
Virtual1 has featured 
in The Sunday Times 
Tech Track 100 for 
three consecutive 
years and now 
employs over 100 
people with over 27 
million in sales in 
2017/18. 
MEMBER INSIGHT
36
The primary goal of a family office is to 
invest wealth prudently and extend it 
beyond generations. The goal is to be 
the last money in and to continually 
invest in the success of the company 
strategically and financially. 
This type of direct investing means that 
management and sound governance 
are high priorities, which is why many 
family offices require a seat on the 
board. They also leverage the family 
office network to provide strategic 
advice, market intelligence, and other 
benefits. 
Family office investment strategies 
differ according to the interests 
and knowledge of the High Net 
Worth Individual (HNWI). Some are 
interested in disruptive innovation 
and will support high-risk early stage 
investments. Others prefer to wait 
and invest at the growth stage where 
revenues are over 1 million. In these 
cases, many are drawn to businesses 
they can understandsuch as food, 
drink, fashion, or retail.
Finding the right balance between 
giving the business owner room to 
grow and the need for transparency 
that family offices require is critical in 
making these partnerships successful. 
Family office investment also has the 
added benefit of being patient capital 
as they do not have external raise 
demands or IRR targets within the 
lifecycle of a fund.
Family offices are notoriously secretive, 
and they use this secrecy to sort the 
wheat from the chaff. Deals are sourced 
by leveraging proprietary networks, 
colleagues, business executives and 
professional advisers or from referrals 
from other family offices. 
Finding a credible person, such as a 
capital raiser, to introduce you to family 
offices can be a real door opener. 
Another good strategy is to build a 
profile in reputable publications or 
within academia so that there is a 
reference point for the initial contact.
Family offices
Andrea Reynolds FCA explains why family offices offer scaleups a lucrative and secure 
source of investment, what they look for in investees, and how to find them.
Watch out:
Family offices make a 
commitment to align 
with the entrepreneur 
at a deep level, so be 
prepared for more 
input and scrutiny 
than other funding 
options.
"High-net-worths and family offices are looking for more niche investments, and the 
number of institutional investors looking at private companies has grown from 100 to 
over 300. New pension regulation has given people more control over what they invest in"
Sam Smith, founder and CEO, finnCap
Andrea Reynolds, 
CEO 
Swoop
37
38
AIM HIGH
Floating your business on the Alternative 
Investment Market (AIM) can provide access to 
larger pools of growth capital and an enhanced 
profilebut public scrutiny can be distracting so 
it's not for the faint-hearted. 
39
AIM has helped make companies like 
Hotel Chocolat, ASOS, and Fever Tree 
into household names while providing 
the capital to help them grow 
internationally. 
As debt and equity funding has 
increased, scaling businesses have 
tended to float later for larger sums. 
The average market capitalisation of 
an AIM company has grown from 58 
million in 2008 to 104 million in 2017; 
the average raise at IPO has grown 
from 34 million in 2007 to 50 million 
in 2017; and, in 2016, 5.02 billion was 
raised through IPOs and follow-on 
funding.
A float is not recommended if you're 
looking for an early exit. In addition 
to accessing huge pools of growth 
capital, founders float for longer-term 
investment that enables them to build 
the value of the company through new 
growth phases. It also greatly enhances 
profile to build a global brand, which 
helps to attract clients, partners, 
suppliers, and talent.
However, it is an opportunity to reward 
early supporters of the business. 
"Being listed provides a company with 
liquidity in its shares, enabling a full 
or partial exit for early investors, and 
enabling them to use their shares as 
consideration in any M&A," says Stuart 
Andrews, Head of Corporate Finance 
at finnCap, who serves on the AIM 
Advisory Board. 
To float on AIM, you must have a 
Nominated Advisor (NOMAD) and a 
NOMAD must be retained at all times 
while a company is on market. They 
will guide you throughout the flotation 
process, undertake due diligence to 
ensure your company qualifies for 
AIM and will draft the AIM admission 
document. They can provide an IPO 
readiness check, set up meetings with 
test institutions to gauge interest and 
organise pre-IPO roadshows to meet 
investors around the country (a full list 
of approved NOMADs can be found at 
londonstockexchange.com/exchange/
companies-and-advisors/aim/for-
companies/nomad-search.html). 
