2015 Finance in the South West Segment 2 - Equity, Grants and Investment ready - facing reality

Finance in the
South West 2015
Equity, Grant and
Investment ready “the
reality check”…
Sharon Austen
Partner

www.francisclark.co.uk
Structure of morning
• Background, Debt and Investment ready
(8.30am to 9.50am)
• Key note speaker
• LEP and SME
• Debt and Investment ready (part 1)
• Equity, Grants and Investment ready (part 2)
(10.10am to 11.25am)
• An SME perspective, business support and
closing address (11.45am to 1pm)
• Q&A one to one / Networking (1pm to 2pm)

Equity - what it
is, why
consider and
sources
Nick Woodmansey
Corporate Finance Associate
Director
(nick.woodmansey@francisclark.co.uk)

What do we mean by equity
• Private equity – investment into shares and debt in operating
companies which are not publically traded
• Venture capital – broad subset of private equity investing into
businesses that are:
• Start up or early stage
• Business expansion
• Deal support e.g. MBO’s

Why equity
• Its all about risk and reward
• In banking terminology – an equity proposition!
• Ambitious growth
• Lack of security
• Lack of track record
• More than just the initial money
• Drive growth
• Mentoring & discipline
• Introductions
• Further capital

Structuring equity investments
• Cash investment made into:
• Shares – majority of the intended return
• Loans – income stream and return of capital
• Required return
• 20 to 40% IRR (annual yield)
• 3 – 5 x cash multiple
• Majority of the equity return is on exit
• Portfolio return is lower

Equity – what does it look for
• Strong management team with a good track record
• Proven business model with competitive advantages
• Good prospects of high growth in value
• Exit route

Sources of equity
• “Friends, Families and Fools”
• Virtual Networks / Crowdfunding
• Angel Networks
• Venture capitalists and Private Equity
• More than 100 providers active in the region

Equity - summary
• Don’t rule it out
• Growth of Crowdfunding
• Equity investors for SMEs are few and far between
• They can be very choosy and invest in very few deals
• There is still an ‘equity gap’ from £250K - £1m
• Be well prepared (in terms of Business Plans, Projections and
internal house keeping).

Finance in the South West
February 2015
Angel Investment
Philip Tellwright
Chief Executive
SWAIN

Reports of my death have been greatly
exaggerated…
Copyright SWAIN 2013

Changing face of funding sources
Source Platform Black

Market share of the “Crowd”
Source: Beauhurst The Deal 2105/15 Making Sense of UK Equity Investment Public Summary

Seed Crowd Funders v Angel Networks
Source: Beauhurst The Deal 2105/15 Making Sense of UK Equity Investment Public Summary

Ease of doing deals
Simplified Challenging

Visibility in marketplace
Discrete Broadcast Widely

Upper limit on funds available
Smaller Larger

Speed of deal
Weeks 2 Months+

Transaction costs for investor
Lower Higher

Engagement
Low High

Structure of deal
Bespoke Standardized

Deal architecture
Investor /
Advisor
Led
Platform
Led

Typical Investor Requirements
5x – 10x cash
3-5 years
Exit
Seat on the Board
Some influence and control

Valuation
Canny Flexible

Where value is generated
John - 30 investments
• Currently @ 3.5x money
50%30% 20%
Value AddedSelection End Sale

Research into returns
Emerging Significant

Nesta Research 2009 (2)

Key features business angel activity
• Personal – preferably regional
• Confidentiality
• Understand more complicated
businesses
• Add value
• Provide support
• Will follow their money because
of the relationship which has
been established

The Company construct white-label hire &
return programmes for brand owners that
deliver and maintain turnkey rental and
returns management operations for them,
dis-intermediating existing supply chains
and taking the brand directly to its target
market.

Innoverne Limited, the Circular Commerce specialists,
today announced that it has been named runner-up in
the ‘Circular Economy Digital Disruptor’ category of
the 2015 Circular Economy awards.
Winners and runners-up awards were unveiled at the
World Economic Forum event in Davos, Switzerland
on the 20th January 2015.

