A new concept in business growth funding …
The Current Situation 3
VENTURE BEYOND 5
Executive Summary 5
VENTURE BEYOND LTD 7
The Reasons for the Creation of Venture Beyond Ltd 7
Current Working Capital Finance Facilities 8
Enterprise Finance Guarantee (£2 billion) 8
The Regional Venture Capital Funds (£224 million) 9
Enterprise Capital Funds (£205 million) 9
The Business Payment Support Service (BPSS) 9
The Business Bank 9
The Business Growth Fund (BGF) 10
General Discussions with Bankers 11
The New Approach 12
The Monitoring System 13
The VB report 14
VENTURE BEYOND FUND 15
The Vision 15
The Fund Concept 15
The Mission Objective 16
The Way Forward 16
The Investment Parameters 17
How the Fund operates 18
The Structure of the Fund 18
The Investment Procedure 18
Investment Process 19
Problem Investments 20
The Founding Team of Venture Beyond 22
Contact Details 24
The Current Situation
The financial crisis of 2008 and the subsequent close analysis of the banking industry have encouraged many people to rethink the real purpose of the financial services business and what it should be doing. Almost everyone who has participated in the process has agreed that banks should be regulated more carefully and the basic function of personal and business finance should be protected by strict capital requirements and separated from what is now called investment banking.
All the other participants that come under the heading of financial services, such as insurance companies, fund managers and advisors have been under examination by their regulatory authorities and have been required to adopt new controls and regulations to make them more transparent and secure in their dealings with the general public.
While this new framework has been formulated and is being implemented, many countries have been through a very rough time economically. Even though official interest rates have been exceptionally low for some time, recession has dominated for all free market economies. Growth is beginning to occur but it is slow and intermittent; large companies have been able to access the bond markets and take advantage of the abnormally low rates while they have been accumulating cash and unwilling to commit to new capital investment.
Large companies have become very profitable and efficient during this crisis by trimming staff numbers to increase productivity. However, small and medium sized enterprises (SME’s) have struggled to survive and been denied access to credit to invest in their businesses. There has been a universal reaction by these businesses to the lack of concern by governments to their plight and it has caused many people to rethink how to fund this important sector.
Unfortunately, the new capital ratio requirements mean that many banks will have to reduce the assets they have on their balance sheets which will directly affect lending. The main casualty from this asset shrinking will mean lending to SME’s will be reduced since the capital allocation banks must provide for this sector has been increased. This will further decrease the commitment by banks creating a serious funding shortage for SME’s.
Alternative finance has become the new buzzword in the SME world and it is beginning to make an impact on the more traditional means of finance for these businesses. Technology has allowed organisations outside the banking industry to develop systems to transfer funds and provide an alternative means to manage money.
The Internet has brought these systems into everyone’s home giving the public access to opportunities only previously available to the large financial services companies. The search for better returns on capital by savers has introduced many people to this new market. The concept is now well established and is being supported by government via the new Business Bank in the UK but the size of this market is still very small and not properly understood by many savers.
Therefore, the fundamental problem for the expansion of lending to SME’s is that the banks are not going to increase their lending and the alternative sources have not grown big enough to fill the gap. Clearly there have to be new entrants into this market to provide the funding for SME’s and those new organisations emerging to replace that shortfall are still establishing themselves.
There is one major concern with all these alternative and new sources of finance that could cause a reaction by investors and private lenders and that is the lack of monitoring and up to date reporting. The people behind these organisations are expert at the technology to make the systems work and how to handle Internet based communications with their customers. They are not SME specialists and do not have a lot of experience in dealing with this sector
It is inevitable that as the volume of business through these new organisations increases, the failure rate will also increase. At the moment this is considered to be acceptable and is no worse than the established lenders. As the economy grows and the demand for finance increases through this channel, lenders will become more aware of this drawback and will start to look for more secure larger businesses. The age old problem of smaller businesses being starved of working capital will re-emerge unless these lenders can be confident that proper support and back up is there to solve the problems that occur to protect their investments.
It has always been the case that most established lenders to this market have real problems assessing potential borrowers because the information they receive is poorly presented and the financial facts are incomplete or non-existent. Many SME’s are so busy making sure their businesses are surviving that they pay little attention to this important part of seeking funding and advice in general.
SME’s have never been good at preparing business plans and have never had easy access to the right advice whenever situations arise that require immediate action. Many have failed because they do not resolve problems for fear of upsetting lenders and investors in the hope matters will improve and no one will notice. It is rare that things do correct themselves and the number of businesses that fail when proper attention could have saved them is the main reason this sector does not attract a wide range of investors and lenders.
