2015 finance in the south west segment 2 - equity, grants and investment ready - facing reality
TRANSCRIPT
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Finance in the
South West 2015
Equity, Grant and
Investment ready “the
reality check”…
Sharon Austen
Partner
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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)
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Equity - what it
is, why
consider and
sources
Nick Woodmansey
Corporate Finance Associate
Director([email protected])
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www.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
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www.francisclark.co.uk
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
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www.francisclark.co.uk
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
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www.francisclark.co.uk
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
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www.francisclark.co.uk
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
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www.francisclark.co.uk
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).
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Finance in the South West
February 2015
Angel Investment
Philip Tellwright
Chief Executive
SWAIN
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Copyright SWAIN 2013
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Reports of my death have been greatly exaggerated…
Copyright SWAIN 2013
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Changing face of funding sources
Copyright SWAIN 2013Source Platform Black
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Market share of the “Crowd”
Copyright SWAIN 2013
Source: Beauhurst The Deal 2105/15 Making Sense of UK Equity Investment Public Summary
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Seed Crowd Funders v Angel Networks
Copyright SWAIN 2013
Source: Beauhurst The Deal 2105/15 Making Sense of UK Equity Investment Public Summary
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Ease of doing deals
Copyright SWAIN 2013
Simplified Challenging
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Visibility in marketplace
Copyright SWAIN 2013
Discrete Broadcast Widely
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Upper limit on funds available
Copyright SWAIN 2013
Smaller Larger
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Speed of deal
Copyright SWAIN 2013
Weeks 2 Months+
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Transaction costs for investor
Copyright SWAIN 2013
Lower Higher
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Engagement
Copyright SWAIN 2013
Low High
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Structure of deal
Copyright SWAIN 2013
Bespoke Standardized
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Deal architecture
Copyright SWAIN 2013
Investor /
Advisor
Led
Platform
Led
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Typical Investor Requirements
5x – 10x cash
3-5 years
Exit
Seat on the Board
Some influence and control
Copyright SWAIN 2013
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Valuation
Copyright SWAIN 2013
Canny Flexible
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Where value is generated
John - 30 investments
• Currently @ 3.5x money
50%30% 20%
Value AddedSelection End Sale
Copyright SWAIN 2013
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Research into returns
Copyright SWAIN 2013
Emerging Significant
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Nesta Research 2009 (2)
Copyright SWAIN 2013
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Key features business angel activity
Copyright SWAIN 2013
• Personal – preferably regional• Confidentiality• Understand more complicated
businesses• Add value• Provide support• Will follow their money because
of the relationship which has been established
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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.
Copyright SWAIN 2013
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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.
Copyright SWAIN 2013
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Crowd plus lead investor
Copyright SWAIN 2013
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Creating value Fashion goods
Copyright SWAIN 2013
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
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Shape is still morphing
Copyright SWAIN 2013
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Finance in the South West
February 2015
Angel Investment
Philip Tellwright
Chief Executive
SWAIN
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Todd Wilson, Investment Analyst
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“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
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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
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The solution
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The equity solution
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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
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Creating a buzz
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Success so far
£54 millionfunded so far…
£500,000largest single investment
+125,000members
188
£1.9 millionbiggest deal
£3,300average investment
Successfully
funded deals
£220,000average deal
Stage of Growth
By Category
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Case studies
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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%
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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
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Why do Entrepreneurs Love us?
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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
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Todd Wilson
Investment Analyst
@todd_l_wilson
01392 241319
www.crowdcube.com
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Growth Capital Investors
Introduction to BGF
Edwin Davies, Investment Manager
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Growth Capital Investors
BGF is an investment firm that provides growth capital of £2m - £10m to UK businesses with turnover of £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
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Growth Capital Investors
BGF in numbers…
£2.5bn – total funds available
£450m – invested to date
79 – total current investments
60 – non-executives introduced
40% – maximum stake
8 – investors in the Bristol team
8 – UK offices
£5m – minimum turnover threshold
3.5 – years old
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Growth Capital Investors
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. Working alongside the
banks, BGF provides
growth capital in a way that
meets companies’ needs.
