How the world of small business funding has changed

Captain Mainwaring has left the building

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Executive summary

• The fundraising journey of companies has changed dramatically in the past 25 years.
• The beginning, typically, still involves family and friends and, perhaps, a friendly bank manager.
• The end remains much the same, too.
• For the stages in between, the landscape has changed:

1. the local bank manager rarely plays a role these days;
2. companies come to the public markets later in their journey; and
3. private equity takes a much larger role.

• The UK is good at early stage, with supportive schemes such as EIS…
• …but has lost out on larger companies to New York, where valuations can be substantially higher.
• The environment continues to evolve, with the recent launch of PISCES platforms showing early signs of success.
• Founders, owners and managers often have little understanding of:

1. how investors look at companies and which type of investor they should be focusing on;
2. how to talk “investor”; and
3. how to value their business.

• On the one hand, the changes have made it difficult for retail investors to partake of certain opportunities, which are now dominated by private equity, while, on the other hand, the EIS scheme has allowed some retail investors access to exciting propositions.

 

Introduction

This article is based on a speech on the subject “Minority Sports – Small Business Financing”, which the author gave in March of this year at the “Weekend of Mistakes” event in Hay on Wye.[1]

It is now exactly 10 years since Hardman & Co published The Gifford Report: Two questions every growth company management should ask themselves. This paper sought to answer two straightforward questions: “Who will our next investors be?” and “What will they expect from us?”

At the time of writing that paper, the environment for funding businesses was evolving. In the 10 years since publication, the landscape for funding smaller businesses, in particular, has changed dramatically.

This article will be of interest to founders, owners and managers of businesses, as well as investors.

[1] You can view a recording of this speech here: https://hardmanandco.com/how-small-businesses-get-funded-keith-hiscock-weekend-of-mistakes/ The event website is here: https://www.weekendofmistakes.org/

 

 

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