By Andrew James
I feel that the next decade will see a significant increase in equity funding going into businesses in the South/ South West of England and here I set out five factors that have led me to this conclusion (apologies for mentioning Cornwall a lot, but it is where I am based. I am sure colleagues based in other offices would have given this blog post a different bias).
- Lack of available grant funding
I will start with arguably a negative reason; I anticipate that the amount of grant funding available for businesses to apply for will continue its downward trend and I think this would have been the case whether we had chosen to remain in the EU or not. As an example, then Chancellor George Osbourne some time ago (2015) announced a “switch” from grants to loans for some Innovate UK funding for business. A lack of grant funding will leave business with a “funding gap” that, I think, will be increasingly be filled with equity.
- Equity is becoming better understood and more accessible
Dragons Den has undoubtedly increased awareness of what equity funding is about; albeit in a form stylised for TV. And at the same time the routes to equity have increased significantly with advent of web based platforms such as Crowdcube and Seedrs; enabling businesses to connect with a significant investor base. And of course there is BrewDog; trailblazers in accessing equity from the public direct and latterly through Crowdcube (I have just read that through their 12 funding rounds so far, they have raised $371,2m – not all through the public, but nonetheless an impressive haul). My colleagues, and others across the South/ South West have hosted a number of events over the past few years which have featured equity.
- There is an increase in businesses based in the South West that are “suited” to equity
When I say “suited to equity” I am considering two key criteria: scalable businesses with Owner Managers open to the concept of equity. I am involved with a number of the businesses in the tech sector based in Cornwall, and I know that there is another tech sector in Bournemouth that my colleague is engaged with. I see tech businesses as suitable candidates for equity funding – given that some of their offerings are eminently scalable. Likewise, with our client base in the food and drink sector – and this sector appears popular with the “crowd” as well as some private equity firms. It would appear that there is an increase in South/ South West based Owner Manager’s acceptance of the benefits of equity judging by some high profile announcements (e.g., Business Growth Fund investment in Seasalt and True’s investment in Frugi) and a number of deals that my colleagues have worked on and/ or working on (and I understand Corporate Solicitors on our patch are echoing this sentiment).
- Government, LEP and private sector interventions and initiatives
Cornwall and Isles of Scilly LEP and the British Business Bank have been instrumental in setting up the Cornwall and Isles of Scilly Investment Fund. Launched in September of last year, it has made at least two investments and I understand it has a reasonable pipeline of potential investments (some of which are our clients). When the fund was launched, it was mentioned that one of its objectives would be to help redress a regional imbalance in equity funding. Other initiatives being handled by the British Business Bank include the Regional Angels Programme which “will work by committing funds for investment alongside business angels and other early stage equity investors, acting as a catalyst to bring longer-term capital to smaller businesses with growth ambitions.” And least I forget there are also some attractive tax incentives for individuals to invest (I would suggest a potential investor speaks to one of my tax colleagues on EIS and SEIS before making an investment into an unquoted limited company). Again, back to Cornwall – we are involved in the local Chamber initiative called Cornwall Innovation Investment Network run “in conjunction with Plymouth University’s Innovation Centres and Mylor Ventures, free Investment Readiness events will take place to prepare a shortlist of companies seeking investment from Business Angels” and the Falmouth University Launchpad.
- The Business into Business proposition
This one may be just me – but I am sure I am seeing and hearing of more (big) businesses acquiring in or investing in limited companies in the South West. One publicised recent example being C&C Group’s investment in the Cornwall-based craft beer start-up Jubel referenced in my colleague’s recent blog on the craft-brewing sector.
Hopefully, the above has outlined why I feel equity will become even more common place in the near future as part of the South/ South West’s business’ funding package. I also hope I have whetted your appetite to find out more – if so, please contact me or one of our Corporate Finance team.
If you are based in Cornwall, or considering locating your business in Cornwall, you may also be interested to come along to Finance in Cornwall 2019 – where among the presenters will be COSIF, Crowdcube, Mylor Ventures and the London Stock Exchange. What a show – you have to be there – details and booking form here