business finance strategy

8/3/2019 Business Finance Strategy

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South West ofEngland Regional Development Agency

Finance : The art of linking providers of funds to users of funds, to exploit opportunities and create wealth for both.

Finance for Business StrategySouth West of England


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Front cover photograph of Bristol bridge supplied courtesy of Peter Hill


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Page 4 ForewordPage 5 Context

AimsObjectives

Page 6 VisionPage 7 ActionsPage 8 Access

CulturePage 9 Education & supportPage 10 Rights & responsibilitiesPage 11 CollaborationPage 12 The financial escalatorPage 13 Case studies

Contents

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Inability to access the right funding package at the right time isa barrier to all business groups whether they are wanting helpto get started or trying to develop a new product, technology orprocess. It can hold back a company that has an excitingopportunity and that needs to grow rapidly, or one that doesntconform to conventional business model - such as a communityor social enterprise.

The Government has addressed the macroeconomic issues by

providing a stable investment climate, structural reform tostimulate competition and a range of fiscal incentives to encourageinvestment in research & development and skills.

Finance, however, is as much about people as it is about policiesand we recognise that we can build more effective policy byworking with and through regional networks where moretailored solutions can better address the diversity of need thatexists across the business community in the UK.

This regional strategy will provide a framework from whichinitiatives such as the Regional Venture Capital Fund will flow, tobetter meet the needs of businesses seeking to grow in the

South West. It will complement the fiscal support that we areable to provide, developing an economic environment in theSouth West that encourages entrepreneurship and opportunityfor all.

Dawn PrimaroloHM Paymaster General

Foreword

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Context

Business growth in the South West is widely recognised as akey driver for a successful regional economy. It contributesdirectly to wealth creation and, through that, supports theregional strategys key objective of increasing prosperity byimproving business competitiveness.

Growth requires resource human, physical and financial.There are generic financial issues around access to fundingthat can be tackled on a national basis. However the diversityof the South West economy both in terms of the urban/ruralmix, sector and business size requires regional solutions, asthe business community is dominated by micro, small andmedium sized enterprises.

This strategy sets out the aims, objectives and vision that willaddress these issues in the South West. It outlines the actionsthat will guide and influence both the demand and supplyside of the financial equation.

Finance on its own is not the answer. This strategy alsoidentifies the links to the other factors that are critical tosuccessful support for businesses in every stage of their growth.

Aims

To raise the understanding and awareness of the differenttypes of finance available to fund business growth.

To change the cultural aversion to equity finance onboth the demand and the supply side.

To improve access to finance through encouraging greatercollaboration between finance providers, businessintermediaries and their customers.

To encourage innovation in finance provision to meet thechanging needs of innovative businesses.

To facilitate and support the development of financialinstruments that address the current market gaps.

To develop awareness of the benefits of a holistic approachto the issues that businesses face finance on its own willnot raise productivity, competitiveness and growth.

Objectives

To develop a financial escalator that will provide anappropriate financial package for each stage in abusinesss growth. It is recognised that the escalatorarticulates a framework one that provides parameters,but accommodates diversity. Where, how and at what

speed businesses progress through the various stages willbe dependent on their needs and prospects.

To develop a support environment that encourages "moneywith management" recognising that finance is only apart of the total package required to foster and encouragebusiness growth.

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Vision

The South West of England Regional Development Agency recognises that access to finance remains a barrier to growth

for many businesses in the region. It is committed to working with finance providers, business intermediaries and

businesses themselves to find regional solutions, where these are relevant, as well as actively contributing to the wider

national debate on generic issues.

We recognise that finance is just one component in a complex equation and our aim is to ensure that this strategycomplements and draws on the other initiatives being developed to support economic development in the region.

Developing the financial escalator will be the foundation on which we build a business support environment that links

funding to training, coaching and mentoring so that the money is really made to work to create wealth, not destroy it.