A NOMAD will look at the strength of 
your management team, which is an 
important part of the story for IPO. 
Recruiting a big-name chairman, NED 
or CEO can enhance your story and 
inspire confidence; but remember that 
you and your senior team will need to 
impress as you will answer to several 
shareholders. 
The growth story is important in an 
IPO. As the main spokesperson, the 
founder will need to be clear on the 
brand, the growth journey, and the 
long-term vision; and prepared to 
answer questions from Bloomberg, 
CNBC and international press as you 
prepare to float. 
However, members and partners warn 
that the story shouldn't inflate the 
valuation beyond what is achievable, 
and it's better to under-promise and 
over-deliver. 
Ultimately, the main expectation 
of the market and investors is that 
you achieve the objectives you set 
for your business. A board that has 
successfully completed funding rounds, 
acquisitions, or international expansion 
will reassure investors.
FLOATING YOUR BUSINESS
AIM was launched in 1995 to offer smaller companies the chance to raise money from 
institutional investors on the London Stock Exchange (LSE). Over 3,700 companies 
have since listed on AIM and raised over 104 billion in capital. 
Watch out:
Getting the financials 
wrong can be costly, 
and damage investor 
confidence, so an 
experienced FD or 
CFO is a must.
40
Under AIM Rules, brokers and NOMADs 
must be retained at all times and will 
be paid an annual fee. A broker will 
advise on the pricing of shares and 
provide ongoing advice on market and 
trading-related matters. Broker fees 
will be 3.5 to 5 per cent of the money 
raised (paid on results) and 2.5 to 3.5 
per cent of further raises. 
Initial set up fees include admission to 
AIM, which ranges from 8,700 for a 
market cap of 5 million to 97,500 for 
250 million and above. You will need 
to pay a lawyer for legal due diligence 
on your business, verifying ownership 
of assets, and negotiating the terms of 
the placing agreement. You will also 
need to pay an accountant for financial 
reporting procedures, working capital, 
tax and share incentive schemes as 
well as advice on the flotation process.
A PR firm is optional but can help to 
craft your story for IPO, develop your 
institutional roadshow presentation, 
produce your press releases and 
regulatory announcements, and 
maintain media interest after  
flotation.
AIM admission fee calculator: 
londonstockexchange.com/exchange/
companies-and-advisors/main-market/
listing-fees/aim-fees-calculator.html.
AIM flotation guide: 
londonstockexchange.com/companies-
and-advisors/aim/aim/a-guide-for-
entrepreneurs.pdf 
The cost of IPO
IPO, even on the Alternative Investment Market, isn't cheapthe overall costs of 
floating are likely to be 9 to 10 per cent of the money raised. 
2017
104m
2007 
58m
2007 
34m
(source: AIM)
Average Market Capitalisation of AIM Companies
Average Money Raised at IPO by AIM Companies
2017
50m
41
How to IPO
The top three reasons IPOs succeed
1. Focused management, strong 
board, and good presentation 
 
It is imperative that the 
management team is well 
prepared, has a balance of 
strengths, skills and experience, 
and that this comes across in the 
investor presentations. The equity 
story should flow logically, be well 
practised, and carefully fashioned 
in light of all potential questions 
that could be asked by investors. 
2. Valuation realism 
  
The shareholders of a company 
looking to IPO must be aware that 
their own valuation expectations 
of the business will likely be quite 
different to the view of the stock 
market. Advisers should provide 
clear valuation guidance from the 
start of the IPO process and any 
variations should be discussed 
with the Board at the earliest 
opportunity. A concerted test 
marketing programme can provide 
an early indication of a valuation 
range for a business, as well as 
collecting useful feedback ahead of 
the formal roadshow.
3. Clear planning 
 
Companies who come to market 
need to be very clear on not only 
their reasons for undertaking an 
IPO but also their future plans. 
Most importantly, they should 
provide a plan of how they will 
deploy any funds raised to ensure a 
high return on capital for investors. 
The top three reasons IPOs fail
1. Valuation 
 
The most common reason for an 
IPO not completing is a valuation 
discrepancy between that set by 
institutional investors and the 
company's expectations. Very 
often the price at which funds are 
raised, and the subsequent dilution 
to existing shareholders, can be  
too steep for a company to 
proceed.