With all the chaos in the banking sector over the last five years and the long standing difficulty of accessing advice for SME’s, it is time to rethink the whole relationship. Everybody involved would like to see the SME sector properly funded and succeed. The financiers under the new restrictions that are being imposed on them are reluctant to support these businesses without some certainty that they can prosper and grow. The SME’s do not have any organisation to approach to provide the support, back-up and strategic advice to help them manage their businesses through the difficult early years of growth.
It is clear that while this fundamental impasse remains unresolved the success of this vital sector of the economy will never flourish properly. This problem can be resolved and the next section explains how this can be done.
If you are a small or medium sized growing business and you want advice about how to attract finance, development and support, where do you go?
Maybe you would speak to your accountant, bank manager, your friends and anyone who you think might be able to help.
You will not find one organisation that could provide you with everything you need including financial support and investment.
The government has recognised this problem and has made many attempts at trying to solve it, spending large sums on grants, Business Link and Development Agencies.
Although there has been partial success in specific areas, nothing has evolved from these entities to provide the comprehensive service that small businesses are really looking for, or at a cost that offers real value for money.
It is very important for entrepreneurs to know that, when they need advice and money, there is an organisation they can approach ready to provide what they want, when it is needed.
Venture Beyond has been created to be there for any company wishing to grow and is seeking assistance with business development, working capital finance or equity investment.
To utilise the facilities of Venture Beyond the company must be generating sales or have contracts to deliver a product or service. Venture Beyond will organise the financial control, bring in management expertise and work closely with the senior management of the enterprise to plan and develop the business. If extra funding is required at this stage, a fully monitored bank facility will be arranged and equity funding will be provided to allow the company to expand as the revenue increases when the time is right, subject to the company meeting Venture Beyond criteria.
Full advantage is taken of the technology available to implement and monitor the financial controls. A non-executive director will be appointed to act as main coordinator between Venture Beyond and the company.
Once the working relationship has been established, many of the problems growing businesses encounter will not occur or be greatly mitigated since the monitoring system employed will highlight issues early and allow correction to take place long before things become serious.
Should difficulties arise specialists will be brought in to work alongside the company directors and recommend and implement solutions to correct the situation, including extra funding if necessary.
This is very much a hands-on relationship, which takes over many of the burdens most entrepreneurs have little experience to manage properly, without detracting from the natural flair they have to develop the opportunity they have created in the first place.
Venture Beyond is now ready to offer the full management support and the monitored working capital finance facility in conjunction with the banks and other lenders.
The equity fund is proposed as part of the complete facility for Venture Beyond to be able to offer investment to companies utilising the facilities to allow them to develop into rapidly growing businesses with proper management and financial control.
This document is divided into two sections. The first section describes Venture Beyond Ltd (VB), which provides all the services required by the Fund when an investment is made. The second section, Venture Beyond Fund (The Fund) is the shareholder when an investment is made and is controlled by committee constituting the directors of VB and the investors. The Fund has no administration function other than making the investment decisions.
Each section explains how both entities will operate and although there will be a very close working relationship between them; VB could provide services for other investment groups with different criteria from the fund and lenders of all types.
VENTURE BEYOND LTD
The Reasons for the Creation of Venture Beyond Ltd
While working for large financial institutions, working for themselves as advisors or running their own businesses, the founding shareholders of Venture Beyond have all experienced the problems and difficulties of businesses trying to grow and develop beyond their original start-up phase.
The heart of the solution to the struggle to grow a business has always been who to approach for the finance, managerial expertise and support when things get tough.
While the shareholders of VB have been able to provide some of the skills and finance, it has always been difficult to provide the complete package that has been so desperately needed.
Investors and lenders to the SME marketplace have always found the timely reporting of precise and accurate financial information the main barrier to extending the full package of support to these businesses. The co-ordination of investment, lending, financial control and specialist advice has never been properly administered by any organisation in the UK and to our knowledge, elsewhere.
There has always been advice available for specific major events in the life of growing companies but never continuous monitoring and development planning until they have grown big enough to justify employing the skills needed.
With larger companies the system works very efficiently. However, that is not the case in the smaller to medium sized company market where the approach and systems tend to be uncoordinated and poor in the quality of advice given in many cases. Currently, there is no organisation these businesses can approach with the financial resources to provide the full package to help and support them through their early growth period.
The reason for the creation of Venture Beyond is to incorporate every aspect of the finance and expertise that these businesses require to make that leap forward to grow and expand confidently.