Our vision of the future sees a more entrepreneurial, knowledge based business community where the value of the

"intangibles" will equal, if not surpass, the traditional measures of worth. New products and ideas will have shorter

development times and profit cycles the pace of change will continue to increase. Flexible, adaptable and innovative

will be the hallmarks of successful business. Those who support business will need to display the same characteristics

attitudes to risk will need to change to reflect this.

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Facilitate

Improved links between finance providers and users both debt andequity, also engaging the intermediaries that support them through

development of a financial escalator in the region.

The creation of an investor readiness programme that will increase theunderstanding of the needs of both sides of an investment andimprove the process of gaining/making such an investment.

Development of networks that cut across cultural barriers encouraging innovative approaches to overcome the barriers to growthcaused by lack of access to funding.

Engage

Finance providers and intermediaries in the development of a morecoherent supply market better networks and sign-posting

Finance institutions in assessing the viability of a regional bank forinnovation looking at new assessment methods for financinginnovative business ideas, products and processes.

Lead

The creation of a regional business angels network South West AngelsNetwork [SWAN] to improve access to informal equity finance.

The creation of a South West regional venture capital fund that willaddress the equity gap by providing risk capital to growth companiesup to 250,000 first stage, with maximum investment of 500,000.

The development of a "money with management" mentoring schemethat will support companies in using investment wisely improvingsurvival and growth prospects.

Lobby

Government to address remaining finance market gaps.

Work with the national SBS finance team on:-

improving funding access for:-

early stage development/proof of concept [seed corn] post concept to production /market improving capital liquidity [regional equity markets] developing new financial instruments/processes

incentivising new investors by:- easing restrictions imposed by the FSA developing other fiscal incentives

Actions - The South West RDA will:

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Finance is the catalyst that will support the birth, survival and growth of the regions business community,creating the wealth that will provide sustainable jobs and prosperity for the working population and investorsin the South West.

However, providing the money alone is no guarantee of success and the RDA will promote the concept of

"money with management" a holistic approach that will encourage businesses to see finance as just oneelement in the package of support they need to compete and thrive in their chosen market-place.

We will support initiatives that will achieve a change in cultural attitudes helping business peoplerecognise their limitations and the value of seeking help and support in those business discipline areaswhere they are not strong.

Priority areas include:-

Building capacity within key partners such as the Business Link network;

Building capacity in the area of mentoring through support for a business 2 business network; Building links with the major regional financial players developing networks and signposting capacity so

that businesses have the widest possible access to the appropriate funding package that best matchestheir projects risk profile.

Education & support

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Although our leading financial institutions are developing sophisticated computerised models to assess risk,most investment decisions are still made using human/personal judgement there are no black and whiterules as each proposition will have a different risk/reward profile. Matching demand to supply will alwaysbe a fallible process. The different cultural attitudes of the entrepreneur and the financier are both astrength and a weakness - developing a deeper understanding of both sides attitudes to the risk/reward

equation, and encouraging greater dialogue are considered by the RDA as the most practical ways ofovercoming this cultural divide and we will work with partners to achieve this. Managing expectations andhaving a clearer understanding of what is possible are key roles for intermediaries and support organisations.

We believe that establishing a set of protocols to improve this fundamental interaction will build economicgrowth in the region broadening access through exercising the art of the possible.

Businesses have a right to:[Financiers have a responsibility for:-]

Access to relevant, quality professional advice at a reasonable cost to help prepare their business case An honest assessment of their proposition with clear reasons why/why not they will be supported. Decisions to be communicated, along with any conditions, within agreed reasonable time scales. Sign-posting to a finance provider whose investment portfolio/criteria best matches the proposition risk profile. An investment offer that fairly reflects the balance between risk and reward for both parties.

Financiers have a right to:[Businesses have a responsibility for:-]

A business plan/strategy that clearly sets out:- The aims and objectives of the business both short and long term. The strengths, vision and probity of the business owner/management team. The market/customer for the product/service and its income potential. Honest & realistic cash-flow, income/expenditure forecasts.

