BCS/BEN event, Core 5: Funding. Monday 22nd November

1. The Funding LadderThe Funding Ladder
Bristol & Bath Enterprise Network
Monday, 22nd
November 2010
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Brian Dorricott
Business Mentor, Coach and Investor
http://www.meteorical.co.uk
brian.dorricott@meteorical.co.uk

2. Finding MoneyFinding Money
General principles
◦ Terminology
◦ Things to sell
◦ Enhancing chances of success
Funding type summary
More information
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3. TerminologyTerminology
Return on Investment
Equity
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4. Return on InvestmentReturn on Investment
Also known as:
◦ Cost of money
◦ Internal Rate of Return
Inflation + Costs + Risk premium
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Years 1% 5% 10% 50% 100%
1 1.01 1.05 1.10 1.50 2.00
2 1.02 1.10 1.21 2.25 4.00
3 1.03 1.16 1.33 3.38 8.00
4 1.04 1.22 1.46 5.06 16.00
5 1.05 1.28 1.61 7.59 32.00
10 1.10 1.63 2.59 57.67 1024.00
Return = ( 1 + IRR) years

5. EquityEquity
Company is a legal entity
Company has value
◦ Equity is name given to that value
Company has owners
◦ Equity is shared between owners
Shares in company
◦ Dictate rights to company assets
◦ Control over company proceedings
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6. Things to sellThings to sell
Assets
◦ Cars, vans, computers, property
Immediate future
◦ Customer purchases
◦ Invoices
Ability to pay
◦ Loans
Dreams
◦ Equity
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7. Enhancing Chances of SuccessEnhancing Chances of Success
Sales process
◦ Selling company’s assets / future
◦ Not just the MD / CEO!
Be prepared
◦ One chance...
Learn from others
◦ AngelsDen
◦ Collegues
◦ Advisors
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8. SCOTSMANSCOTSMAN
Solution
Competition
Only me / uniques
Time bound
Size
Money
Authority
Need
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9. SolutionSolution
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10. CompetitionCompetition
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11. Only me / uniqueOnly me / unique
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12. Time BoundTime Bound
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13. SizeSize
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14. MoneyMoney
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15. AuthorityAuthority
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16. NeedNeed
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17. The Funding LadderThe Funding Ladder
Overview
◦ Quick review of each option
You choose!
Contact information
◦ Website
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18. Funding LadderFunding Ladder
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19. Your choice...Your choice...
Friends & family
Grants & competitions
Crowd sourcing
Loans & debt
Hire Purchase
Factoring and CID
Trade Finance
Revenue Based Finance
Business Angels
Venture Capital
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20. Friends & FamilyFriends & Family
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21. Friends & FamilyFriends & Family
Based on personal relationships.
Little or no sale of equity required.
Immediate cash.
Little or no valuation of idea itself.
Can sour personal relationships.
Generally low value (<£50K).
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22. Friends & FamilyFriends & Family
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
to £50K
No
No
No
May be
May be
0%
months
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23. Grants & CompetitionsGrants & Competitions
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24. Grants & CompetitionsGrants & Competitions
No requirement to pay back.
No sale of equity required.
Can include press coverage
Generally low value.
Targeted at dis-advantaged.
Availability changes.
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25. Grants & CompetitionsGrants & Competitions
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
to £50K
n/a
No
No
No
No
Often
0%
Many months
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26. Crowd SourcingCrowd Sourcing
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27. Crowd SourcingCrowd Sourcing
Credit profile different.
No need to value company.
No sale of equity required.
Bad debts pursued.
New, untested form of financing.
Partial success... no funding at all.
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28. Crowd SourcingCrowd Sourcing
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
to £50K
3 to 5
May be
No
No
No
No
7% to 12%
months
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29. Loans & debtLoans & debt
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30. Loans & debtLoans & debt
No sale of equity required.
No need to value company.
Money available immediately.
Failure to repay... foreclosure.
Evidence how loan will be paid back.
Secured against tangible assets.
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31. Loans & debtLoans & debt
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
any
5 to 10 years
Yes
No
Yes
No
No
2% - 5%
months
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32. Hire PurchaseHire Purchase
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33. Hire PurchaseHire Purchase
Can be used to assets.
Asset available immediately.
Can reclaim VAT immediately.
Personal guarantees needed.
Can’t fund cash flow.
May be challenged by HMRC.
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34. Hire PurchaseHire Purchase
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
any
3 to 10 years
Yes
No
Yes
No
No
8% - 20%
month
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35. Factoring & CIDFactoring & CID
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36. Factoring & CIDFactoring & CID
Immediate cash.
The customers don't know.
No need to value company.
Significant turnover (usually £1M+)
Can be expensive.
Still need to collect payments.
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37. Factoring & CIDFactoring & CID
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
£50K +
No
No
Yes
No
No
10% - 15%
1 month
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38. Trade FinanceTrade Finance
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39. Trade FinanceTrade Finance
Funding for all purchases.
No need to value the business.
Funding increases with business.
Used against firm orders.
Back to back with Invoice Finance.
Two charges increase overall costs.
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40. Trade FinanceTrade Finance
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
£50K+
Yes
No
Yes
No
No
8% to 25%
1 month
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41. Revenue Based FinanceRevenue Based Finance
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42. Revenue Based FinanceRevenue Based Finance
No security or equity required.
No need to value company.
Investors want company to grow.
Need revenue stream.
Cost higher than bank loan.
New class of funding in the UK.
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43. Revenue Based FinanceRevenue Based Finance
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
£50K - £250K
3 to 5 years
No
No
Yes
No
Yes
20% - 30%
1 – 3 months
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44. Business AngelsBusiness Angels
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45. Business AngelsBusiness Angels
BAs may help the business grow.
Money available immediately.
No security required.
Deals can take a long time.
Equity must be sold.
High growth potential and exit.
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46. Business AngelsBusiness Angels
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
£50K - £250K
3 – 10 years
No
Yes
No
Yes
May be
30% - 60%
2 to 9 months
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47. Venture CapitalVenture Capital
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48. Venture CapitalVenture Capital
Large sums of money available.
Minimum investment is £2M.
Team of experts available.
Equity must be sold.
High growth potential and exit.
Deals can take a long time.
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49. Venture CapitalVenture Capital
Deal size
Term
Collateral required
Business valuation required
Sales Required
Sell equity
Business Development Help
Cost of money
Deal time
£2M +
3 to 10 years
Yes
Yes
No
Yes
May be
30% - 60%
2 to 9 months
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50. Useful websitesUseful websites
Business Link
◦ http://www.businesslink.gov.uk
Meteorical
◦ http://www.meteorical.co.uk
 Funding section
 Business Angel Network listing
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