Crowd plus lead investor

Creating value Fashion goods
April 2013 £150k for 19% (£789k)
£850; £2,140; £3,650
(£167); (£12); £397
Nov 2014 £219k 10.3% (£2,100k)
2.7x in 18 approx. months

Shape is still morphing

Todd Wilson, Investment Analyst

 “Q1 2013 showed the lowest ever level of use of
external finance by SME’s” – SME Finance Monitor, Aug ‘13
 “Access to finance is a “major barrier” to growth for
more than one in five small companies” – FT, Mar ’12
 “Less than one in five SME’s have attempted to
raise finance in the last year – with 40 per cent of
applications rejected” – RealBusiness, Sept ‘13
The problem

 Crowdcube is the world’s first and leading equity crowdfunding platform
giving entrepreneurs a new way to raise investment
 Fully authorised and regulated by the Financial Conduct Authority
The solution

The mini-bond solution
 More than just financial
considerations
 4-5 years trading
 Capacity to engage with tens of
thousands of customers
 £5 million + turnover
 At least EBITDA profitable
 Investment used for tangible growth
i.e. assets rather than restructuring

Success so far
£54 millionfunded so far…
£500,000
largest single investment
+125,000
members
188
£1.9 millionbiggest deal
£3,300
average investment
Successfully
funded deals
£220,000
average deal
Stage of Growth
By Category

Growth
Source: Beauhurst, UK Equity Investment Review 2013, February 2013
UK’s ‘Most Active Seed Investor’ in 2013
Beauhurst report stated Crowdcube has “dominated the
UK equity crowdfunding market since launch and was
responsible for 70% of crowdfunded deals in 2013.”
2012 2013 2014 Growth
Investment £2.2m £12.2 £36m + 195%
Deals 22 54 102 + 90%
Average
investment
£1,800 £2,800 £3,300 + 17%

Why do investors love us?
“Crowdcube is
a breath of
fresh air; it’s a
convenient,
easy-to-use
and makes
investing far
more
accessible.”
Rupa Gantra
Crowdcube Investor

 Leading the transformation of UK investment finance
 No. 1 ‘Seed Investor’ in the UK
 Crowdcube Venture Fund managed by Braveheart
Investment plc
 London Co-Investment Fund
 Enabling business growth on the world’s leading
investment crowdfunding platform
Summary

Todd Wilson
Investment Analyst
todd@crowdcube.com
@todd_l_wilson
01392 241319
www.crowdcube.com

Growth Capital Investors
Introduction to BGF
Edwin Davies, Investment Manager

BGFisaninvestmentfirm
thatprovidesgrowthcapital
of£2m - £10m toUK
businesseswithturnoverof
£5m - £100m.
Who we are.
Funding for growth and equity release
Investment of £2m – £10m for a minority
stake
Long-term and patient capital, no forced
exit
Access to huge network and support
Fast and focused investment process

BGF in numbers…
£2.5bn–totalfunds available
£450m –investedtodate
79 – totalcurrentinvestments
60 – non-executivesintroduced
40% –maximum stake
8 – investorsin theBristolteam
8 – UK offices
£5m –minimum turnoverthreshold
3.5–yearsold

Investment of £2m-
£10m
Cash-in: to support long term growth
Cash-out: for existing shareholders
Equity stake of up to
40%
Always a minority partner – you retain
control
Flexible structures –
equity / loan notes
Meets the needs of the company and
shareholder
What we can offer.
Workingalongsidethe
banks,BGFprovides
growthcapitalina waythat
meetscompanies’needs.

No closed fund
pressures
Patient capital. No drag rights, no forced
exit
Fair legal approach Less onerous investor legal protections
Fast and focused
investment process
Minimises disruption and fees
More than money
Access to impressive network and
support
What we can offer.
Workingalongsidethe
banks,BGFprovides
growthcapitalina waythat
meetscompanies’needs.

October 2011
£4.2m
Employee benefits
software provider
Southampton
August 2014
£2.0m
Specialist pharma
group for prescription
and OTC products
Maidenhead
December 2012
£3.5m
Niche developer of
mobile phones for
major brands
Reading
May 2012
£4.0m
Online garden products
retailer
Reading
June 2012
£3.0m
Leading international
supplier of parts for
ATMs
Camberley
September 2012
£5.4m
Technical scaffolding
for petrochemical, oil
and power sectors
Barry
April 2014
£4.0m
Cloud based IT
services to the public
sector
Corsham
December 2012
£7.0m
Design & manufacture
of high composite
pipes for oil & gas
Portsmouth
August 2014
£8.0m
Manufacturer & retailer
of luxury kitchens
Devizes
August 2014
£3.6m
Sustainable energy
business that designs
& installs systems
Tetbury
November 2013
£2.5m
Specialist in millimetre
wave wireless
backhaul solutions for
mobile telecoms
Newton Abbot
August 2014
£6.0m
Furniture retailer with
40 stores across the
UK
Slough
April 2013
£3.9m
Design, manufacture &
distribution of branded
travel products for kids
Bristol
October 2014
£7.0m
IT managed services
and cloud hosting
Cirencester

