Your keys to more cash
Article Date: Nov 24 2005
If you want to attract a fund manager and their cash to your business, you need to know how much money they have, what types of businesses they are looking for and, most crucially, how to make the initial contact. GrowthBusiness investigates.
Name: Matt Taylor
Company: Foresight Venture Partners
Likely investment: Between £200,000 and £2.5 million
Best way to impress: ‘Have a wise non-executive director on your board’
Foresight specialises in businesses ‘with a technology edge’, according to partner Matt Taylor. ‘This can be anything from a venture with lots of patented technology to a services business using IT to make it more productive, or another technology application.’ This varied approach has benefited the group, which is the only manager of a Venture Capital Trust (VCT) to return the initial money invested to subscribers.
To get an audience with Foresight, or other successful investors, Taylor says the best thing is ‘to have someone involved in your business who has done it before. For example, it could be a non-executive with a financial background, who has previously been involved in a serious fundraising. He would be ideally suited to introduce you to relevant contacts and prospective investors. It’s so important.’
Taylor says many of Foresight’s best investments come via this introduction route. ‘The non-executive chairman of Sarantel [a wireless antenna business that has recently floated on AIM] introduced us to the company when it was seeking finance. And a recent investment, Aigis, a developer of blast-proof materials, came through our own financial adviser Williams de Broe. We were very excited by this as we believe homeland security is a big issue at the moment.’
Taylor also says that corporate financiers themselves are a good source of possible investments. ‘All the accountants as well as boutiques like Icon and Catalyst introduce us to ideas.’ However, he maintains the first step is to appoint a suitable non-exec with experience who can then set up a first meeting, possibly even with an appropriate financier. ‘Then that adviser can put together the necessary ten meetings you need to have with investors.’
Once you’re in the door, Taylor cautions that ‘the first five or ten minutes of a meeting are very important. I expect a presentation to be made and a business to explain in that time exactly what they do. This is the ‘elevator’ pitch. The first two slides can tell you a lot. If you haven’t managed to hold my attention after 20 minutes then I will start to leaf through the rest of the presentation – that’s a bad sign as I’ve generally already made my mind up not to invest.
‘Another tip is to show your product to the investor,’ he continues. ‘If you’ve got a satellite navigation tool, then let me feel it, play with it in my hands. If it’s a piece of software, tell me how it will benefit the business.’
Again, for Taylor, the chief executive is vitally important. ‘Ideally, he or she will have managed a bigger business before. We find that half of entrepreneurs can’t develop as the business grows – a mix of skills is required in addition to leadership. We might suggest that a chief operating officer is added to the team if need be.’
Foresight does not look at pre-revenue businesses but is prepared to invest as little as £200,000. ‘Our largest deal size recently is £2.5 million. But if we syndicate a deal it can be up to as much as £4 million,’ remarks Taylor.
You should also bring up the exit plan at the initial meeting, according to Taylor. ‘You need to show how shareholders will make money. We will want to discuss how much the venture will be worth in three to five years’ time. We generally want to grow businesses to a value of between £10 million and £50 million over that period.’
His final piece of advice is to ‘look at what the investor has backed in the last year. If they have supported a very similar business to your own then probably don’t approach them, but if it is only vaguely related, in terms of size and technology, then go for it.’
Name: Simon Like
Company: MD Barnard
Likely investment: Varied amounts
Best way to impress: ‘Take your business to market’
MD Barnard is a traditional stock broking business with around £150 million under management. At least £30 million belongs to long-standing private clients of Michael Barnard himself. The group also runs a growth and an income fund for Marlborough and last year raised nearly £9 million for an AIM VCT, called New Century.
As such, fund manager Simon Like says the majority of his investments, which are made in tandem with Michael Barnard, are in quoted companies. ‘We work very closely together and have similar views about what makes a good investment. If you gave us a list of a hundred possible investments we would both choose the same half a dozen we would like to back.
‘We very rarely back private companies – the art of exiting is important and the only way of selling a stake in a private firm is via a trade sale or a flotation,’ explains Like, who worked for ten years at HSBC when it was the Midland, and at his family Land Rover dealership before Michael Barnard contacted him on discovering his skills and interest in the markets were suited to being a fund manager.
The best way to approach Like is first to consider floating. VCTs have to buy newly issued shares in private companies or those on AIM. However, Like does not simply rely on the flow of new issues coming from brokers bringing companies to the market.
‘I am happy and willing to meet up with companies only considering a flotation,’ he says, citing a recent example of a business that approached MD Barnard and then, following an initial meeting, was introduced to a suitable broker.
Like is also increasingly keen on backing companies on OFEX, the private stock market undergoing something of a revival at the moment. He recently used the VCT money to back health and safety consultancy PHSC, which has just moved to AIM, and CKS, a recycler of IT equipment, which remains on OFEX.
Whatever the source of the companies, he maintains that all should display solid investment credentials: ‘we are looking for businesses that are profitable, with little debt, that generate cash and that we can understand. We are not bothered about the sector, but we do avoid oil and gas exploration plays.
‘We like businesses that have good control of their costs,’ he continues. But one of the things that makes Like sit up and take notice is if the business has ‘some topicality about it.’ Two AIM new issues he has backed this year that exhibit such a flavour are debt advisor Debtmatters, making the most of the consumer debt crisis, and Tristel, a leading provider of disinfectants to the NHS, an institution currently beset by cleanliness issues sparked by the MRSA superbug.