Investors and lenders have never insisted on proper support and advice being part of the condition for providing finance and the businesses only seek specialist advice when the problems are usually far worse than they will admit to for fear of panicking their shareholders and lenders. In many cases they ask for help when it is too late to correct the problems.
There has to be a better way for all parties to work much more closely together making sure the finance, advice and development are synchronised professionally.
Venture Beyond has been created with the advice and support of financiers and advisors of all kinds to provide that organisation so desperately needed to fill the obvious gap that exists in the small and medium sized company marketplace.
The time for Venture Beyond to fill this gap and become a major business in the process has now arrived.
Current Working Capital Finance Facilities
The recent financial crisis has devastated the market for lending to SME’s and has made it almost impossible for most of these businesses to access finance to grow and expand except those with acceptable collateral to offer as security. Utilising the current assets in the balance sheet has become difficult to arrange and the banks prefer not to take the risk of relying on payment from customers as security except from the very biggest of companies. This situation is likely to continue while banks strive to rebuild their balance sheets decimated by the recent financial turmoil.
For most growing businesses pledging the current assets is the main source of working capital. They often do not have a balance sheet with fixed assets of the kind banks would find acceptable as collateral and therefore have to shrink to fit the facilities they do have available, which means reducing staff numbers since employees are usually the biggest expense for growing businesses.
The Government is acutely aware of this problem and has devised various schemes to assist SME’s, which have been widely promoted during the course of the last year. These are all managed by Capital for Enterprise Ltd (CfEL) on behalf of the Government Department for Business, Innovation and Skills (BIS). The larger schemes are:-
Enterprise Finance Guarantee (£2 billion)
The Enterprise Finance Guarantee is a loan guarantee scheme aimed at facilitating additional bank lending to SMEs with no or insufficient security with viable business cases. It was launched in January 2009 to help viable SMEs obtain the working capital and investment that they need during a time of unprecedented tightened credit conditions. EFG was designed to enable up to £1.3 billion of additional bank lending between 14 January 2009 and 31 March 2010. By providing lenders with a Government backed guarantee for 75% of the loan value, the Government aim is to facilitate lending that would otherwise not be available.
Recognising the continuing challenges that smaller businesses face in accessing finance, especially as they move towards finance to grow their business as the economy picks up, the Chancellor announced that the Enterprise Finance Guarantee will be continued for a further 12 months enabling £500m of additional bank lending to SMEs between April 2010 and March 2011. However, there is no automatic entitlement to receive a guaranteed loan and nor is there any pre-qualification process for it. Decision-making on individual loans is fully delegated to participating lenders and as such decisions are made on commercial terms. BIS plays no role in the application or decision making process.
The Enterprise Finance Guarantee is available until 31 March 2015 and businesses may choose to approach one or more of the 46 participating lenders. Experience to date suggests that each lender is interpreting the criteria in a different way with some taking up to 6 months to process applications and release funds.
The Regional Venture Capital Funds (£224 million)
These funds were distributed amongst the Regional development Agencies (RDA’s), with control having now passed to BIS, and are currently gradually being invested locally. The criteria for investment were set by the local RDA’s and vary according to the local business environment.
Enterprise Capital Funds (£205 million)
£134.5 million is provided by the Government and the balance comes from private sources. There are 8 of these funds with £10-£30 million available for investment in early stage businesses with the potential to grow rapidly.
Another source of finance set up by Government during the crisis is being administered by HM Revenue and Customs (HMRC).
The Business Payment Support Service (BPSS)
This scheme allows companies with tax payments currently due to the HMRC to make arrangements to defer payment on a timetable they can afford. The BPSS covers all the taxes HMRC are responsible for including VAT, corporation tax, income tax and national insurance.
At least £5 billion has been agreed and word is that this has increased substantially in the last year although HMRC look to have tightened this year, presumably on instruction.
More recently the Business Bank was set up to by the BIS to create a permanent source of funding for SME’s.
The Business Bank
For some time the government has been discussing the establishment of a bank to provide them with the method of supporting SME’s that will become a recognised part of their strategy to assist with the funding of business. The approach taken was to invest in lenders providing credit to SME’s directly and not be involved in lending to companies itself.
This bank started in 2013 with a capital of £1 billion and is in the process of dispersing funds to a wide range of lenders including the new Alternative Finance organisations that have evolved which are mainly Internet based without physical presence on the ground. It is proposed that this bank becomes the central administrator for all government supported schemes when it is fully functional.
It is intended to increase the amount of government capital as the economy improves over time and extend its range of services to business similar to the successful KfW organisation in Germany which is guaranteed by the government. Most developed countries have something comparable and the UK was unusual in that there has not been a government funded enterprise to support business despite repeated requests from many organisations for one to be established.
