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Business funding

Funding propels growth and inspires innovation

Thousands of businesses in Britain and Ireland are yet to realise their full potential. Funding propels growth and inspires innovation in businesses of all shapes and sizes.

The business funding landscape

If businesses are the engines of the economy, business funding is the engine oil. Small to medium-sized businesses are especially important in the grand scheme of our economy. But there’s an ever increasing gap in funding – where a lack of feasible finance options are hindering the progress of our SMEs.

We are ready for business

In what are challenging and uniquely uncertain times, British and Irish businesses continue to defy the odds and find new ways to succeed. And when they succeed, we all succeed. Rather than the FTSE 250, it is the small and medium-sized businesses that are truly the lifeblood of the economy; providing these SMEs with the funding they need to reach their growth potential is of fundamental importance to everyone. Entrepreneurs were once left with a stark funding choice: do they relinquish their stake in their business, or do they leverage it with debt? What has become apparent is that we’ve moved beyond the age-old debt vs. equity funding debate. For small-to-medium sized businesses, there are increasingly entrepreneur-friendly funding options available The 13,000 or so UK businesses we know as SMEs are private companies that turn over £3m-£150m per year. There’s enormous untapped potential in these businesses, as BGF’s Ready for Business report highlights:

  • Small businesses are rapidly growing. Since 2016, UK SME’s have experienced over £44bn worth of growth in their revenue.
  • They create millions of jobs. Around 2.5m people are employed by SMEs in Britain, while they create 1,152 jobs per week on average.
  • There’s potential in every corner of the country – not just London. 83% of British SMEs are located outside London, meaning the wealth they generate is spread more democratically across the nation.

Funding will continue to play an integral role in enabling these businesses to scale and grow successfully. BGF’s Ready for Business report identifies no shortage of opportunities to strategically use funding to stimulate growth in a wide number of sectors and locations across Britain and Ireland

£2.25bn

This landmark figure was reached in July 2019, displaying BGF’s commitment to backing UK and Irish business despite Brexit uncertainty.

£428m

We experienced our most active day ever for capital investment in June 2019, commiting £48m in 24 hours.*

300+ backed

Since we were set up in 2011, BGF has backed growth businesses across diverse sectors all over the UK & Ireland with patient capital funding.

What drives business growth?

Every business story is different, but there are three common drivers of growth in every case: entrepreneurship, strategic support from the right people and targeted funding.

Read our insights

At BGF, we are ready for business, ready to support companies that are pursuing progress, and ready to meet challenges and seek opportunities together.”

Stephen Welton Executive Chairman

BGF fundamentally believes in this formula for helping SMEs in need of a boost to reach the next level. Our balance sheet of £2.5bn means we have the financial power to achieve real results with our portfolio businesses, but we consider the knowledge and expertise we provide access to as equally important. We foster collaboration between SMEs and our talent network of business leaders and industry experts to ensure real, sustainable growth.

When we were established in 2011, after the financial crisis, we strove to address a gap in the market. The businesses we set out to help were established enough to have outgrown angel funding but not large enough to be able to access traditional private equity funding. This equity gap has long been a problem for SMEs craving growth; we have always and will always serve these businesses first.

How can businesses grow?

Acquisitions

Acquiring or merging with another company allows an SME to increase its staff, resources, knowledge and ideas overnight.

Assets

Increasing the assets on your balance sheet (e.g. equipment, property, stock) increases your capability for bringing in revenue.

Shareholder buyout

Being in a strong enough position to purchase shares back leaves you with more decision-making power and a more valuable asset.

New product development

Being able to reinvent your range of products or services is vital to growing your appeal and customer base.

Expansion

Businesses can expand their operations by opening new stores and moving into new regions.

Recruitment and training

People are the driving force of all businesses — growing staff and investing in their skills and knowledge assists a company’s commercial growth.

Restructuring

Rethinking organisational structures can greatly streamline a business, allowing for a more efficient use of resources.

Forms of business funding

1. Funding type

Business loan

What is it?

Traditional debt-based low to medium-level funding. Businesses borrow from a provider and return the money with interest. Loans can be secured against an asset or be unsecured.

