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 56 thesupperclub.com