The only source of equity funding that has been set up by the banks is the Business Growth Fund.
The Business Growth Fund (BGF)
The BGF was set-up two years ago under the auspices of the ‘Merlin’ agreement between the government and the banks. The fund has been supported by Barclays, Lloyds, RBS, HSBC, and Standard and Chartered who have pledged £2.5 billion and so far £170 million has been invested into 33 companies, half as equity and half as junior debt.
The BGF does not have a time frame to exit their investments and intends to hold on and receive dividends after 6 years. At the moment the BGF is adequately funded but there has been talk of the government providing more funds when they are needed and possibly linking up with the Business Bank.
The above are the main schemes set up to help SME’s through the recent crisis but as can be seen they are a small percentage of the real needs of this market. In the past it has usually been the lack of orders that causes business to reduce demand for working capital. It is not since the 1930’s that the lack of the supply of credit has been caused by the failure of the banking industry.
What all this means is that there is an enormous opportunity for the private investor to capitalise on the reluctance of the banking sector to lend in this market despite Government pressure on them to re-engage. The potential to provide equity and loan capital to those businesses that have the potential to grow and expand has never been more advantageous than at the present time.
The banks are very willing to work with VB because the equity investment provides that all important collateral that is missing from most of the proposals put to them. Although not every proposal from VB will require equity investment in the beginning, the fact that it is available when the right time presents itself is very relevant to the initial decision to go ahead and provide working capital.
The risk tolerance level for banks has shifted to a very cautious approach and every proposal has to meet strict criteria similar to the more traditional banking relationships of the past. How the proposal comes to them and the people connected with its presentation make a big difference. This approach particularly favours the VB concept with its careful selection and monitoring facility.
The fluctuating overdraft, or invoice backed facilities, meeting the cycle of working capital demand supported by equity and fixed loan arrangements is the preferred format, rather than a permanent steady increase in the bank facilities that dominated the market prior to the financial crisis. In the past these companies were using their banks as quasi equity providers since they were extremely keen to lend. It will be sometime before we see that kind of environment again and this will severely restrict credit to the SME market without the increase in the equity capital that most of them really need.
General Discussions with Bankers
During the course of current activities, the directors have met and discussed with a number of banks the funding requirements of corporate clients in great detail and have long standing relationships with many of them. When the subject of the Venture Beyond concept is discussed, all without exception have expressed great interest in the presentation of the financial information and reporting system with proactive non-executive director involvement.
The banks have said that this close working relationship will allow them to recommend the services of VB to their own customers with increasing borrowing requirements, for both the detailed financial reporting and equity investment when the system is fully functional.
We believe that this potential is extremely important to VB and will substantially enhance the quality of the introductions presented.
The New Approach
Prior to the financial crisis, special arrangements had been made with banks to provide a coordinated lending facility in conjunction with Venture Beyond Ltd. This meant that any proposal brought to them utilising the VB concept would almost certainly be accepted. Although this is now not the case, most banks will work with us to process the proposal through their much stricter lending procedure.
The new approach is the method that VB will use to organise the finance for the businesses it supports. A complete range of finance will be provided through one centralised control, linked to close monitoring. This will maximise borrowing potential, minimise borrowing costs and gear up the equity return, if an equity investment has been made. Because there will usually only be one lender this will also alleviate the potential conflicts that can arise when there is more than one, especially in the event of things not going according to plan.
VB will negotiate and manage the debt facilities. In most cases this will mean that any leasing, hire purchase, factoring, invoice discounting, payroll funding, letter of credit facilities, and guarantees will be incorporated within this bank facility as soon as possible or allowed to co-exist for industry specific purposes, such as special leasing arrangements for expensive machinery.
All lending will be backed by security over the company’s assets and at no time will there be unsecured or discretionary lending as part of the package by the lender without a new business plan being agreed. The fund, if an equity investment has been made, will have the option of refinancing the bank exposure and taking over the bank’s security in the event of difficulties, should the bank not wish to continue with any individual relationship. This will give VB a major influence over the exposure in conjunction with the lender, ensure fully competitive facilities and avoid conflict. The amount lent will be calculated on a percentage to each asset class, which will be strictly imposed and monitored by VB.
The important point here is that every current asset will have a rating specifically adapted for each company and consequently, every arrangement will carry with it a pre-agreed increasing lending facility as the business grows, fully supported by the balance sheet.
Together with the managed lending facility, full management support is provided and a comprehensive monitoring, financial and performance reporting system is put in place. This is explained in more detail in the next two sections.