2. Misreading of market/timing 
 
IPOs are more susceptible 
to market timing and wider, 
macroeconomic factors than any 
other equity market transaction.  
 
It's important for the board to be 
kept appraised by their advisers as 
to the current market dynamics 
and investor trends to assess 
whether it is a suitable time for 
them to float. 
3. Poor management team 
 
An unimpressive and poorly 
composed management team, 
even of an exciting business, 
may be enough of a red flag for 
investors not to participate in an 
IPO.  
 
Similarly, if the skills of the 
management team do not 
come across clearly enough in 
presentations to investors, this  
may result in a failure to generate 
the interest that the business 
deserves.
Stuart Andrews, Head of Corporate Finance at finnCap, has led several of its largest 
fundraisings to date including transformational placing and acquisitions for CityFibre, 
Proactis and Ideagen. He shares his insight on how to successfully IPO.
Stuart Andrews, Head 
of Corporate Finance, 
finnCap
PARTNER INSIGHT
42
Why IPO?
Clearly, one of the key reasons that 
businesses consider an IPO, whether 
it's on AIM or any of the markets, is 
access to capital.
AIM really does provide that in buckets. 
In the 23 years since it was launched, 
over 108 billion has been raised 
which, for a growth market, we're very 
proud of. What we're equally proud 
of is the fact that about 65 per cent 
of that money has been raised by AIM 
companies after they were admitted to 
the marketby raising further capital 
rounds. Many other growth markets 
support companies that IPO, but don't 
have that depth of follow-on capital 
that now exists behind AIM.
This year, we do see a continuation of 
that trend. 2 billion pounds has been 
raised so far this year; 1.8 billion of 
that had been raised by companies 
on the market. Similarly, last year, of 
the 7 billion raised, 5 billion was 
through further issues. AIM absolutely 
provides that long-term repeat access 
to capital, at a very, very competitive 
rate. 
But there are many other benefits 
of IPO, some of which are lesser 
known. Many companies, having gone 
through the IPO process, report being 
better structured with an enriched 
management team with a tighter grip 
over the business and a greater ability 
to forecast and plan the future.
Indeed, many essential processes of 
an IPO help the business as a whole. 
Honing the core equity or growth 
story, for example, not only attracts 
investors but brings a company's 
proposition into crisper focus, making 
it easier to explain to employees, 
suppliers and prospects. 
What's more, IPO brings companies 
a much higher profile, and, with that, 
credibility. Knowing that a firm has 
access to long-term capital can make 
them a more compelling business 
partner than their private company 
peers.
I've heard of companies that have been 
able to secure contracts as an AIM 
company that they couldn't secure as 
a private business. And, once you've 
got a publicly traded share, you can 
use those shares to make acquisitions 
or incentivise members of your staff 
with share options that are valued on a 
real-time basis. 
A common misconception is that, by 
going public, somehow founders and 
the management team might lose 
control over the day-to-day running of 
the business.
The reality for many companies is that 
having a wide register of investors 
which can either build their stake 
or reduce it patiently through the 
markets, can be a more attractive 
option than having to formally sell or 
possibly take a strategic investor that 
also has a seat on the board.
Quite often a founder will come 
through an IPO process and say: "We 
feel like it's de-risked our personal life." 
It can enable a founder to take a bit of 
capital off the table, so they've been 
able to pay off the mortgage, or put a 
bit of money in the bank. But, they've 
still held a gripon the development 
and future growth of the business. 
Marcus Stuttard, CEO of AIM, explains the many reasons founder companies turn 
to the public markets, including AIM itself, and describes ways an IPO can benefit 
businesses beyond just capital. 
Marcus Stuttard, CEO 
AIM
INDUSTRY INSIGHT
43
The funding bonanza
Sam established finnCap in 2007 
having orchestrated the buy-out of a 
small broking subsidiary of a private 
client stockbroking firm. Today, 
finnCap is ranked as the number one 
Nominated Adviser and Broker to AIM 
companies.
