September 2012

Is Valuing a Young Start-Up More Art or Science?

How do investors place a valuation on a start up business? Especially when the business is merely an idea in the minds of an entrepreneur.

Valuations are based on several details surrounding the business and its personnel, but main factors include the track record of the founding team, the size of the market opportunity and whether the business has already gained users or started generating revenue.

Usually, seed-stage investors have little to base their valuation on, so they often rely on a “spray-and-pray” approach – whereby they invest small amounts of investment into several start ups in the hope that one or two will make them a huge return.

Business Growth Fund makes its first investment in Wales

The Business Growth Fund has made its first investment to date in Wales – a £5.4m equity deal with Swanbridge Hire and Sales, a high tech industrial scaffolding services.

The investment will support its next growth phase, which will create 100 jobs over the next 3 years.

The BFG was set by the Government to back growth focused SMEs with equity investments ranging from £2m to £10m.

This deal in Wales takes its total investment across the UK to 17 with combined value of about £80m. The average deal value so far has been around £4.7m.

Crowdfunding – Authorised and Regulated by the FSA is the only crowdfunding site authorized and regulated by the FSA – who have already issued a warning to inexperienced investors regarding the potential risks of using crowdfunding sites.

Yesterday, I was offered a promotion whereby I was given £100 to invest in start ups listed on Seedrs – needless to say I accepted.

To access this promotion, I had to sign up to the Seedrs website, and I was pleasantly surprised by my experience.

There is a lot written in the media about the risks of investing through crowdfunding sites and the fact that inexperienced investors may throw away their money without realizing it – not at Seedrs!

The first part of the registration process was for me to disclose information about myself: My name, age, profession and job title…etc.

The website then decided that as I had not invested into a business in the past, they would need for me to demonstrate my knowledge of the risks and rewards of equity investment before they would allow me to sign up.

To do this, I had to answer a series of multiple choice questions about equity investment (and had to get 100% correct to be eligible to invest). The questions ensured that I was aware of all of the risks of equity investment.

Once I had completed the test (which you can only take once), thankfully, I was deemed capable to make an investment.

So what have I learnt from this experience? I can safely say that everybody that uses Seedrs should be fully aware of the risks they are taking on.

500,000 new UK small business jobs being stifled by lack of funding

One of the most significant side-effects of the current lack of funding for UK based SMEs is the adverse effects on job creation – 500,000 new jobs could be created with improved access to funding.

In fact, 30% of small businesses have been forced to lay off staff due to a lack of funding and the economic crisis.

A recent survey by Funding Circle showed that SMEs are poised for growth but are being hindered by a lack of finance. 33% of those surveyed would increase staff numbers if they could obtain the required finance.

Furthermore, the study revealed concerns regarding access to bank loans.

  • 56% said the recent banking scandals have resulted in the banks losing their trust

  • 24% said there is nothing the banks can do to regain their trust

  • 34% believe the banks don’t want to lend

  • 37% need access to fast finance and believe the banks are too slow

  • 31% believe banks are too expensive

  • 15% have had to adjust their plans for growth as a result of a lack of finance

British Business Bank to be launched, says Cable

Vince Cable has announced today that £1bn in government funding will be provided for a state backed ‘British Business Bank’ to increase lending to SMEs.

The private sector will also contribute more than £1bn to the Bank. The Bank will then use existing government guarantee schemes to leverage up to £10bn in financial support to cash starved SMEs.

The British Business Bank will aim to help SMEs by ‘setting a positive and ambitions vision, built around long term investment and innovation, in skills and science.’

Cable believes that ‘Britain needs to get behind successful British-based firms in vehicles, aerospace, life sciences and creative industries and our world-class scientists and universities.’

The Venture Industry Five Years On? Entrepreneurs May Be Running It

There is a current trend for successful entrepreneurs to become venture capitalists rather than purchase yachts or open up vineyards – and these entrepreneurs are taking over the venture industry.

One possible explanation is that the industries that VCs are funding have changed and so, accordingly, have the investors.

15 years ago there was a lot more hard technology being developed, and these ventures were a lot more capital intensive as apposed to the current market, driven by software and social networks, which often do not require as much investment to hit critical mass.

Can SMEs help the lumbering NHS to innovate?

9 months ago Colin Callow was appointed as the Head of the NHS National Innovation Centre (NIC). His focus has been to support tech innovation that can help solve the problems that incur huge costs to the health service. The aim is to reach out to SMEs as a source of innovation.

There has been some success to date, with the NIC rolling out a number of important innovations by SMEs. These include:

  • KwickScreen – a portable, retractable, room divider which provides isolation or privacy solutions in hospitals when required, that could save the NHS’s intensive care units £57m a year by isolating patients from superbugs like MRSA more efficiently.
  • Big White Wall – a revolutionary LiveTherapy that offers live online psychotherapy, that could save the NHS’s mental health services £37,000 per 100 patients.

Dragon’s Den Reject SendmyBag Scores £100K Angel Funding

The founder and CEO of SendmyBag, Adam Ewart was once on the UK television show Dragon’s Den – he asked for £100k for 5% equity in his business and was rudely ‘sent packing,’ with one of the Dragons saying “What investigation have you done to justify the most ridiculous, ludicrous, stupid, insane valuation?”

But recently, the company, which is based in Northern Ireland and helps air travelers travel light by providing a door-to-door luggage delivery service announced that it has received a round of angel funding from the Belfast-based angel investment firm Lough Shore Investments.

This just goes to show that one man’s rubbish is another’s treasure – the angels must have seen something in the business that the Dragons did not! So the lesson to be learned for entrepreneurs seeking funding is that if at first you fail, try, try and try again!

Business owners 'ignorant' of alternative finance

According to research by Experian, a vast majority of SMEs rely on bank overdrafts or personal finance to finance their business.

Calling for help from friends and family are also more popular than the several forms of alternative finance. The least well known type of alternative finance was ‘Crowdfunding’, with 70% of respondents claiming they had never heard of it!

The research shows that there is a general lack of awareness surrounding alternative finance – including more established forms such as Angel Investment and Invoice Finance.

In addition, just one in every ten businesses looking for bank funding ‘shop around’ – try ALL of the high street banks when looking for funding, and only 6% would speak to a broker.

Small businesses struggling to raise finance

According to a survey conducted by the Federation of Small Businesses (FSB), 42% of those who applied for a loan were turned down. In addition, nearly 2/3 of those in the survey said they thought finance was unaffordable.

The British Bankers’ Association has said that lenders are continuing to provide credit to customers and that they are also helping to find alternative sources of funding if the Banks could not provide it themselves.

The FSB has stated of the 2600 business-owners surveyed, about half wanted to expand their businesses in the next 12 months, however this growth is being hindered by poor access to funding.

Lack of credit has directly contributed to a drop in business confidence, and the FSB has said it welcomes the government’s plan to set up a state-owned business bank.