The Monitoring System
One of the main benefits that VB believes it will bring to investee companies of the fund, lenders and other clients is the Monitoring System.
In order to build strong and successful businesses, VB will ensure that best practice financial management, cash management, performance management and corporate governance systems will be put in place. Principal amongst these will be developing the work already being undertaken by one of the directors existing businesses, Insight Associates (www.insightassociates.co.uk) with its Outsourced Finance Department product.
Most businesses of the size and situation of typical investee companies will not have in place good quality financial management and control, nor the level of reporting processes that VB believes is required to build strong businesses and to operate its model. Therefore the existing processes in the business will be enhanced or replaced with systems that can provide what is required. This will be done via Insight Associates and/or other associates using their well-established processes and systems. In effect investee businesses will enjoy the benefits of a full finance function that they would not normally have the benefit of until they are significantly bigger
The systems used will be further enhanced to provide a repository of key financial and performance information on each investee business that will allow regular reporting and up to date information. This will mean that at any time current information is available on the performance of the businesses to enable VB to monitor this for any trends or other issues. The repository will report via a web based “dashboard” which will enable up to date information to be available as required. This dashboard, and indeed the repository can be tailored for each business to suit its needs and requirements but will follow a consistent and standard format to enable comparisons on performance between investee companies.
This close monitoring will be backed up by a monthly visit by one of the VB team (referred to as the coordinator) to consider performance in the light of the information available and see that all is well on the premises of the investee companies. Most of the time, this will coincide with the regular monthly board meeting, which will be an essential component of the corporate governance regime that will be put in place when a company becomes part of the VB system or accepts investment from the fund. This visit would normally take up most of the day.
The lenders closely associated with VB will have access to the Monitoring System dashboard and will have the same visiting rights, although it is expected that the monthly report (see below) from the VB team will suffice most of the time.
The close monitoring described above does involve extra cost for the company but VB and the Fund believe that this will be fully justified by the support and back up provided.
These visits also allow for the directors of the companies to develop a close working relationship with the VB team and provide a very useful regular discussion forum. At least every six months these sessions will last one day or longer and will be specifically designed to look at the future of the business, revise the business and strategic plan and any other action plans.
The VB report
When a borrowing facility is put in place or the VB fund makes an equity investment, the Monitoring System described above will be set up to provide the mechanism to check the financial condition of the company. The procedure will vary for each business but the purpose is to familiarise the co-ordinator with the specific performance of the company in order that he/she can make their monthly report with confidence.
The report will be the main document confirming that the relevant company is achieving the financial forecasts in the latest business plan and is within the formulae and lending ratios established by the working capital finance package. The funding provider will be advised to assess each investment every three months based on these reports and make a judgement whether anything needs to be done or not. Although the funding provider will know exactly what is happening financially on a continuous basis there is no reason to interfere with the smooth running of the company unless it is clear there is a problem and the funding provider needs to be informed immediately.
The report itself will be standardised and carried out electronically where feasible. This will allow more time for a discussion with the directors concerning the management and potential of the business in more detail every month.
VENTURE BEYOND FUND
Venture Beyond Fund (The Fund) will manage a fund for enterprises requiring equity, managed loan financing and management support. The enterprises supported must demonstrate, through past results or a pilot exercise, an ability to expand and grow rapidly.
The vision behind the fund is to identify businesses that meet the criteria and fully support them until they are large enough to attract more conventional and arm’s length investors.
The relationship between the fund and the enterprises will ensure that full support is given, allowing the owner/managers to concentrate on their natural business flair. The Fund will assist them expand the company quickly and efficiently to maximise value.
The intention is to look at any business in any sector that can meet these criteria. Venture Beyond Ltd (VB) will act as managers for the fund and provide all the services and organise the lending facilities.
The Fund Concept
It is important to understand exactly what the fund is seeking to achieve with all the misconceptions that people have about investing in smaller enterprises. Young companies, once they have started trading, grow at their fastest pace at this stage providing they do not make fundamental mistakes and/or are starved of working capital. The rate of growth slows down as the companies get much larger and control becomes more complex because the management structures required to handle massive growth are difficult to organize, demanding a more modest expansion to put it in place properly.
The Fund wants to find businesses that can demonstrate they have the potential to compete in their defined marketplace, whatever the size, providing it will generate the profitability and steady growth targets to survive successfully. It is important to understand that the Fund is not especially looking for a business that will grow to become the next multi-billion dollar enterprise in a few years.
It is our purpose to work with these companies at this stage of their development, to remove the hurdles in the way of this growth path and deliver a business suitable for investment by funds and institutions that don’t have the support structures for this size of investment.
