No more than one in 50 of the business plans presented to "angels", or private equity investors, succeeds in raising funds.
No more than one in 50 of the business plans presented to "angels", or private equity investors, succeeds in raising funds. Over half are turned down after a 30-minute once-over, and a quarter after a three-hour appraisal. Even if you're in the fortunate 2 per cent, it can then take a year or more to see any cash, and long before that you could spend thousands in fees just to win a place in the queue.
But let's think positively. Private equity may be the only route for some start-ups or expansions, and angels would like to see more projects take wing, because that's how they make money.
To help stack the odds a little more in everybody's favour, a business angel network, Envestors Private Equity, is bringing out a simple guide to raising up to £1m. The guide is free, concise, and doesn't limit advice to private equity, but takes in other options such as debt, grants, awards, factoring, invoice discounting and leasing.
The guide instances Scott Haughton, whom Envestors helped to raise £500,000 for Café Joué, his idea for a chain of upmarket coffee shops providing kids' entertainment. Half came from an equity fund, £150,000 from a private investor, topped off by a £100,000 bank loan under the Small Firms Loan Guarantee Scheme (SFLGS). Being Government-backed, SFLGS loans are bureaucratic and expensive, but they can free directors from putting up the family home as surety for the loan.
"Willingness to utilise the SFLGS varies from bank to bank and even from bank manager to bank manager," Envestors says.
Haughton is in the 2 per cent who scraped through, but it wasn't easy. He had been after £680,000. "It took over 12 months, and a lot of blood, sweat and tears," he says.
Envestors' Oliver Woolley says: "Our advice in this book is backed by research done last year with Imperial College Business School and the Cranfield School of Management. It shows that many entrepreneurs are simply unaware of the myriad types and sources of finance available to them, and unsure which source is best for their business, or how to get at it."
Seed-capital, start-up, early stage, expansion or management buyout/buy-in - they're all defined; the typical amounts that could be raised, and the appropriate sources of finance are all tabulated, and backed with more general advice on the options in raising finance.
There are tips on what investors are looking for from the team, the business and the deal ("plans and ideas do not get funding, people do, and honesty and integrity are key"), and there are pointers towards the cons as well as pros of private equity. One con? Besides loss of control, "it's hard finding the right investor, i.e. one you can get along with and who has similar aspirations for the business as you do".
Then there's the extra expenses: legal fees, say £5,000; bank fees - if raising bank debt - say 1 per cent of the facility the bank agrees to; monitoring fees, charged by the investment funds, about £3,000 a year. If you're still on the spoor of an investor, you may need to hire an adviser or intermediary who may charge 5 per cent of the funds raised through their contacts. Some angel networks charge registration fees from £200 to £2,000.
And if that's not drama enough, Envestors warns: "Investors looking to see your business plan may be potential predators conducting a bit of industrial espionage to find out what you're up to."Reuse content