South West and
South Wales
James Austin
Investment Director
07872 819093
Ned Dorbin
Investment Director
07800 682195
Alex Garfitt
Investment Manager
07770 582021
Paul Oldham
Regional Director
07887 657697
Edwin Davies
Investment Manager
07880 384983
Greg Norman
Investment Manager
07557 747302
Sarah Ledwidge
Investment Manager
07557 232034
Daniel Tapson
Investment Associate
07964 904443

David Armstrong
Corporate Finance Director
(david.armstrong@francisclark.co.uk)
Grants - overview

Structure
• Grant landscape
• What makes a good grant application
• A selection of schemes
• State Aid

2014 – an interesting year
• Two themes:
• Revolving door
• European Programme 2014 – 2020
• Assisted Area Map
• State Aid Rules

Grant sources
• Grant search for general manufacturing business in
SW generated 439 grant schemes
• EU funds
• Regional Growth Fund – c £3.2bn
• UK Government - Growth Deals
• Lottery

Economic development
• RGF:
• 8,000 companies
• 100,000 jobs
• Last week’s announcement
• Future?

Trigger points:
• Job creation (sometimes job safeguarding)
• Capital expenditure
• Other costs
• Location
• Size
• Sectors

Factors contributing to a successful
application…
1. Project
2. Eligibility including State Aid
3. Business Plan (and Financial Projections)
4. Dialogue with fund holders
5. Understanding their requirements: strategic and operational
6. Need for grant
7. Patience/ Completeness
8. Understanding timelines
9. Match funding – seldom 100% intervention and seldom pay in
advance of defrayal

Why do you need a grant advisor?
• Free money but need time
• Technical points:
• De Minimis
• GBER
• Annex 1
• GVA
• Article 17
• Incentive effect

Keeping up to date
http://www.francisclark.co.uk/services/grant-advisory/
http://www.heartofswlep.co.uk/home

Contact details
David Armstrong
David.Armstrong@francisclark.co.uk
07810 056164
David Bullen
David.Bullen@francisclark.co.uk
01872 276477
Richard Wadman
Richard.Wadman@francisclark.co.uk
07854 763049
http://www.francisclark.co.uk/services/grant-advisory/

G R A N T S
By John Hutchings
Plymouth University

• Regional Growth Fund – government funding
to regions to rebalance the economy
• 6 Rounds so far
• Round 1 – Plymouth University bid for a £1M
delegated fund – successful – first University
in UK to pass due diligence
• 2011 – Plymouth University and Western
Morning News Growth Fund born!

RGF Round 1 – PWGF1
RGF Round 2 – PU did not bid
RGF Round 3 – PWGF2
RGF Round 4 – GAIN Growth Fund+ “GGF+” – part of the Plymouth and South
West Peninsula City Deal
RGF Round 5 – North Devon + UBI
RGF Round 6 – PU submitted a £14M bid with SWW, SWMAS and WMN

….results so far
PWGF1
• Awards made 20
• Average grant £46,000
• Total £920,000
• Jobs forecast to be created 85+
• Cost per job £10,824
PWGF2 (….fully allocated…)
• Awards made 41
• Average grant £90,300
• Total £3,705,000
• Jobs forecast to be created 449+
• Cost per job £8,250
……and has unlocked over £9.5M of private sector investment

Geographic Spread of Applications
6%
42%
26%
15%
11%
Submitted Applications
Cornwall
Devon
Plymouth
Somerset
Torbay
13%
43%22%
17%
6%
EOIs Submitted
Cornwall
Devon
Plymouth
Somerset
Torbay
6%
43%
34%
17%
Companies Awarded Funding
Cornwall
Devon
Plymouth
Somerset

180 Expressions of Interest Received
£18M bids for £3M Fund
Geographically well spread
Cross section of industrial sectors
50% + in manufacturing
GAIN GROWTH
FUND+