What business is it suitable for?

SMEs in need of an injection of funds to spark growth while maintaining full ownership. Banks may be reluctant to lend to startups or other unestablished businesses. Businesses looking for larger sources of investment will likely have to move on to equity funding.

Endgame

Repayment of a business loan comes with a rate of interest, which can be fixed or variable. Money is repaid over an agreed time, with many loans offering flexibility.

2. Funding type

Venture capital

What is it?

Investment funding provided to small businesses with large growth potential in exchange for an equity stake. Venture capital investors take on high levels of risk due to the increased likelihood of small companies failing.

What business is it suitable for?

Businesses near the start of their lifecycle that want to grow quickly. Startups needing help to establish themselves are a common recipient of venture capital.

Endgame

Venture capital firms look to leave businesses quickly (usually inside 5 years), making a significant profit. They will generally sell their stake back to the management, or on to a third party.

3. Funding type

Expansion capital

What is it?

Equity funding of around £1m-£10m that sits between angel investment and traditional private equity. Investors usually take a minority stake for their investment and don’t seek to control direction and decision-making.

What business is it suitable for?

SMEs that have outgrown angel investors but aren’t at the stage for traditional private equity investment to be an option. Without expansion capital, growth in these businesses can stagnate as they lack the funding to expand, increase staff numbers or develop their products and services.

Endgame

Expansion capital investors typically take a longer-term approach to investment. While the end goal is still a profitable exit, they are more likely than other types of investor to supply follow-on funding.

4. Funding type

Private equity

What is it?

Generally large-scale (£10m-£60m) investment for large-scale growth. In exchange, private equity investors often receive a majority stake in the business.

What business is it suitable for?

Established businesses with a high turnover. They are looking to fund a large project, expansion or acquisition to take a major step in their development.

Endgame

Private equity investors aim to exit businesses when their share is sufficiently valuable (typically 3-7 years). This can be done through sale to another stakeholder in the company, another business or equity firm or an IPO.

5. Funding type

Equity crowdfunding

What is it?

A method of raising funds in exchange for equity and shares in that business

What business is it suitable for?

Early stage businesses that need a funding boost to establish themselves. Like venture capital investors, equity crowdfunding investors assume a higher level of risk for their investment because of the greater chance a young business will fail.

Endgame

Equity crowdfunding investors exit businesses in much the same way as other equity investors. However, it’s difficult for them to do so until the business is acquired or part-acquired by another company or private equity firm. There is no guarantee of a profitable return and investment time frames may be long.

6. Funding type

Initial Public Offering (IPO)

What is it?

An IPO is where a business decides to “float” itself on a public market (e.g. a stock exchange). Once a business is trading on the public market, it is no longer a private company — public investors can buy shares. This gives them benefits which can include certain voting rights, dividends and the right to know the company’s financial performance.

What business is it suitable for?

Established, growing companies that have moved beyond earlier-stage loans or equity capital are most suited to IPOs. While only the most valuable businesses (around £1bn and over) can aim to join one of the largest stock markets like the FTSE 100, there are many other public markets for companies of all sizes. A turnover of around £5m is the minimum for a company to consider an IPO.

Endgame

Most companies stay public for the long term to gain as much funding as possible, but will often have a buyback option for some shares they trade. It’s also possible for a company to go back to being private by taking out a loan to repurchase all the shares owned in the business.

Our approach to investment

BGF is steadfast in its unique approach to investment. These are our commitments to you.

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We’re in it for the long term.

We won’t just disappear, we’re here to see your business achieve its growth potential. And, if there’s any turbulence, we’re here to back you. Many of our businesses receive follow-on investment to help realise their true potential.

You stay in control.

We’re a non-controlling equity partner. We believe entrepreneurs should be able to keep control of their businesses. For this reason, we only ever take a minority stake.

It’s completely flexible.

We’re focused on strengthening your balance sheet. So if you’d rather credit notes, or straight up equity, we’re happy to offer the package that best fits your situation.

We’re here to add value, too.

We offer more than just capital. We bring experience in maximising value creation, the network to promote growth through powerful introductions & operational insight, and the support & challenge to build something bigger, together.