As the backbone of the UK economy, SMEs play a critical role in job creation and technological advancement. In the private sector, they generate 60% of all employment and more than half of business turnover.
SME prosperity has been encouraged by the UK’s highly supportive infrastructure, where initiatives like the government’s Venture Capital Schemes – government-sponsored schemes designed to incentivise investment into young, high-growth companies – have created a thriving investment ecosystem for enterprise. Indeed, last tax year saw the UK’s second highest VCT fundraise to date, of £728 million.
This fertile environment has stimulated strong entrepreneurialism amongst UK SMEs and a huge number of new companies are being formed and coming to market, each seeking the capital for their next stage of development. In 2018, there were 5.7 million private sector businesses in the UK – having increased by two million in just eight years. Although this is a positive development, it means that investors are seeing more opportunities than ever, and companies are negotiating a noisier marketplace to find the right investor.
Accessing the right funding
For companies to achieve their full potential they will almost certainly need external funding at some point, but the process of taking on equity is complex and time consuming and requires a clear strategy.
Each SME has specific investment needs and every investor has a unique mandate. Making sure you only speak to investors whose mandates align with your needs will save you significant time. Advisors are ideally placed to help with this through their knowledge of you and your business. If they’re good, instead of directing you to lots of investors, they’ll direct you to the right investors. Similarly, for investors, it’s important for us to seek suitable opportunities and filter those which do not match our mandate as efficiently as possible.
The best way to streamline your experience is to be honest with yourself about what you want and what is achievable. For instance, Puma Private Equity is sector agnostic and provides growth investment of between £2-10 million to established UK businesses with proven market fit. Our approach is to partner with management teams, drawing on our experiences across a wide variety of sectors to help companies navigate the strategic and operational challenges of scaling up. But our mandate will not be right for everyone – for example we don’t work with start-ups no matter how compelling they are.
In addition to understanding your company and funding needs in depth, a good adviser will work with you to ensure you’re in the right position to begin speaking with institutional investors which, again, will save you time. You, as a management team, are your company’s most valuable asset. Inevitably, fundraising will take you away from the business, but it’s important to minimise that interruption; you don’t want to be on the back foot operationally just as you take on your biggest round of funding to date. A skilled adviser will provide a support structure that minimises this – from helping you identify your goals to preparing investor packs and using their network to matchmake according to your needs.
From an investor point of view, we look to advisers to facilitate our own screening processes by ensuring that any company seeking investment has reached an appropriate stage of development and prepared the necessary information. This will allow us to provide the right funding at the right time. Achieving a suitable match at this stage also strengthens opportunities for the future. For instance, we’ll often provide subsequent funding rounds as a company continues to grow.
So how do you find the right adviser? The best way is by meeting several – something you can do through platforms such as ELITE, which provides access to a wide pool of advisers. Attending their forums and other events will also help expand your network and deliver opportunities to establish individual relationships that can benefit your business.
Looking to the future
When looking for an adviser, remember that their role is to help position your company to take the next step and to find the right investor. They should be able to help guide you through the offer and transaction process so you can complete the deal quickly and efficiently. Advisers provide an essential bridge between SMEs and the investor community and the right adviser can save your company time, money and a lot of effort.
As a growing business, you need to develop a supportive system around you, which ultimately means choosing an investor who will embark on this journey of growth with you. Your investor will become one of your most important professional relationships and you should think of them as the scaffolding that will help your company to grow.