More and more family businesses are using equity investment to help accelerate growth. BGF investor Laura Cockburn talks about building on legacy and finding the right partnership.
1. Consider your options. Not all equity partnerships are created equal. Many family businesses are reluctant to involve external investors. Bringing an outsider into a company that’s been in your family for generations can feel like inviting a stranger into the fold. But equity partnerships come in all shapes and sizes – short-term, long-term, minority, majority, controlling, non-controlling. Consider the needs of your business and which model is right for your growth trajectory.
2. Make sure your investor is aligned with what you want for your business. What are your longer-term ambitions? Are you looking to hand the company down to the next generation in the best possible shape, release an existing shareholder or are you potentially looking for a full exit? Do you want to acquire other businesses and can a funding partner continue to support you? Your funding partner should understand your goals and be on the same page from the outset.
3. Be open to new ideas. What else can an equity partner offer you besides money? New contacts, business experience, specific expertise? Think about how your business could grow outside of the balance sheet. At BGF, we have a dedicated Talent Network that introduces businesses to board-members with the expertise that matters most.
Max Dudson, of BGF-backed ceramics company Dudson, said: “Like many family businesses, we were quite insular. We knew our market but didn’t understand other businesses. With BGF we have recruited from their talent network and broadened our horizons.” BGF introduced Dudson to Martin McCourt, CEO of Dyson, who is now their non-executive chairman.
4. Talk to other family businesses. We’re seeing a growing trend in the number of family businesses eschewing traditional private equity houses in favour of our offer: patient growth capital, a minority stake, and no forced exit. Ask those who’ve done it about their experience of the investment process, how they’ve used their additional capital, and what they looked for in an equity partner. We’ve backed close to 20 family businesses so far, including children’s nursery group Kids Planet, house-builder Campion Homes, and single-estate distillery Chase Gins.
5. Make sure the chemistry’s right. Finding an investor isn’t a purely commercial transaction. It’s about finding a partner you can trust. It’s vital that the enthusiasm for long-term success of the company is shared on both sides.
6. Be realistic and upfront. About revenue forecasts, market dynamics, or improvements that could be made to your business, and don’t hide past failures. There’s more to be learnt from what’s gone wrong than what’s gone right, and a good investor shouldn’t be someone you need to sugar-coat the facts for.
7. Be clear about your growth plans. Whether it’s accelerating a site rollout or building a new manufacturing plant, make sure your investor understands what your ambitions are. It’s difficult to see too far into the future but, as well a plan for the short to medium-term, businesses should think about their vision for the longer-term.
8. Make your capital compatible with your business needs. Think about the right kind of investment structure for your company – one size doesn’t fit all. Equity investments can be flexible and come in all shapes, sizes and structure: growth bonds, ordinary shares, or a mix of equity and loan notes. Talk direct to providers or ask your advisor to help find the right package for your growth plan.
9. Understand how your potential equity partner is funded. Private equity companies will typically look to realise their investments within a fixed timescale to provide a return to their shareholders. Other investors may take a longer-term approach by providing patient capital. Find out who backs the people who’ll be backing you and how the rules around their capital will impact your business.
10. Maintain momentum. Once you’ve decided on the right funding route, do all you need to keep the processes moving. Well-organised information, transparency on opportunities and challenges, and keeping the business trading well will all help you to find secure your preferred funding route.