Investment in venture-stage firms 
increased significantly in 2017. This is  
a trend that will continue, partly 
thanks to the Chancellor's welcome 
decision to double the limit on EIS 
investment.
Last year's Autumn Budget focused on 
helping entrepreneurial knowledge-
intensive companies, offering a 
direct response to the UK's 'scaleup' 
challenge specifically that there 
have not been sufficient funds for 
Series A and B investments into these 
companies going from first revenues to 
scaleup and growth. Recent changes to 
VCT rules will result in further growth 
in tax-driven funds, all seeking great 
investment opportunities in the private 
capital landscape. In 2016, there was 
an 18 per cent increase on the previous 
year in capital deployed in EIS/VCT 
mandates: this is not a one-off, but a 
trend.
When it comes to the growth stage, 
we've also seen more 'megadeals' 
(those worth over 50 million) than 
ever before in the private capital 
space, with appetite from institutional 
investors showing no sign of slowing. 
According to Beauhurst research, 29 
'megadeals' were seen in 2017four 
times as many as in 2016. In 2011, 
there were 173 institutional investors 
deploying private capital; in 2017, it 
was a record 315 institutions.
This bodes well for the future of the 
UK's scaleup ecosystem, and for the 
economy as a whole. The key factor 
driving increased private capital 
investments has been record low-
interest rates globally over the past 
decade. This has encouraged both 
private and institutional investors to 
look further afield for yield, moving 
into private investment opportunities 
where they previously would have 
looked only at public stocks. 
The increased intersection and 
coalescence of major economies mean 
that private capital will be raised and 
deployed cross-border: over 40 per 
cent of capital raised by European 
private equity in 2017 came from 
investors outside of Europe, while 
a third of investments made into 
companies were cross-border. Neither 
PE and VC as asset classes show any 
signs of slowing down and continue 
to enjoy immense success on the 
fundraising trail, which could drive 
valuations higher.
This is very good news for today's 
scaling businesses because there is 
plenty of funding available. VCs and 
PE houses are sitting on a lot of dry 
powder, looking for great SMEs in 
which to invest. The pool of capital 
available to scaling private businesses 
has deepened significantly; VC and 
PE are no longer the de facto choice 
for high-growth companies seeking 
funding. 
The question now is not so much about 
making sure that you have access to 
enough capital, but rather that you 
have access to the right kind of capital 
best suited to your equity story.
Sam Smith is the only female Chief Executive of a City broking firm. Here, she 
describes the changing investor landscape for private company fundraising, and what 
this means for scaling businesses. 
Sam Smith, CEO 
finnCap
PARTNER INSIGHT
44
SCALEUP FUNDING: 
A NEW ERA
There has never been a wider range of 
options across the funding lifecycle of 
an entrepreneurfrom friends, angels, 
family offices and fund managers, 
to debt and equity solutions, IPOs 
and  most recently  ITOs (Initial 
Token Offers). Sources of finance 
once considered 'alternative' are now 
mainstream. 
Having been disrupted, the more 
established financial institutions are 
adapting to compete. Barclays created 
a 200 million venture debt fund for 
high-growth businesses and scaleups 
and, most recently, TSB  backed by its 
parent company, Sabadell  launched 
a new 100 million VC fund to tap into 
earlier stage businesses.
Trade bodies like the EISA, BVCA, AIC 
and specialist research firm, Intelligent 
Partnership, have increased awareness 
of EIS, SEIS and VCT to financial 
advisers and wealth managers; 
bringing more high-net-worth 
individuals and family offices into SME 
investment.
While EIS and VCT have helped 
startups to scale, there are still 
significant funding gaps, particularly 
for later stage 'series B' investing. "Only 
about 10 to 12 funds in Europe [are] 
capable of writing cheques for 10
20 million," notes Alex Macpherson 
THE FUNDING 
LANDSCAPE IS EVOLVING 
TO MEET THE NEEDS OF 
A MORE DEMANDING 
AND INCREASINGLY 
DISCERNING SCALEUP 
COMMUNITY WHO WANT 
VALUE BEYOND CAPITAL.
CONCLUSION
45
Chairman of Octopus Ventures, 
suggesting that the Government 
should mandate public sector pension 
funds to allocate one per cent of their 
assets to venture capital investment.
