The majority of UK entrepreneurs believe that venture capitalists don’t really understand them. Even those that have previously worked with private equity and VC firms “could not say their investors were proactively supportive in problem solving or made an effort to fit in with their business and management team. So says a fascinating, but alarming, report from Coutts.http://www.coutts.com/news-and-insights/press-releases/2012/business-verdict-on-venture-capital/
Most entrepreneurs, interviewed by Native Consultancy for the Coutts report, believed that equity investment will deliver faster growth to a business, but only 19% of business owners though that this growth would be sustainable. And fully 72% do not believe venture capital is the best way for a business to realise its growth prospects.
There is some good news. Overall, more than 80% of entrepreneurs remain open to the idea of working with equity investors in the future, and for those with direct experience of venture capital, equity comes second only to cash flow as the preferred source of funding for growing their business. But again, when this same question is asked of entrepreneurs without direct experience, equity investment comes a distant third or fourth – behind cashflow and bank debt, and level with borrowing from family and friends.
All of us in the equity investment industry must try harder. A sustainable UK (and global) economic recovery will be hard fought when it finally comes, and there may yet be more turbulence on the journey, but the one thing we can be sure of is that this recovery will be built on equity, not more debt. And we will only get there with a better understanding across the business community of how equity investment works, and what an investor can and should provide.
This is a two-way dialogue. The owners of fast growing businesses need to improve their basic level of knowledge. They need to make sure they are better equipped to evaluate the various funding sources available, and to ask the right questions of prospective entrepreneurs. Coutts’ Report provides some very sensible and practical advice in this respect. Equity investors, meanwhile, need to stop and listen to the entrepreneurs. This research is another wake-up call. The status quo isn’t working. We need to change.
BGF is listening, and we are working hard to provide something different and something very directly relevant to the needs of the UK’s large number of growing companies.
We have heard entrepreneurs fears about losing control, which is why when we invest between £2m and £10m it is only ever for a minority stake. We know that businesses are looking for a long term partner, and worry that some investors may appear to be more focused on making a quick turn. When we invest it is off our balance sheet, and that can be for as long as 10 years if it is in the best interests of the company. And finally, we know that entrepreneurs want commitment. That is why with BGF capital is usually only the starting place.
We are not a silver bullet, and we certainly aren’t looking to do this on our own. But we do believe that we are sitting at the head of a movement for change, and we can play a central role in expanding the pool of long term capital available to growing companies. We ask that companies come and talk to us and understand what we can offer, and hopefully more investors we look to join us in providing something a little bit different.