Business Essentials: The investors will see you now. A doctor caught in a dilemma

The medical firm Doctorcall fears funds for growth will come at too high a price, finds Kate Hilpern
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The Independent Online

Our parents might have been quite happy to spend 30 years building a company up to a moderate size," says Dr Charles Levinson, the medical director and chairman of Doctorcall, "but I think this generation tends to ask why it shouldn't do things faster.

Our parents might have been quite happy to spend 30 years building a company up to a moderate size," says Dr Charles Levinson, the medical director and chairman of Doctorcall, "but I think this generation tends to ask why it shouldn't do things faster.

"Indeed, it seems rather pointless to have grown a company to a £2m turnover in 15 years when I have a friend who has grown his business to £250m in five years. That's why I've decided to opt for rapid growth in the most thriving part of our business."

Doctorcall is comprised of two operations - the first, and original, business being the supply of private GP home visits throughout London. "We are the biggest provider of this service," says Dr Levinson.

The second area is occupational health. "We've done this for five years and this part of the business includes the provision of health screens and flu vaccinations, and other more specialised areas such as lead-level testing and random drug testing. We also provide everything from pre-employment medicals to long-term sickness reviews. So many companies of all sizes are asking for our services - from the Metropolitan Police to the Lanesborough Hotel - that we know there is a huge amount of business available to us if we can grasp it."

The problem is that Dr Levinson wants to build up this part of Doctorcall through outside investment, while keeping full control of the home visits side. But he has been advised that, to attract interest, equity stakes in the whole business will have to be made available. "I want to know if there is a way round this."

With a clear growth strategy in place, put together with the help of his finance director, Dr Levinson is keen to get funding as soon as possible. "We have a variety of possible avenues. There is a boutique corporate finance house, a venture capital firm and a wealthy individual private investor who are all interested. But they refuse to invest in just one area."

It's frustrating, he says, because he does not want to surrender equity at this stage in a part of the company that does not need investment. "I want to isolate a great potential growth area and pursue a policy of leveraged development, while leaving the rest of the business safely on the back-burner."

Even more frustrating, he says, is that until he mentioned home visits, the potential backers were perfectly happy to invest in the occupational health operation alone.

www.doctorcall.co.uk

WHAT THE EXPERTS SAY

Ted Ettershank, managing director, Lloyds TSB Commercial Finance

"Another option worth considering at Doctorcall is asset-based lending.

"This involves raising debt rather than equity and could be achieved by leveraging against the assets on the balance sheet, primarily the debtors in this case.

"There are two advantages to this approach: it would be significantly cheaper, and it would ensure that the principals retained full control and benefited from the anticipated growth.

"Doctorcall could choose whether to fund the debtors of the home visits, the occupational health service or both. Ring-fencing would be less of an issue and, if there was still a funding gap after raising debt, the lender could look at an unsecured cashflow facility to meet this shortfall.

"If the gap remained too big, a combination of debt and equity might be a viable way forward."

Rupert Merson, partner, BDO Stoy Hayward

"The real issues here are perspiration and focus. Risk financiers expect their clients to sweat, hence the term 'sweat equity'. This may include harsh growth targets or it may involve the owner putting up personal assets as security against the deal going bad.

"Risk financiers like their clients to sweat to make sure they focus on the targets in hand. The problem with Dr Levinson's proposition is an apparent lack of focus. That is why they want to finance the business as a whole, or for him to concentrate on the bit of it that matters.

"There is an alternative, however. Dr Levinson could be more prepared to surrender equity in the non-growth area of Doctorcall's business. And if as a result of sharing the equity he ends up having a smaller slice of a much larger cake, he will still be quids in. This sale would also help solve his investment problem."

Barry Franklin, adviser, Business Link

"To achieve the desired growth, there is a need for investment finance. The collateral, which the core home visits business represents, is naturally attractive to finance people, who will want to reduce their risk to a minimum.

"In order to attract venture capital without surrendering equity in the home visit sector, Dr Levinson should consider setting up the occupational health side as a separate entity. A robust business plan can then be prepared for this company, excluding any mention of the home visit enterprise and based on its performance to date as a separate profit centre.

"The occupational health venture has already been well received, so the venture capital market can be approached again with confidence, although the finance people will probably want to see a respectable contribution - cash, guarantees or collateral - from Dr Levinson's side."

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