Momentum is building. But we need 
bigger funds that can write bigger 
cheques to grow bigger scaleups. 
Rarely a week goes by without 
impassioned calls to Westminster, 
pleading support for our burgeoning 
scaleups. It has now appointed a 
scaleup minister and task force. At the 
same time, the Government's own 
Patient Capital Review is encouraging a 
longer-term attitude to investment. 
What's more, as the ScaleUp Institute's 
Irene Graham points out, scaleups are 
not just looking for cash: "they want 
smart money which brings knowledge, 
skills and market connections with it".
The UK funding industry is often 
compared to the US, where finance 
seems to be more abundant, less risk 
averse, and prepared to wait up to eight 
years for a return on investment. But, 
unlike the US, the UK has a different 
barrier: fear. 
Fear of funding, fear of giving up 
control, fear of being tied to terms 
and conditions. If exploring the future 
of finance has taught us anything, 
it is that the funding landscape has 
changed but most scaleups don't 
understand how and why it matters to 
them.
Choice, as they say, is a prison, and 
scaleup founders need help to navigate 
a more complex funding landscape 
and understand how the industry has 
evolved to offer more support beyond 
capital.
This guide from The Supper Club, 
supported by BGF, finnCap, and 
Octopus Investments, is designed to 
help business owners allay these fears 
and see the opportunities as they truly 
are.
With hundreds of sources of finance 
now available for ambitiously scaling 
UK businesses, access to capital 
shouldn't be an obstacle at any stage 
of growth. 
We want to encourage founders to 
expect more from the finance  
industry and take maximum advantage 
while the market is stacked in their 
favour. 
We wish to extend our sincere thanks 
to our partners and to all of our 
members who have shared their insight 
to help business owners make more 
informed funding decisions. 
Irene Graham, CEO, ScaleUp Institute 
"Scaleups are not just looking for cash: they want smart money which brings knowledge, 
skills and market connections with it"
46
BUILDING A 
SCALEUP NATION
POLICY RECOMMENDATIONS
DESPITE RECORD EQUITY 
INVESTMENT IN 2017, THE 
UK IS STILL RELIANT ON 
FOREIGN FUNDS FOR THE 
MEGA DEALS WHILE A 
VAST POOL OF POTENTIAL 
FUNDING REMAINS 
UNTAPPED. 
LEADERS FROM THE 
SUPPER CLUB AND 
THE SUPPORTING 
PARTNERS OF THIS GUIDE 
OUTLINE THEIR POLICY 
RECOMMENDATIONS FOR 
UNLOCKING GROWTH 
CAPITAL AND GIVING 
BRITAIN A COMPETITIVE 
EDGE IN THE GLOBAL 
ECONOMY. 
47
Since the 1970s, UK PLC has grown 
from fewer than a million businesses 
to over 5.7 million, with more than 
638,000 new companies founded in 
2017 alone. 
This increased rate of business creation 
hides a more worrying fact: four-fifths 
of businesses have no staff at all and 
fewer than five per cent have more 
than 10.
So why does this matter? Because very 
few grow significantly and the number 
of businesses with more than 250 staff 
has actually fallen by nearly 10 per cent 
since the turn of the century. There 
were only 35,210 UK scaleups in 2016 
according to the ScaleUp Institute.
It's vital we recognise the contribution 
this rare breed contribute to the 
economynot only in net new job 
creation but an increasing proportion 
of the taxes that pay for our public 
services. But taxation and tax reliefs 
can hamper growth and encourage the 
wrong behaviour in founders.
In our 2016 report, Britain Unlocked: 
A Tax Code for Global Ambition, 
The Supper Club made several 
recommendations to remove obstacles 
to growth during the tax lifecycle 
of an entrepreneur. These included 
raising awareness of tax reliefs like 
R&D Tax Credits and simplifying the 
system for paying taxes and claiming 
reliefs. While VCT and EIS have been 
successful in incentivising investment 
in smaller companies, few businesses 
follow a textbook model from startup 
to growth  with many developing later 
 so the seven-year rule discriminates 
against them.
It also called for greater flexibility in 
the payment of taxes such as PAYE, 
VAT and NI to support cash flow 
during crucial periods of growth and 
to encourage more micro and small 
businesses to recruit to scale.