The Fund may retain a small shareholding in some of these companies but in the main will sell when the job is done and move on to the next young business.
The Mission Objective
The Fund intends to be the first point of contact for institutional investors and high net worth individuals when they have new funds to invest in unquoted companies looking for that special situation.
To become the first choice for growing companies looking for an investor to take them through the early growth years and prepare them for later stage investors.
To be the fund of choice for fund managers looking to diversify and participate in the growth potential of this market and achieve a high return on capital.
The Way Forward
To achieve our objective of becoming the leader in this important early stage marketplace, the Fund will expand our wide-ranging and diverse reach into this marketplace. As an example, the founders have close links with the seed corn funds and support organisations that currently exist and will look to work with them whenever it is considered appropriate.
The Fund will make sure that it is involved with the decision making process for these young developing businesses to provide a seamless transition from the prototype and market awareness stage to the commercialisation of their business.
When it is clear the time has come to support the company to become a fully-fledged business, the fund will provide the investment to build a properly structured company capable of making a serious impact in their chosen marketplace.
The Fund will work with other investors and provide the services described in this document and happily co-invest as equity partners.
The Fund will endeavour to make itself known to every professional adviser and specialist expert with whom we will work closely via our team of associates to make Venture Beyond the first name to be considered when finance for growing businesses is discussed.
The Fund will expand its network of contacts throughout Europe and gradually make its services available to growing companies on this continent.
The Investment Parameters
- All investments will be made into companies that clearly demonstrate high growth is achievable.
- The internal rate of return for any investment to be considered must be forecast to be 20% or more per annum.
- The minimum equity investment will be £50,000 and the maximum will be £500,000 or 10% of the fund, whichever is the greater.
- The fund will arrange all debt financing.
- The period of investment should average around three years, although, every agreement will be for five years. Wherever possible this will be tied in with EIS and SEIS.
- The fund will provide at least one non-executive director for each company.
- All companies must provide, on a regular basis, performance data to be downloaded to the fund database for analysis.
- Where applicable, companies must prove that their processes work in a commercial environment.
- Where applicable, intellectual property must be properly protected and owned or controlled by the investee company.
- An agreement will be signed between the fund and the investee company using the business plan as the document determining the progress of the business as the basis of the investment.
- Dispute Resolution will decide any disagreement between the fund and the investee company directors. A suitable ADR specialist will be selected and agreed upon when the main agreement is signed.
- All investments and their agreements will be treated confidentially unless specific permission is given for promotional purposes.
How the Fund operates
The Structure of the Fund
The fund will be structured to be tax efficient for the investors in the fund. The tax status and domicile of the investor(s) will determine the most suitable structure for the fund. Some of the possibilities include Limited Liability Partnership, an offshore investment company or an AIM quoted trust. There could well be other suitable solutions specific to the investor(s), such as crowd funding, but whatever the structure, the fund entity does not want the responsibility of many employees and needs to be as flexible as possible in case of regulation or tax status changes.
Venture Beyond Ltd has been formed to carry out the management and administration for the fund under the direction of the fund committee. VB will carry out all the activities described below together with their specialist associates.
The Investment Procedure
Each company must put forward a business plan for appraisal by the Fund investment committee. Each plan will be presented on the basis that the proposed investment meets all the conditions set out in the investment parameters. The assessment process will include all the usual checks on the company and the regulations affecting it. The information contained in the business plan will be reviewed and thoroughly tested ensuring that a minimum rate of return of 20% is achievable.
VB will do everything it can to keep the investigation and assessment costs to a minimum; however, the company will have to pay for the specialist professional work to be done for the lenders and the fund investment committee. Also, if the company does not go ahead with an investment offer by the fund, there will be a charge for the work done by the VB team to cover the actual cost of work.
Every investee company will be charged a fixed fee for the due diligence work carried out by VB when the investment is made.
When the Fund decides it would like to go further with any business plan it receives, the investment procedure and the sequence of events will be as outlined below.
- The plan is discussed amongst the VB team to allocate overall responsibility to one member who will be the main co-ordinator.
- The co-ordinator will liaise with any specialist advisors that may be required to make a proper assessment.
- VB will start to prepare the complete financial assessment for the lender and the fund committee.
- The co-ordinator and any special advisors meet with the directors of the company to begin preparation of the business plan, which will become the basis of the agreement if the fund makes an offer.
- Subject to the investigation and assessment going well, all the checks for regulations, patents and legal company status will be undertaken. Basically, anything that needs confirming independently will be done at this stage. If there is extra cost involved, the company will have to be consulted for it to proceed and accept the responsibility for payment.
