Scotsman Conference told funding is only one of the ingredients for taking a business on to the next stage.
The downturn in bank lending after the financial crisis has seen a surge in the alternative finance market and a wider range of opportunities for small businesses seeking funding for growth, a Scotsman Conferences event heard.
However, finance is still difficult to access, the Inspiring Growth conference was told, and good organisation, good people and the right partnerships – as well as passion for your business – are all crucial to successful funding bids.
Stuart Lunn, chief executive of LendingCrowd, which has loaned £10 million on its debt crowd-funding platform in two and a half years, said: “A significant reduction in bank lending created a space and a large number of different players are pushing growth in peer-to-peer lending.
“But funding is still difficult to get hold of and preparation [for a funding bid] is very, very important.”
Lending platforms had different risk profiles and Lunn urged businesses seeking funding to shop around.
He said investors wanted returns not generated by traditional products, with LendingCrowd typically delivering around 7 per cent return on investment, “an attractive space between cash, bonds and equities”.
It was important for alternative providers to have both financial expertise and technical knowledge, Lunn added, saying LendingCrowd could now process funding applications in 24 to 48 hours.
Lunn and Derek Shaw, investment director with Scottish Investment Bank (SIB), described a new, strategic collaboration between LendingCrowd and SIB involving commercial loan funding of more than £2.5m.
Individual loans range from £5,000 to £250,000 over a period of six months to two years.
Like all SIB investment, Shaw said, it was designed to leverage pound-for-pound private sector investment and deliver economic impact in terms of jobs, investment and supply chain benefits.
Shaw said there were clear gaps in both debt and equity finance for SMEs, and some businesses were discouraged from seeking funding because it was so difficult.
Paula Skinner, a partner with law firm Harper Macleod, described the LendingCrowd/SIB partnership as “fantastically innovative”.
She highlighted common pitfalls for SMEs seeking funding: “Businesses must have strong foundations. Lenders will look for good documentation and many small businesses are disorganised. Intellectual property also trips up a lot of businesses in terms of growth and finance.”
Skinner added: “You have to have the right people. Different people have different skill-sets, appropriate at different stages.
“A business could flourish with new leadership; the person with the original idea is not necessarily the best person to run that particular business going forward.”
Lunn agreed: “The chemistry [in a business] is really important at every stage.”
Skinner also stressed the need for businesses to “do their homework” and make sure a funding platform was right for them.
If a business received funding, Skinner said it was important to: work in partnership; hire the right talent; draw up short, medium and long-term plans; and consider when to pivot.
Leah Hutcheon, founder and chief executive of online booking business Appointedd, picked up these themes.
She started with a quote, “You don’t have to see the whole staircase, just take the first step”, and continued: “Start-ups often think they have to go somewhere exact. We have gone somewhere more exciting, challenging and with way more potential than the original business idea.”
Appointedd is an online booking system. It had been a “wonderful learning curve” to work with larger businesses, as well as grappling with managing bookings through a range of web platforms, social media and call centres, said Hutcheon.
Describing the company’s “big pivot” to a tech business, she said: “We had concentrated on salons and linking consumers with small businesses to make appointments.
“The booking technology was just a conduit, but other people asked if we could do it for them, and we went through a difficult period of finding a fundable solution.
“You can’t be all things to all men, and since we identified our sweet-spots, we have done much better.
“Most businesses rely on appointments of some kind and we’re now working to schedule shipments in Dubai and with a security company in San Francisco.”
Hutcheon said partnerships were crucial to scaling up your business: “It gives you that network, advice and skill-sharing to grow. It’s not just funding – we’ve had great advice from SIB and from Gareth Williams at Skyscanner on scaling technology products.”
Later, she said: “Partnership is not just about banging your own drum but having it amplified by people trusted in the sector.”
Hutcheon said she was “a massive fan of the Scottish support system” and praised Business Gateway, Girl Geek Scotland, e-Spark and Scottish Edge.
Keith Brown, Cabinet Secretary for the economy, said the Scottish Government wanted to make the system “as accessible as possible and for it to be a system, not just a collection of agencies” and establishing a strategic board involving all relevant agencies would create a joined-up, “Team Scotland” approach.
