Opportunities rife for Investors in Growth Companies

Investors are being inundated with entrepreneurs from both the UK and Europe looking for finance for new business ventures

This is according to a panel of experts at an ICAEW Corporate Finance Faculty event, What Works for Investors in Growth Companies (and What Doesn’t).

Attendees at the event included Toby Perkins, shadow minister for small business.

The speakers said that the current economic difficulties have bred a whole new raft of British entrepreneurs, with plenty of opportunities for venture capitalists and other investors.

“There is an incredible amount of entrepreneurship out there,” said Mike Chalfen,  general partner at Advent Venture Partners, who specialises in technology companies.

“The environment has radically changed and there are tons of opportunities out there, both in the UK and Eurowide.”

Research shows that, because of the apparent lack of access to bank financing, small businesses are turning to other ways of raising capital, including business angels and professional investors. The investors said that the entrepreneur was often more important than the type of business itself at the early stages

Initially, it’s “gut feel”, said Kit Hunter Gordon, managing director of The Summit Group and chairman of Seraphim Capital. “In practice, it’s rather like a film producer, you know within five minutes. Then you rationalise why.

 “A good entrepreneur can turn a boring business plan into something exciting.”

The experts said they were looking for entrepreneurs to be full of energy – "eating, breathing and sleeping the company" – and know how to produce on a limited budget.

They will also have a proven track record of setting up and running a company (but not for someone else) and above all they must have integrity, said Chalfen.

Another factor, he said, is whether or not the entrepreneur is ready to take on board external capital; “It’s a very big decision because external investors will want to sell the business at some point.

“Most businesses, I believe, should be owner-managed. There’s no shame in an entrepreneur saying ‘No, I don’t want it’. Things do change very rapidly once you’ve taken on external capital.”

The panel said that as far as the company is concerned, it must offer a market opportunity, plenty of market barriers such as patents or intellectual property, and recurring revenue.

“There has to be a clear understanding about what makes your business different,” Chalfen said. “For example, you need to about your competitors. I often come across technology companies that don’t know what is happening in terms of developments in the US and the Far East.”

The company also needs to be clear on a quarter by quarter basis what the external money will achieve.