John R Seal, Head of Direct Lending at Aberdeen Standard Investments
In the first part of this blog, inspired by the Growth Learning Session I ran at the recent European Business Awards Grand Final in Warsaw, I set out the ways to source capital through private equity channels. I will now set out the alternative routes and give some general recommendations.
• First, always try the bank. They will almost always be cheaper than other options. They won’t be quicker, and often are not easier. They don’t perform well if you operate in a turbulent or cyclical industry, want to borrow a lot, have a complex situation, or need to move fast. But if you have a standard request for funding, they are usually the best option.
• Always check with government entities for their lending programmes. Most countries have export lending programmes, others have small business lending banks or funds (as does the EU). Often they work with marketplace and direct lenders.
• If you are at an early stage (not yet have positive cash flow), or less than €3m of cash flow (or “EBITDA”), you need to go to a venture lender or marketplace lender. Venture lenders typically only lend to companies that have well-known VCs backing them. Marketplace lenders, of which there are many, will lend to many types of companies for many purposes. Search for them by your country or in your native language.
• Direct Lenders lend to medium-sized companies with greater than €3m of cash flow. There are usually 2-5 local lenders per country, with a number of direct lenders operating in certain regions or across Europe. Many specialise in some way –usually by country, and often by size of company. Sometimes they specialise by private-equity backed, or family/entrepreneur owned, or by industry. There is no good way of finding direct lenders. Some have an internet presence, most do not. The best way to find them is through an advisor.
• Here at Aberdeen Standard Investments, we have a direct lending capability. We consider companies with at least €5m of EBITDA with good growth prospects, anywhere in Europe, and are industry agnostic. That said, we have a set of risk criteria that limits the amount of credit (if any) we can provide. We are always open to talking to you about your needs and if we are not the right firm to help, we may be able to provide some suggestions of where to get help.
• Don’t forget lawyers, accountants and corporate finance advisors. They have large networks and will know many of the types above. And if you are raising larger amounts and your situation is complex, the amount you will pay them will be a fraction of the value they can bring with a successful fundraise. • Recommended reading – Angels, Dragons & Vultures by Acland (for raising early-stage, VC money), Traction by Weinberg and Mares (managing growth of early stage business, tech oriented), Second Bounce of the Ball by R. Cohen (for entrepreneurs by the inventor of private equity in Europe).
• Network, network, network! You will get there eventually.
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