- The co-ordinator will gather together the full package to include the business plan, financial assessment, accounts, special reports and confirmation of all the checks made. This now becomes the official submission for funding.
- The selected bank or other lender will be asked to confirm their support subject to equity investment.
- The fund investment committee will vote on whether to make an offer, which must have at least a 75% majority. The co-ordinator for the proposed investment will be excluded from the vote on that company.
- The investment offer is officially made for acceptance within one month.
- Assuming the offer is accepted, the lawyers are instructed to draft the agreement for both parties to confirm.
- On signing, the fund pays for the shares, the lender confirms their facility and the co-ordinator, usually, is made a director of the company for the fund representation on the board.
- Arrangements are put in place for the financial and performance monitoring system.
Within the agreement that is signed for all investments, will be a range of formulae and ratios that must be adhered to for the equity and debt finance relating to the assets of the company. The arrangements between the company, the Fund and the lender will give the financial providers power to act when these are breached. The Fund will have the option to take out the lender if it feels that the lender’s actions are unreasonable and take control of all debt.
The Fund will have a reserve account and pre-arranged bank facilities for this purpose although it would expect the lender to accept the fund guarantee for the majority of the debt owing. The team would swing into action to minimise any damage to the company and refinance the debt unless something unexpected has suddenly occurred. This is a very unlikely scenario since the Fund would know exactly what is going on with our monitoring system in place.
There are various reasons why a lender would wish the Fund to refinance a debt; most are to do with a change of lending policy and sometimes a clash of personalities. However, in the event of one of the Fund investments having difficulties, the procedure would be to analyse the situation carefully and decide if the business can survive in any form. Whatever the decision, the Fund would invoke its rights under the original agreement signed to take control of the company while a plan was being implemented.
If the decision is that the company can survive, notice would be given to the lender that the Fund is having a new business plan prepared and begin discussions with them on how the Fund is going to handle the debt position. Depending on the situation, the possibilities are endless but ultimately the Fund would make an arrangement that may cost the Fund something in more equity investment or a guarantee for some of the debt.
If the decision is, the company cannot survive, the Fund would work closely with the lender to wind it down to maximise the value recoverable from the assets. If the lender did not want to participate, the Fund would have to decide whether to let the lender proceed and hope it may get something back or negotiate with them and make an offer for the debt and sell the assets in a more orderly fashion, which normally improves the amount recoverable.
If ever these circumstances arise, the company involved will be going through a very difficult time and the fact that the Fund and VB are there for them should help their situation substantially. This is a good competitive selling point when the Fund makes an investment in a company.
As described previously, the management of the Fund will be undertaken by Venture Beyond Limited with a group of associated professionals providing the other specialist skills to fully assess all proposals that the Fund decides to investigate further. The Fund will contract VB to manage and provide all the services that are required to administer the Fund.
The directors of VB and the investors or their representatives will be members of the committee that will have the ultimate responsibility for the investment decisions and instructions to the managers to carry out the administrative functions for the fund.
Apart from agreed expenses the committee members will not receive a fee from the Fund unless specifically contracted to provide a service or advice to the committee.
The committee will set the scale of fees to be paid to VB, which will be set aside from the monies raised for the Fund for the first two years while it allocates all the remaining resources for investments. When the Fund is fully invested a new arrangement will be made with VB, which will involve a smaller management fee with payment of directors’ fees and monitoring costs paid direct to VB by the investee companies to compensate for the reduction in the management fee.
VB will make a report to all committee members every month showing monitoring information summaries and any strategic planning issues identified by the investee companies by the end of the third week of the following month. Every member will be able to check the financial status of all the investee companies at any time on the database and will be able to visit the companies with the co-ordinator on his usual monthly meeting with them.
The committee will meet at least every three months and members will be able to appoint a deputy to represent them if they are unable to attend. In the event of a problem or a quick decision required for a particular opportunity, a meeting will be called and any member who cannot attend can either send their deputy or join in a conference call to make the decision. A minimum quorum will be agreed with the investors.
At every meeting each investee company will be reviewed to assess the potential and VB will be asked to implement any decision made with the investee company.
The Founding Team of Venture Beyond
Barry started his career in stock broking and merchant banking in the City and the Far East.
When the Conservatives introduced the new tax incentives for venture capital in 1982, Barry set up as an adviser for companies seeking investment from these new funds. During the 1980’s and early 90’s Barry Edwards and Associates grew to become a group of associates providing expertise in all disciplines required by small growing companies in finance and managerial skills.
The recession in 1992/3 changed the whole approach to venture capital and Barry concentrated on working as corporate finance and development advisor with a select few small companies and became a director and minority shareholder during his time with these businesses.