PLYMOUTH
Interactive Media Sales Ltd*
Absolute Recycling Ltd**
Tooltech Ltd*
Tufcoat Limited*
Seahawk Workboats Ltd*
The Boringdon Hall Ltd*
Pipex*
New Wave Marine Ltd*
Applied Automation Ltd*
Austen Knapman Ltd*
M-subs*
Cornwall Glass*
DEVON (Not Plymouth or Torbay)
Simpleware Ltd.*
Crediton Confectionery Ltd*
Forthglade Foods Ltd*
Exeter Fabrication Ltd*
Westaway Sausages Limited*
Beco Ltd*
Amano Technologies Ltd*
Grey Matter Ltd*
Hansford Bell*
Blackhill (Supacat)*
TORBAY
Investment Casting Systems Ltd*
Interframe Ltd*
Hymid*
SOMERSET
Exmoor Plastics Ltd*
Integrated Data Needs Ltd*
Elecsis Switchgear*
Liz Dove Ltd*
CORNWALL
Kernow Confectionery Ltd t/a
Kernow Chocolate*
St Eval Candle Company Ltd*
Seasalt Limited, trading as
Seasalt*
Keynvor MorLift Ltd**
Hydra*
* Awarded
** Withdrawn

BREAKDOWN
contracted……..
Total Allocated £3,155,341 BIS Targets
New Jobs
Forecast
493 420
Cost per Job £6,400 £6,905
Co-investment £14,219,776 £6,371,000
“Intervention
Rate”
18% 31.28%
..and yes, we have over allocated!

SPREAD
Recipients :
Area Total
Awarded
Jobs
Cornwall (4) £349,642 59
Plymouth (12)
£1,190,112
196
Torbay (3) £358,772 41
Devon (10)
£796,815
124
Somerset (4) £460,000 73

INDUSTRY SECTOR
Sector Amount Jobs %age
Marine £201,827 20 6
IT/Digital £500,628 81 16
Adv Manufacturing £1,281,272 178 41
Environmental £286,090 43 9
(72%)
Food & Drink £418,396 72 13
Retail/
Wholesale
£316,028 59 10
Tourism £151,100 40 5

WHAT NEXT?
NORTH DEVON PLUS - £5M – HotSW LEP ONLY
---- now opened (after 9 months due diligence)
RGF6 BID –
PURE GROWTH FUND £8.8M grant pot – HotSW
and Cornwall&IOS LEPs …… together with
SWMAS – areas as above but also Dorset, and
North Somerset/Bristol/Gloucestershire/Wilts

Forthcoming Regional Growth Funds
• Unlocking Business Investment – North Devon + in partnership with Plymouth
University now open for Expressions of Interest
• Covers Heart of the South West LEP area (Plymouth, Devon, Torbay,
Somerset)
• Fund of circa £5 million
• Grants from £25,000 to £499,000
• To be spent 2015 to 2017
• Direct job creation is key
• Open to SMEs and Larger Businesses

• RGF 6 bid – Plymouth University/SWMAS/South West Water/WMN
• Covers Heart of the South West plus Cornwall and Isles of Scilly LEPs
• ….and also extends to Dorset and North Somerset/Bristol/Gloucs/Wilts
(through SWMAS)*
• Funding of £10M total – conditional approval received from BIS*
• Subject to due diligence*
• Proposed grants £15,000 to £1M to SMEs and Larger Businesses*
• “Extras” ;
o Resource Audits – undertaken with assistance of South West Water
o Manufacturers Advisory project assistance from SWMAS

Further information
GAIN Website
(includes access to Grantfinder) http://gaininbusiness.com
North Devon+ UBI https://s3.plymouth.ac.uk/ubi
John Hutchings 01752 588340 john.hutchings@plymouth.ac.uk
John Lewis 01752 588903 john.lewis@plymouth.ac.uk
Assisted Areas Map 2014 - 2020
http://www.ukassistedareasmap.com/ieindex.html
The SME Definition
http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf

Grants –
Round Up
David Bullen
Corporate Finance -
Senior Associate
(david.bullen@francisclark.co.uk)

Structure
• Live schemes
• Going Live Schemes
• Support schemes

Grants Round Up – The Schemes
‘Live’
• Cornwall Marine Capital Fund
• Assisted Asset Purchase Scheme/RGF schemes
• Innovate UK – SMART
• GROW: Offshore Wind
Going live
• RGF Round 7?
• Agri & fisheries funds
• Others covered by previous presentations