Rights & responsibilities

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Collaboration

Finance for business is a complex mix of competition between providers and the risk assessment models they use to achieve the lending portfoliothat their stakeholders are prepared to finance. This can often lead to a mis-match between the expectations of those who need money and thosewho supply it.

With very little product differentiation certainly in the debt finance area competition is fierce, resulting in a heavy focus on sales target

achievement. This has led to a fragmentation of the market, where networking/sign-posting between finance providers depends on thevision/attitude of the individuals involved, rather than a coherent policy.

The RDA will engage with the sector to encourage greater collaboration especially where debt finance providers are presented with goodpropositions that do not match their criteria, or where equity finance is the better route.

The benefits of a financial system that offers a seamless route to the appropriate financial package will form part of a virtuous cycle where moregrowth businesses can devote more of their time to creating wealth, rather than chasing finance. The more growth, the greater the opportunities forthe financiers to add and receive value for their services.

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The financial escalator

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from the beginning to the London Stock Exchange main list

Motion Media was formed at the beginning of 1993 by a small group of Bristolengineers who chose to strike out on their own rather than re-locate to France whentheir previous employer moved its operations. Using their severance money as a stake,

Motion Media Technology Limited was formed to develop and market videocommunications equipment into a number of markets and applications.

A useful but modest financial contribution was sourced from ST Microelectronics, butattempts to secure the 1.6m of venture capital needed to fully support the businessplan projections failed. Against the background of a hostile investment climate,concerns about the competition from BT (who later gave up developing their ownproducts and bought videophones from Motion Media instead), and the fact that themanagement team was new, made the task of raising equity finance virtually impossible.The company, therefore, worked for the first 11 months off of the assets of the founders.

By the end of 1993, technical progress was sufficient for the company to secure a dealwith GPT (then the largest UK telecoms equipment manufacturer) for its first PC add-invideo conferencing product. This provided much needed trading finance as well as ameans of having the product manufactured.

By the end of 1995 the company had developed its first videophone with the help of aDTI SPUR grant and further finance was needed to bring this into production and tomarket it. The company actually made a profit in 1995 but despite this, venture capitalstill proved elusive.

The company decided to raise its capital from the public on what was then the newOFEX market. 1million was raised in 1996 and a further 3million in 1997. Thisallowed the company to grow considerably and develop new products and markets italso meant developing skills in dealing with private and institutional shareholders.

In May 2000, the company achieved one of its original aspirations and joined the mainlist of the London Stock Exchange raising 18 million in the process. This valuedMotion Media PLC at about 140 million.

Although the route to the main list was not as originally planned, it did have a positiveoutcome in that the management retained a greater level of freedom than would havebeen the case with venture capital involvement from the outset, allowing the founders toretain considerably more of the shareholding than would have otherwise been the case.

Ken Burgin, Chief Executive Officer

Motion Media

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Business LinkTel: 0845 600 9006Website: www.businesslink.org

Department of Trade & IndustryWebsite: www.dti.gov.uk

Government Office for the South West

Website: www.gosw.gov.uk

South West Contacts

South West RDA Head Office Business Development TeamSterling HouseDix's Field Business Support and InvestmentExeterEX1 1QA Innovation

Email: [email protected] Incubation and Cluster DevelopmentWebsite: www.southwestrda.org.uk

Sector Development

International Trade

Information & CommunicationTechnology

ICT DevelopmentWebsite: www.ConnectingSW.net

Knowledge for BusinessWebsite: www.k4b.co.uk

SmartWebsite: www.sbs.gov.uk/smart

South West Regional Venture Capital Fund(South West Ventures Ltd)

Website: www.southwestventures.co.uk

UK OnlineWebsite: www.ukonline.gov.uk

South West Ventures LtdArgentum510 Bristol Business ParkColdharbour LaneBristolBS16 1EJ

Fund Manager - Keith MassonTel: 0117 906 3410Email: [email protected]

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