The UK tax code stretches to more 
than 20,000 pages but, despite its 
thoroughness, is not fit for purpose for 
scaling British businesses. 
Duncan Cheatle, Chairman, 
The Supper Club
48
There is currently 315 billion held 
in Stocks and Shares ISAs, so if just 1 
per cent of this capital were invested 
in small, unlisted companies, it would 
unleash huge growth potential for 
HGSBs.
As investors tend to retain assets in 
their ISA indefinitely, such a reform 
would make it one of the most patient 
forms of capital. The change would 
allow funds to be invested in earlier-
stage smaller companies as well as in 
AIM and FTSE listed companies. 
The Government's decision to enable 
AIM shares to be held within an ISA has 
been a significant success story. 
Since the rules changed in 2013, 
Octopus has raised and deployed 
500 million into AIM companies with 
a growth mandate, comprising both 
new ISA investments and the transfer 
of existing ISA portfolios that would 
previously have been invested in large 
FTSE listed companies or cash.
Currently, investors can make loans 
from their ISAs to unlisted companies 
through the new Innovative Finance 
ISA. However, this often results in 
investors taking equity-type risk (as 
early-stage companies are poorly 
capitalised with few assets) without 
having any potential to qualify for the 
incremental upsides attached to equity 
investments. 
Enabling unquoted companies to 
be held in an ISA would also provide 
an additional source of financing for 
companies that have exceeded the VCT 
investment limits. One of our greatest 
challenges in the UK is how we help 
more businesses to scale up not just 
start up. 
The legislation required to achieve the 
proposed change to ISAs would be 
straightforward to implement. Some of 
the existing anti-avoidance legislation 
employed for Self-Invested Personal 
Pensions (SIPPs) could be borrowed to 
prevent special-purpose vehicles from 
qualifying.
We believe there is a real opportunity 
for more investors to get behind the 
next generation of UK business.
Chris Hulatt, Co-founder, 
Octopus Group
49
Currently, British businesses are 
capped  they do not have access to 
the funding they need to fully scale up 
and reach their potential. Worryingly, 
the little funding we do have may stop 
sooner than we think. 
The European Investment Fund, which 
accounts for more than a third of 
investment in UK-based venture capital 
funds, is already slowing its activity in 
Britain and the tap could be turned off 
when we finally leave the EU. 
To fill this void, the UK needs its own 
mega-fund that can compete with 
Silicon Valley. Creating this does 
not require wholesale changes to 
the fundamentals of our economy, 
but it does require political will. The 
Conservatives' manifesto commitment 
to a series of UK 'sovereign wealth 
funds', named Future Britain Funds, is a 
positive first step.
We already have the ingredients: local 
pension funds are large groupings 
of UK patient capital, but they are 
organised in a disparate and largely 
inefficient way and they lack scale. 
However, these pots could be 
consolidated into one mega-fund; not 
only reducing their own administration 
costs and burdensome overheads 
but creating a pool large enough to 
seriously back the most exciting British 
businesses.
Pension pots, which are currently 
dormant assets, would be pulled 
together in a way that they could 
sensibly support higher risk investment 
strategies. A 'super aggregator' is a 
model that has had enormous success 
elsewhere, most notably in Canada. 
Canadian pension funds are famed 
for their ambitious investments, 
particularly in British infrastructure, 
while they also help ensure that 
Canadian pensioners have a more 
comfortable retirement.
At a time when we are thinking harder 
than ever about how to pay for old 
age, a pension pot super aggregator 
offers an innovative, forward-thinking 
solution to boosting UK SMEs and 
answering some of our economy's 
trickiest questions.
Stephen Welton, 
CEO, BGF
50
It's frustrating that while the UK boasts 
one of the most versatile landscapes 
for startups and one of the most 
successful SME growth markets in 
the world in the form of AIM, current 
legislation can get in the way of our 
ambitious companies. The SME sector 
represents the beating heart of UK 
PLC in terms of spearheading growth 
and creating employment; as brokers 
and advisors, there are certainly policy 
changes that we could see supporting 
our clients' aspirations.