Angela Morrison of amiExecutive, a corporate relocation business in Kuwait, also praised the support she had received, but said it was vital to “be yourself and embrace your difference”.
Morrison was invited to join a Scottish Development International trip to the Middle East in late 2015, with a view to moving into Dubai – but Kuwait caught her eye: “I was told they didn’t need a corporate relocation agency in Kuwait, but saw real potential to be a bigger fish in a smaller pond, rather than getting scraps from the table of bigger companies in Dubai.” Morrison said while concentrating on your unique selling point (USP), and doing your homework, might be good advice, you have to be open-minded: “You might find your business isn’t quite right for a particular market, and maybe there is something slightly different you can do.
“We need people who are willing to buy a plane ticket, get out there and do the legwork. If you do that, there will be a market for you.”
Lucy-Rose Walker of Entrepreneurial Spark, said e-Spark’s focus was to take individuals through a growth journey: “The entrepreneur is at the heart of everything we do. The idea is pretty much irrelevant.”
She said there was no magic wand for business growth: “Who you surround yourself with is the most important thing, plus the expertise you bring in, being willing to ask for help and being passionate about what you do.
“There’s no roadmap; no-one says ‘this is how to do it’. You learn along the way what is right for you.”
RANGE OF FACTORS WEIGH AGAINST AN EQUAL WORLD
A female entrepreneur said women are still grossly under-represented in the business world in Scotland – and are far less likely than men to apply for, or receive, funding to establish a business.
Petra Wetzel argued that a combination of factors, including a lack of confidence and women taking career breaks to bring up children, meant we still had a very unequal business world.
The founder of WEST Brewery in Glasgow established the West Women investment fund last year for women-led start-ups with £100,000 of her own money – to offer seed capital, other financial assistance, and advice, to emerging female entrepreneurs, mainly in Scotland’s food and drink sector.
Wetzel said: “I get frustrated when I am the only woman speaking to a lot of men in grey suits. I’m 43 on my next birthday and have about 30 years to make a difference – and I want to see better equality in Scotland.
“That’s why I set up West Women, to fund female-owned and female-led businesses in Scotland.
“It is a perpetuity fund, not one designed to make me rich. The dividends are re-invested and if I get run over by a bus, the trustees will do this for Scotland.”
Wetzel told delegates: “Women have less access to finance. I never thought I was a feminist until I looked into this.
“Women who go into a bank looking for £100,000 will get rejected way more often than men who ask for the same amount of money for the same business.”
Wetzel found immediate backing for her theory when LendingCrowd said only around 5 per cent of applications come from women. She was supported by Leah Hutcheon of Appointedd, who said: “I do think people fund people who are like them – and fund a problem they engage with – and I think that can sometimes mean women do not get funded.
“At Appointedd, we have a 50:50 team and a board swayed in favour of women.”
Wetzel said this was the exception and women often found their desire to be “more mobile and flexible” after having children was not always shared by their employees. Women were also much less likely than men to set up a business with their friends after university, she added.
Confidence was also a big issue, she suggested: “If there are ten things you need to do for a job, a woman won’t apply unless she feels she has all ten. A man might have two of the ten, and still apply. And women are definitely not as good at networking as men.”
Wetzel said WEST employs 125 people and has expansion plans in Edinburgh.
It will open a bar, theatre and small brewery for the Festival this August and has plans for a permanent premises in the city next year.
Cabinet Secretary for the economy, Keith Brown, praised Scotland’s 350,000 SMEs for their significant economic contribution and said the Scottish Government had committed £250m to supporting them, and was focused on reducing the burdens of taxation and regulation.
However, he said there were challenges around both structural and cyclical access to finance and feared that “two years of uncertainty of EU negotiations could hit confidence and lead to less bank finance”.
Brown also recognised challenges around productivity (although the historic gap with the rest of the UK has narrowed significantly) and internationalisation: “We have a relatively smaller number of companies involved in export activity and we have to change that.”
He said he welcomed suggestions from the SME community about what the Scottish Government could do – “and where we should get out of the way”.
Next Conference report in The Scotsman on 30 March, 2017.