Grants Round Up – The support schemes
Growth Vouchers - 50% subsidy up to £2k for advice on:
• Managing cashflow, late payments and negotiating finance
• Developing skills and taking on staff
• Improving Leadership and Management
• Marketing, attracting and keeping customers
• Making the most of digital technology

Business Growth Service
UK Trade &
Investment
Strategic
Development
GA Business
Development
Coaching
MAS Strategy
Consulting
Innovation,
Design & IP
GA Growth Through
Innovation
MAS Innovation
Design Mentoring
IP Audits
Finance
Optimisation
GA Access to
Finance
Growth
Showcase
Leadership &
Management
GA Leadership &
Management
Productivity
& Operational
Improvement
MAS Efficiency
Supply Chains
MAS Supply Chains
Closely linked to:
UK Export
Finance
British
Business
Bank
Innovate UK Growth hubs
Connectivity
GrowthCommunity
MAS – Product and Service offering for clients

UKTI
Support to........
• Develop an export strategy – Passport to Export, Gateway to Global
Growth (12-month programme with ITA)
• Undertake market research (including identifying potential partners) –
EMRS (upto 50% match), OMIS (subsidised)
• Visit & develop new export markets – MVS (No current funding)
• Improve international communications: website, email, languages &
culture – ECR (subsidised)
• Exhibit overseas – TAP (£1,000 to £2,500)
• Carry other marketing and sales development activities - European
funding (ERDF) (new programmes have not yet been contracted)

State aid and the South West
Marc Shrimpling
February 2015

DO I NEED TO THINK ABOUT STATE AID?

STATE AID – THE RATIONALE
• To prevent governments from unjustifiably protecting local or national industries from
fair competition
“State aid control comes from the need to maintain a level playing field for all
undertakings active in the Single European Market”
• Positive benefits of State aid – if invested prudently
• Targeted use of public funding can help deliver important macro-economic
objectives: (i) green energy; (ii) thriving SMEs; (iii) incentives to innovate and
engage in R&D; (iv) supporting disadvantaged sectors, regions and groups “…
investing in the right projects in the right places at the right time”

KEY LEGAL IMPLICATIONS OF STATE AID
• Unlawful State aid must be repaid (with interest)
• Third parties may seek injunctive relief and/or damages from the UK courts
• Risk of investigation:
• reputational damage
• diversion of management time
• potential exclusion from public procurements

OPTIONS FOR MANAGING STATE AID
‘State aid’?
De Minimis?
GBER?
Existing scheme?
Specific sectors?
6. Notify?

TWO PRACTICAL TIPS
1. Always think “State aid” early
• A five-minute call can prevent weeks of travelling down dead ends
• The earlier we think about State aid, the more options stay on the table
• Spotting opportunities – not just flagging problems
2. Don’t assume that awarding bodies know best
• Leipzig-Halle – paradigm situation of public bodies becoming over-cautious
• At some point, the onus will be on aid recipients to self-assess
• Can we get a more favourable/robust view from another source?

Contact details
Marc.SHRIMPLING@footanstey.com
Mobile: 07817 121018

Investment
Ready: the
reality check
Andrew Killick
Corporate Finance Partner
(andrew.killick@francisclark.co.uk)

A view from the funders position
Would you fund a proposal if it:
x Contained errors and key omissions?
x Positioned poorly?
x Appeared to be a low priority?
What would your perception of management be?

Are you entitled to receive funding?
• In short - “No”
• Growing competition for limited resources
• Increasing consideration of risks
• A great idea presented badly often fails to raise
funds
• Even if presented well it needs to be backed up
by delivery

Examples
We see a wide range of proposals where:
 Balance sheet doesn’t balance/ cashflow
doesn’t add up!
 Over ambitious
 Lack of narrative/ detail
 Unclear funding requirement
 Poor MI
 ‘just an idea’
 Lack of ownership

What can you do?
 Get the basics right!
 Fit for purpose
 Clear on funding requirement
 No surprises when a reader gets to the projections
 Step back - challenge the assumptions
 Seek a ‘cold review’

Benefits of a well presented plan
• The better presented the higher the chances of
success
• Competitive process = improved funding terms
• Increases focus on the strategy and will gain
‘board buy in’
• Identify real business risks to address

“You are often trying to persuade a stranger
to give you somebody else’s savings…”

Break
Session 3 start time
11.45am
#FCFinanceSW

2015 Finance in the South West Segment 2 - Equity, Grants and Investment ready - facing reality

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