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Growth Capital Investors
No closed fund
pressures
Patient capital. No drag rights, no forced exit
Fair legal approach Less onerous investor legal protections
Fast and focused
investment processMinimises disruption and fees
More than moneyAccess to impressive network and support
What we can offer. Working alongside the
banks, BGF provides
growth capital in a way that
meets companies’ needs.
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Growth Capital Investors
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
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Growth Capital Investors
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
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www.francisclark.co.uk
Structure
• Grant landscape
• What makes a good grant application
• A selection of schemes
• State Aid
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www.francisclark.co.uk
2014 – an interesting year
• Two themes:
• Revolving door
• European Programme 2014 – 2020
• Assisted Area Map
• State Aid Rules
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www.francisclark.co.uk
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
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www.francisclark.co.uk
Economic development
• RGF:
• 8,000 companies
• 100,000 jobs
• Last week’s announcement
• Future?
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www.francisclark.co.uk
Trigger points:
• Job creation (sometimes job safeguarding)
• Capital expenditure
• Other costs
• Location
• Size
• Sectors
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www.francisclark.co.uk
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
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www.francisclark.co.uk
Why do you need a grant advisor?
• Free money but need time
• Technical points:
• De Minimis
• GBER
• Annex 1
• GVA
• Article 17
• Incentive effect
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www.francisclark.co.uk
Keeping up to date
http://www.francisclark.co.uk/services/grant-advisory/
http://www.heartofswlep.co.uk/home
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www.francisclark.co.uk
Contact details
David Armstrong
07810 056164
David Bullen
01872 276477
Richard Wadman
07854 763049
http://www.francisclark.co.uk/services/grant-advisory/
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G R A N T S
By John Hutchings
Plymouth University
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• 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!
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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
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….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
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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
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180 Expressions of Interest Received£18M bids for £3M Fund
Geographically well spread
Cross section of industrial sectors
50% + in manufacturing
GAIN GROWTH FUND+
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PLYMOUTHInteractive 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)*
TORBAYInvestment Casting Systems Ltd*
Interframe Ltd*Hymid*
SOMERSETExmoor Plastics Ltd*
Integrated Data Needs Ltd*Elecsis Switchgear*
Liz Dove Ltd*
CORNWALLKernow Confectionery Ltd t/a
Kernow Chocolate*St Eval Candle Company Ltd*
Seasalt Limited, trading as Seasalt*
Keynvor MorLift Ltd**Hydra*
* Awarded** Withdrawn
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BREAKDOWNcontracted……..
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!
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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
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INDUSTRY SECTOR
Sector Amount Jobs %ageMarine £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
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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 – HotSWand Cornwall&IOS LEPs …… together withSWMAS – areas as above but also Dorset, and North Somerset/Bristol/Gloucestershire/Wilts
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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
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• 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 Watero Manufacturers Advisory project assistance from SWMAS
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Further information
GAIN Website
(includes access to Grantfinder) http://gaininbusiness.com
North Devon+ UBI https://s3.plymouth.ac.uk/ubi
John Hutchings 01752 588340 [email protected] Lewis 01752 588903 [email protected]
Assisted Areas Map 2014 - 2020http://www.ukassistedareasmap.com/ieindex.html
The SME Definitionhttp://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf
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www.francisclark.co.uk
Structure
• Live schemes
• Going Live Schemes
• Support schemes
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www.francisclark.co.uk
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
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www.francisclark.co.uk
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
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www.francisclark.co.uk
Grants Round Up – The support schemes
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
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www.francisclark.co.uk
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)
Grants Round Up – The support schemes
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State aid and the South West
Marc Shrimpling
February 2015
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DO I NEED TO THINK ABOUT STATE AID?
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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”
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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
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OPTIONS FOR MANAGING STATE AID
‘State aid’?
De Minimis?
GBER?
Existing scheme?
Specific sectors?
6. Notify?
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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?
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www.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?
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www.francisclark.co.uk
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
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www.francisclark.co.uk
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
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www.francisclark.co.uk
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’
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www.francisclark.co.uk
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
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www.francisclark.co.uk
“You are often trying to persuade a stranger
to give you somebody else’s savings…”
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www.francisclark.co.uk
Break
Session 3 start time
11.45am
#FCFinanceSW