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Funding Growth In A New World
March 11, 2021 0

Funding Growth In A New World

By Adam Maitland, Director at Hutcheon Mearns

February 2021

Let’s not kid ourselves.  2020 was hellish for most of us (unless you happen to be Jeff Bezos).  If we hear the words “unprecedented times” once more, it may push us over the edge.  We all hoped 2021 would be an open door into more positive times, and whilst it is, we’re still going to witness the struggles of lockdown and difficult business conditions for some months to come.

That being said, we have seen utmost resilience.  Personally, we have adapted to a remote world; and from a business perspective, we are seeing a new breed of entrepreneurialism emerge.  Businesses are becoming leaner, more focused and building new strategies for growth.  Which leaves the million-dollar question; how do you fund growth in the current world?

As always, this is dependent on the stage and track record of your company.  But the dynamics have, and continue to change.

  • Early stage / start-up businesses

It’s safe to say that market volatility tends to spur new enterprises.  Individuals have potentially lost jobs or have taken stock of their personal aspirations and decided to build something new.  Funding of early-stage businesses has always been tricky – it’s too early for banks and probably too small for a vast portion of the private equity community.

There are a huge number of venture capitalists looking for opportunities; however, the challenge here is the volume of deals they are assessing daily.  The proposition and plan must be absolutely on point.  We are also seeing a resurgence in business angel/syndicate funding.  These organisations are invaluable in pooling high net worth individuals and executing, typically, seed funding rounds.  And of course, we also see several early-stage businesses being funded through “friends and family” rounds or via high-net-worth individuals.  Grant & governmental funding should not be overlooked.  There is a significant amount of capital available, but they tend to move at a slower pace, which may not align with needs.

At this stage, having a clear strategy and broad network is critical.

  • Growth phase / mature businesses

For more mature businesses, just getting through 2020 is a feat in itself.  Trading has likely been impacted negatively, growth has stalled (or reversed) and some difficult decisions have been made throughout the year.  But we will see improvement as markets open up, and possibly even pent up demand supporting business activity later in 2021.

Weakened balance sheets may result in some working capital strains as activity levels pick up, and typically these can be supported through banking products.  Invoice discounting facilities, asset finance and other tailored products can be incredibly useful and valuable.  Coronavirus loans have also been well received and a lifeline to a significant number of businesses.  However, high street banks have a busy time on their hands with existing portfolio companies, which is paving the way for challenger institutions to build a presence, particularly in the SME market.  Pricing may be higher, but if it fuels incremental growth then that can be managed.

For more fundamental growth aspirations, we have the private equity community.  Private Equity has a significant amount of dry powder available for investing in small to large scale private businesses.  This may be to fund strategic investment for new products, services, or locations; or perhaps to fund strategic M&A.  The “typical” fund will be looking for a track record of cash profitability, a strong management team, a unique service or product and a building order book/pipeline.  Some of those may be easier than others after 2020.  There are also funds focused on “special situations”, and they are expertly navigating a growing space.

Being in Aberdeen, there is another changing dynamic in the private equity world.  The global Energy Transition has resulted in changing investment models.  PE funds are now more focused on investing in companies that have products and services to support a move to a more carbon-friendly world.  For solely oil & gas businesses, it has unfortunately closed the door to a number of investor groups.  Having a strategy to move into renewables has never been so relevant.

This is, of course, a small snapshot of the dynamics we are currently seeing.  There are always other routes and options that could range from partnerships with large corporates through to cashless mergers to save cost and free up working capital.

Yes, we are still battling against a difficult economic backdrop, but options exist to support growth – they’re just a little harder to find.  It is critical is to have a clear, well-defined business plan and a business prepared for investment.

Here at Hutcheon Mearns, our multi-skilled team works with you to solve these complex business problems, identify growth opportunities, and create a plan for the future.

For more information on how we can support your business growth strategy, contact adam@hutcheonmearns.co.uk