Apart from his advisory role with small companies, Barry has specialised in financial innovation in a wide range of areas, which are beginning to materialise as new ventures. This fund is the first of these new approaches to funding problems.
Contact: 01255 860315 email@example.com
Chris Estall BA Hons MIBA
Chris is a dynamic, highly customer focused, widely experienced business advisor specialising in strategic planning, development and long term support for high growth and growth potential businesses.
Chris began his career as a business advisor in 1996 with the launch of Business Link by the DTI. After a two-year spell with Business Link London East Chris transferred to Business Link Essex where he was responsible for the establishment of Evolve Elite a specialist division targeted at the highest growth potential business starts ups.
The Evolve Elite project was acknowledged by the DTI as an exemplar service.
Chris left Business Link in 2001 to establish his own consultancy Elite Business Support Ltd.
Elite Business Support has a broad spread of clients, primarily high growth and growth oriented SME’s across a wide range of sectors.
Contact: 01255 860283 firstname.lastname@example.org
Garry Mumford FCCA
A Chartered Certified Accountant, Garry spent his early career in a wide variety of commercial and industrial businesses in senior financial roles, before becoming one of the founding partners in Insight Associates in 1992.
Insight Associates is a specialist firm of Company Finance Managers providing proactive, commercial, hands-on financial management support to businesses. Now in its 18th year, the firm has extensive experience of building and managing the financial controls, systems and processes needed in any business, and provides anything from a part-time Finance Director role through to a tailored full-outsourced finance department solution.
Typically working in situations involving financial distress as a result of rapid growth or potential failure, or high growth early stage situations needing a firm foundation for the future, the firm has been highly successful in adding significant value to its client base.
Garry is also a Director of the Turnaround Management Association in the UK.
Contact: 01279 648038 email@example.com
Bob Westrip worked for Barclays for 32 years including spells in branch banking and Large Corporate Division where he looked after Multi-National companies. During the 90s recession he worked in the reconstruction area where, among other things he led the successful reconstruction of the hotel group Queens Moat Houses for all of the lenders. Following that he worked in risk, establishing new working practices in East Anglia and then ran a business for Barclays.
Since leaving Barclays he has been Managing Director of the trading arm of a charity (Crossroads Caring for Carers) where he ran a successful cost reduction programme. He has been running his own business since 2000 which incorporates his wife’s craft making enterprises together with an independent business consultancy providing advice to many businesses in the SME market on a range of subjects from marketing, to business planning, to structuring and others.
In addition he was until March of 2006 the Essex representative for Business Link of Equity Link where he assisted companies looking for equity and Investors looking to invest. As such he possesses an extensive network of contacts in the SME sector, particularly in Essex. That experience has been extended through similar supportive work with Social Enterprises. To further support businesses he also works as a mentor under The Princes Trust scheme.
Contact: 07799 881577 firstname.lastname@example.org
Telephone: 01255 860315
Telephone: 07799 881577
Mailing Address and Registered Office
Venture Beyond Limited
Riverside Business Park
Stoney Common Road
The directors of VB are constantly involved with companies that meet the criteria of funding providers. There is a good selection of businesses looking for equity investment, especially in the current climate, ready to take the plunge with outside investors but are reluctant because of their apprehension with them. Their familiarity with equity investment and the methods of asset funding on offer in the marketplace is almost non-existent. They need a totally different approach to servicing their needs that does not require them to be financial experts and professional specialist advisors.
The banking community has good intentions to assist where feasible but the actual experience by business owners does not match the marketing presentation. It has been reported by small company directors that their dealings with financial institutions generally are inconsistent and unconcerned with the real needs that they request. The answers they receive do not relate to the support they seek and in many cases are confusing.
Throughout this document the service that small companies are searching for has been described as seriously lacking in professional delivery and although efforts are made by the financial fraternity to correct this problem, they do not meet the expectations of this hard-pressed group of customers.
The technology is available, the experienced people are available and the finance is available. Combining these three elements is where Venture Beyond comes in to work for the benefit of all parties in this specialised market to bring all this knowledge and expertise together with the financial resources. Venture Beyond has been created to address this fundamental problem and only requires the cooperation and determination of all these participants to make it happen.
This document has set out how this can be achieved and the indications from the approaches made so far clearly indicate that many involved in this small company market, fully concur with this ambition. When the mechanism to deliver this service evolves, as described in this proposal, the small company marketplace will be transformed into the sector many institutional investors will consider a necessary part of their high growth portfolio.
You are invited to work with us on this new and exciting journey transforming this SME investment market.