STOP PRESS - 22 Jan '10
There is no doubt that 2009 was a very difficult year for many business with a desperate shortage of available capital to enable them to ride the storm or capitalise on the opportunities to expand into areas left vacant by less able businesses.
Beer & Partners experience during 2009 was that investors maintained a healthy appetite for early stage and expansion investments into SME’s but spread their risk by investing smaller amounts into a broader portfolio of companies. Whilst we maintained our successful funding ratio of companies seeking finance at nearly 50% (the industry average is around 15% - 20%) and had the same volume of investors investing but overall investment size was 30% less in £’s per project from 2008 levels to a little below £100,000 in 2009. Investors, however, increased the number of investment from an average of 1.3 to 1.75 times per annum.
Sector interest - whilst we saw a fall in the property sector, we also saw a slackening of interest in internet and media. Conversely Energy & Environment and Healthcare/Pharma/Biotech saw a substantial increase in interest and attracted an increase of 75% in new investment over 2008 levels. Most other sectors proved resilient including business & financial services, education, gaming, leisure and tourism and restaurants, food and drink. Technology & electronics investment also increased slightly.
So what can we expect for 2010?
Debt finance will continue to be difficult and expensive and we believe that VC’s and funds will continue to struggle to attract new money and consequently have limited investment capability. We expect a raft of new IPO’s to target AIM and Plus markets in Q1 2010 but are concerned that many of these will be broker pushes rather than good quality investments. If many fail to achieve funding required we are concerned that the market will again lose confidence and investment again slow down.
Business Angels are discerning and will only invest in the best. They can wait for the right opportunity to come along and do not have the pressure of a fund manager to make a return on investment from day one. They do however have an increasing appetite for direct investment into SME’s and can add value of their experience and contacts to the company seeking funds.
Finding the right clients that will attract investors continues to be our hardest task. There are many new entrepreneurs starting up who are not prepared to risk their own funds or future but expect investors to take the full risk of failure. Many after 10-15 years of easy term debt availability many seek debt finance at low interest rates with little or no security.
To raise finances successfully, businesses must ensure they are well-prepared, follow certain best practice rules, and meet the criteria of investors. This includes having a clear economic and commercial plan that will provide returns to investors as well as to the entrepreneur, having a good management team or being prepared to strengthen the existing team, and being sensible about the business valuation. We have investment appetite for such companies and if you (or anyone you know) meets these standards and is interested in raising additional or new finance in the £100k-£2m range do please let us know.
We offer a free Guide to securing funding which can be downloaded from our website here and contains, near the end, a section on questions a fund seeker should ask an angel network before proceeding. These questions should be posed to us as well as our competitors to ensure that you contract with a business angel network that will have a realistic chance of successfully raising the required funding and what the hidden costs are. We prefer clients who are as committed to raising funding as we are and are prepared to undertake the strenuous demands that this entails.
It typically takes three months to conclude an investment and this period is extending a little at the moment due to market conditions. If your company is in need of funding, don’t leave it too late to start.
Mike Weaver, Beer & Partners Limited