JOHN R. SEAL – HEAD OF DIRECT LENDING, ABERDEEN STANDARD INVESTMENTS
I recently ran a ‘Growth Learning Session’ at the grand final of The European Business Awards in Warsaw; a 2 day event attending by over 400 of Europe’s most impressive companies. Every person I met was exciting and inspiring, and running a successful company worthy of an award.
The occasion emphasised two things: firstly, that the core reason why the finance community exists is to provide capital for growth, to build successful companies, increase meaningful employment and ultimately help build prosperous communities - both providers and recipients can forget this as they get bogged down in the details.
Secondly, I was also reminded that one of the biggest barriers to growth identified by companies is securing this finance to realise their potential.
However, it is not that the capital is unavailable. Companies are often not aware of all the capital options available to them, or are reluctant to pursue these options due to misconceptions or lack confidence in their knowledge. At the session, many people had heard of “marketplace” or “P2P” (aka ‘peer-to-peer’) or “direct” lending, but were unsure how to access it.
To address and help solve this dichotomy, valuable advice was given by both speakers and attendees, including business leaders who had gone through different routes themselves, and so to help more companies move forward, captured below are the key recommendations:
Venture/Growth Capital (“PE”):
• Apply for awards, get free press, write articles, use social media. PE likes to add companies to their “watch list” and approach you. Build a presence to get seen.
• Apply for funding competitions, particularly if at an early stage. There are European and sometimes country-based funding competitions for early-stage companies.
• There are numerous marketplace and crowdfunding sites where money can be raised. Search for them by your country or in your native language.
• Successful start-ups and small companies that raise growth capital spend time and resources on managing their finances and have a game plan to raise capital. They do not do it occasionally, but continuously – when not actively raising money, they are networking with the finance community and potential investors, winning awards, getting press, and raising their profile. Companies that fail to do this…fail.
• The best way to find angel investors will often be through associations of angel investors. Search for them by your country or in your native language. Private Banks also tend to have angel investors (and family offices (see below)) as clients.
• Don’t forget LinkedIn or even job placement firms – search for recently retired executives in your industry, or suppliers or customer executives that may wish to be on your board or act as an advisor. Senior people like this can provide valuable advice, and may also be wealthy individuals who made their fortune in your industry who could be investors.
• Family offices - The largest of these types of wealthy individual investors are family offices. They act similar to private equity, but usually have an industry expertise and can be more flexible in their investment approach, and are longer term holders. They are hard to find, but the ones you should look for were once working in your industry (or still are). One way they can be found is through private banks.
• That said, you can reach out to PE. Take a look at who has funded your competitors – you probably shouldn’t approach them (unless you want to sell-out), but you can approach private equity firms similar to them. Most large EU countries will have a PE industry association will – here is the UK = https://www.bvca.co.uk/, Germany = https://www.bvkap.de/en and France = http://www.franceinvest.eu/ where you can find a list of PE firms or get help. Or, look at PE firms that have invested in companies in your industry vertical that are not direct competitors – they will already know your industry and be up to speed.
• Most private equity firms don’t do minority investments, but some do. Their website will tell you, or perhaps the PE industry association has a list. Family offices are often happy to invest on this basis.
• 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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