First and foremost, there are 
multitudinous regulatory initiatives 
significantly increasing the cost, 
complexity and timescale of SMEs 
accessing the public markets as a 
source of scaleup capital  initiatives 
including corporate governance, the 
Market Abuse Regulation, revised AIM 
rules, MiFID II, or FOS eligibility. We 
would recommend reconsidering any 
such regulation to ease the burden 
on stretched founders, as well as 
reconsidering recent investment rules 
such as Product Governance, KIDs and 
PRIIPs that actively militate against 
retail customer involvement in SME 
funding via public markets.
Meanwhile, we'd urge the Government 
to ease regulation on investor 
participation in crowdfunding and P2P 
lending, which is partly to blame for 
their very low level of SME funding 
market penetration.
The combined effect of all these 
restrictions is that the UK now has a 
materially reduced level of competition 
in the market for financing SME 
growth companies. Again, we'd call 
for competition policy initiatives that 
address this. 
We must introduce policy initiatives 
that tackle the lack of information 
on finding the right growth capital. 
finnCap's Ambition Nation programme 
speaks to SMEs nationwide about 
encouraging growth, demystifying 
investment and presenting wider 
growth options. Ambition Nation has 
also revealed the scant investment 
made into female-led companies, a 
problem historically compounded by 
the restrictive nature and language of 
the UK investment landscape. 
We've found this knowledge gap 
about scaleup investment really is at 
the heart of diminished confidence 
in UK SMEs to grow. With Ambition 
Nation we're doing our bit; we'd urge 
implementing wider policy initiatives 
that can help our cause.
Sam Smith, founder and CEO,
finnCap
POLICY RECOMMENDATIONS
51
52
BGF was set up in 2011 to offer growing 
companies and ambitious entrepreneurs 
with patient capital, strategic support and 
a long-term funding partner. Today, we are 
the UK and Ireland's most active investor in 
small and medium-sized businesses. 
With 2.5billion to invest, we support a range 
of growing companies  early stage, growth 
stage and quoted  across every region and 
sector of the economy. And earlier this year, 
we became the first investment firm to be 
honoured for Innovation in the Queen's 
Awards for Enterprise.
We make long-term equity capital 
investments in return for a minority stake 
in the companies we're backing. Initial 
investments are typically between 1-10m 
and we can provide significant follow-on 
funding. 
Our offer is a mix of equity and unsecured 
debt that few others can match, with 
potentially less dilution for shareholders, 
and in some circumstances, we also provide 
an element of equity release for existing 
shareholders. We have a 150-strong team, 
14 offices across the UK and Ireland and, 
alongside our funding, BGF also offers 
an unparalleled international network of 
business leaders, sector experts, board-level 
non-executives.
Collectively, the companies in our portfolio 
employ close to 50,000 people. We want to 
see more entrepreneurs using our capital 
to scale-up their own business and be part 
of the engine room of the UK economy
increasing large-scale growth as a result. 
That's why we exist.
Our supporting partners
finnCap advises ambitious growth 
companies, accesses capital and promotes 
their stories across public and private 
markets. We are modern entrepreneurs who 
fuel faster growth by working collaboratively 
with driven business leaders, realising their 
aspirations at every stage of their journey. 
Our expertise spans multiple sectors, public 
and private markets and we are as ambitious 
as the companies we work with. The market 
recognises us as the largest advisor on the 
LSE and No. 1 broker on AIM.
In a dynamic world, the funding landscape 
changes constantly. We understand business 
leaders demand smarter support in helping 
create the right investment story to secure 
the appropriate funding for accelerated 
growth. 
The boards of fast-growing businesses need 
broader services that allow all potential 
options to be considered and that empower 
them to make the right choice. 
53
The Intermediate Capital team at Octopus 
Investments manages the Apollo VCT which 
targets commercialised UK businesses that 
require funding for the next stage of organic 
growth. The team has a wide range of deep 
sector expertise and a proven track record 
of backing dynamic management teams 
through multiple rounds of funding. Our 
funding solutions are bespoke and designed 
to meet all stakeholder requirements. We 
invest between 2 million and 10 million, 
combining debt and equity to minimise 
shareholder dilution. Our goal is to help 
ambitious entrepreneurs achieve theirs, 
providing strategic support as well as capital 
to accelerate growth and achieve scale. 
