Uses of Growth Capital - Sales & Marketing - Ducklings - Feature

“We call it the ‘ugly duckling syndrome’,” says Sarah Wood, Chief Operating Officer and co-founder of Unruly, a London-based company that is one of the world’s leaders in social video campaigns.  “Businesses like ours reach a stage where they’re no longer a fluffy chick start-up, but nor have they become a Google-like beautiful swan – yet they still have to compete against both of them.”
It’s a common theme amongst successful business founders and entrepreneurs. If getting the business off the ground was difficult, making the leap to scale and global reach can be even more challenging and nerve-wracking. One of the biggest problems is that building a sales and marketing infrastructure capable of acting as a springboard for that leap requires financing and specialist expertise. Growing businesses are often short on both.

At Unruly, founded in 2006, the business had reached a critical moment by 2011. “We’d run almost 2,000 campaigns but when you hit a certain size it feels uncomfortable to start taking even bigger risks without a cash cushion on the balance sheet because there are inevitably going to be problems to overcome at some stage,” says Wood. Unruly had made a big splash in New York but was desperate to open an office in Chicago, while also needing to get a Berlin presence up and running and move into Asia. “Geographical footprint is so important when you’re dealing with Fortune 100 companies,” says Wood. “The trouble is it takes the same investment of time and money for a business like us to open new offices and subsidiaries as it does for a huge multi-national, but they have much greater resources to play with.”

To make matters worse, time was pressing. “We knew organic growth wouldn’t be quick enough,” Wood adds. “There were no market leaders in the US or Germany, so this was a real window of opportunity.”

It was at this stage Unruly began negotiations with BGF. “We considered other types of financing, including debt, but we wanted backers whose interests were aligned with our own,” Wood explains. Tim Whittard, a BGF investment director based in Birmingham, says the sort of growth capital Unruly sourced is perfect for growing companies that want to develop sales and marketing with the aim of taking the business to the next level. Such companies need new people, as well as infrastructure that may range from scalable IT platforms to physical property, but none of this spending generates an immediate guaranteed payback.

“Investment in sales and marketing is all about preparing the ground for growth but it is cash-burning and speculative – you’re just not going to be able to raise debt to support that,” Whittard argues. “In any case, even if you could fund these investments with debt, there are good reasons not to: with an equity partner, and particularly with BGF, you’ll also get commercial support, including a presence on the board, and hugely valuable access to networks of useful contacts.”

This was exactly what Richard North, chief executive of toy development company Wow! Stuff, was looking for when his business reached critical mass. “We were making good money but we were also aware there was a ceiling,” North recalls. “As an entrepreneur, you always wonder if you could do something really big, but you also have a fear of failure, and we felt we’d reached a crossroads – that if we were really going to go for it, which we had the ambition to do, we’d need help.”

Wow’s discussions with BGF were completed over the course of a few weeks early in 2012, securing a £4.8m investment in the company. North wanted the cash to fund an Asian office that would oversee local production and quality control, to fund expansion into the US and to beef up product development, but the arrangement was not simply a financial one.

“Running a business is lonely – very often you don’t even know what it is you don’t know,” North says. “With BGF, we’re in it together and I’ve come to see that as just as important as the money they’ve provided – more so really.” Not least, they have introduced an exceptional non-executive director to the company with toy industry experience at the highest level, whose networks have already helped Wow to move closer to mass market volumes.

Software business Celaton has also been in recruitment mode since securing a £2.5m equity investment from BGF in January 2013. “The difference this money has made to us is that we can invest in the right people to go for growth,” says Celaton’s chief executive, Andrew Anderson. “Good sales directors and marketing directors don’t come cheap and we’ve already made some fantastic hires.”

However, Anderson points out that development of sales and marketing requires more than just additional people. “It is also about the effort that goes into marketing and sales; BGF encouraged us to spend three months conducting some good old-fashioned market analysis that we’d simply never had the resources for in the past,” he says. “You can waste an awful lot of time and money doing the wrong things and that analysis is already providing us with some priceless intelligence.”

Anderson did at least consider other sources of finance when he realised Celaton’s growth potential was being curtailed by its lack of capital. “Our bank was very supportive, but it brought out its standard lending models and we just couldn’t get the boxes ticked,” he says.

Celaton also held talks with several other equity investors before settling on BGF. “They were only interested in a minority stake, but, also, they were prepared to work with us,” he says of the decision. “With the venture capital firms we met, we always felt we were working for them – they gave short notice of meetings, for example, and were hugely demanding about the information they wanted and then their key people wouldn’t turn up.”

In the end, it’s the relationship that matters most, says BGF’s Tim Whittard. Sales and marketing investments require patience – and while they’re waiting to see those dividends start flowing, both investor and investee have to be able to work together constructively.

“My personal checklist when I’m thinking about whether a company has investment potential starts and stops with my assessment of its management – and its CEO in particular,” Whittard says. “He or she needs to be genuinely looking for a partner rather than being solely focused on the money – the chemistry is hugely important given that we’re going to have such a long-term relationship.”