Octopus Investments, part of the Octopus 
Group, is an award-winning, fast-growing 
UK fund management business with leading 
positions in tax-efficient investments, multi-
manager funds, and UK smaller company 
financing. We can back companies through 
their growth cycle from early stage to those 
listed on AIM, providing investors with the 
opportunity to benefit from our active 
management and expertise. We manage 
assets for retail investors and institutions 
including pension funds, asset managers, 
fund-of-funds and family offices. And we're 
changing the world of investments for 
the better by offering a straight-talking 
approach to investing, exceptional customer 
service and a range of products that aim to 
do what they say they will.
Octopus Group is one of the UK's fastest 
growing companies. We're building 
businesses to transform markets and 
customer expectations. We are experts in 
investments, UK smaller companies, energy 
and healthcare. We currently manage more 
than 7.5 billion on behalf of our customers. 
Octopus Investments, Octopus Energy, 
Octopus Healthcare, Octopus Labs, Octopus 
Property and Octopus Ventures are all part 
of Octopus Group. Visit octopusgroup.com. 
finnCap delivers certainty, making the 
growth journey easier. Our clients receive the 
power of a leading stockbroker combined 
with a no-nonsense strategic advisor. 
We know the whole investor spectrum and 
provide considered, independent and trusted 
advice that adds value. 
Our team understands how to deliver on our 
advice, and is ideally positioned to leverage 
the right investment to power the next 
stages of growth. This has enabled us to raise 
over 2bn for our clients.
We promote your vision for growth by 
creating a targeted investment story that 
sells, and dedicating a focused team to you, 
aligning our resources only behind the most 
effective strategies. 
finnCap provides smart solutions from 
people with experience. We are here to help 
drive your ambition and energise you and 
your business to think big and go further.
54
ENTREPRENEUR DRIVEN
The Supper Club is an exclusive 
membership community of 
inspirational founders and CEOs of 
high growth businesses. Since 2003, we 
have enabled members to realise their 
growth ambitions. The average growth 
of our members is 34 per cent year on 
year average sales from 1m to 500m. 
We support members through all 
stages of the entrepreneur lifecycle, 
from scale to sale and beyond. The 
Supper Club is highly valued for the 
quality and diversity of its membership, 
event experiences and proactive 
personal support. 
We bring the right members together 
at the right time to support each other 
in their journeys by sharing the hard-
learned lessons along the way. We 
help members find the knowledge and 
connections they need to make better 
decisions and spend their time more 
wisely.
It's lonely at the top
Our members value opportunities 
to socialise and share challenges 
with peers, using The Supper Club as 
therapy and a virtual board.
About The Supper Club
Our mission is to inspire an entrepreneurial mindset in all leaders because we believe 
that where entrepreneurship thrives, so too does innovation, growth, and wealth 
creation.
Applying a wealth of insight from 
over 2,800 peer learning events, we 
curate roundtables, chair panels, and 
design workshops around practical, 
entrepreneurial thinking. 
Members share our ethos of Give 
and Get to support each other with 
open and honest advice in a relaxed, 
informal, and trusted environment.
We have several membership options 
for founders & CEOs, and programmes 
for your senior managers. Our Directors 
Days help managers of entrepreneur-
led firms to step up into more senior 
leadership roles to enable founders to 
become CEO or chairman in practice as 
well as title. 
We consider all applications on their 
own merits and we meet all potential 
members face to face to ensure a good 
fit and a commitment to the Club's 
values, culture and ethos.
If you would like to explore 
membership of The Supper Club and 
the ways it could help you and your 
business, then get in touch by calling us 
on 020 3697 0810 or by emailing  
getintouch@thesupperclub.com. 
Cecile Reinaud, founder, Seraphine
"Every time I have gone to an event, I have 
come away with such an amazing positive 
energy, a list of things to improve within the 
business and networking contacts. I think it's 
the best investment in time you can make"
Graham Painter, founder, Cream
"The Supper Club is the sum of many 
valuable things but the most important 
to me is the sharing of information, with a 
peer group of founders and entrepreneurs 
in a completely open, trusting and fun 
environmenta revelation for me and a 
revolution for my business"
55

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thesupperclub.com