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Banks, Lenders & Investors Finance General

Essentials of Equity Crowdfunding

Equity crowdfunding is particularly useful for start-ups and SMEs seeking to grow, particularly because it is so difficult to raise small amounts as share capital due to the extensive due diligence required by investors who don’t already know you.
Even when investors are interested, the share of the equity and control they may require can be an issue for the founders when the business is not yet profitable.
Investors in equity crowdfunding receive shares in the business and with them the prospect of receiving dividends as well as being able to vote and to hopefully sell their shares at a profit in the longer term.
The business must provide a detailed business plan with a lot of information about the key people as well as other supporting information before it will be accepted by a crowdfunding platform.
An example of a successful equity crowdfunding was E-Car Club that raised £100,000 for 20% equity from 63 investors. The online fundraising was organised by crowdcube.com with most investors subscribing small amounts although the largest was £15,000. E-Car Club is a pay per use scheme whereby club members have access to an electric car for a defined amount of time without having the expense of car ownership.
Research by the British Business Bank in 2014, however, found that the growth of crowdfunding had posed challenges to Angel investment networks because some angel investors were choosing to invest through crowdfunding instead.
The risks in equity crowdfunding include a relatively high failure rate for start-ups and the potentially lengthy wait for a return on the investment.
Equity crowdfunding platforms are regulated by the Financial Conduct Authority (FCA).

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Business Development & Marketing General Turnaround

What are the personality traits of a successful entrepreneur?

Asked to name famous entrepreneurs and perhaps most people would list Steve Jobs (Apple), Bill Gates (Microsoft), Richard Branson (Virgin) and Mark Zuckerberg (Facebook)
But what are the characteristics of a successful entrepreneur?
According to research published by Forbes magazine effective entrepreneurs show drive, resilience, self confidence, flexibility and vision.
These are not necessarily exclusive to the famous examples quoted above.
Anyone who thinks they may have the makings of an entrepreneur should consider whether they are driven by the heart and by an unshakable sense of purpose. Also, do they have resilience; to quote Sir Winston Churchill, “Success is the ability to go from one failure to another with no loss of enthusiasm.”
While self confidence is important the successful entrepreneur needs to be flexible and open-minded to the possibility that what seemed like a brilliant idea may not be effective in reality without making significant adjustments.
Perhaps the one distinguishing characteristic common to entrepreneurs is their ability to see opportunity everywhere and to be always looking for new ideas.
Finally, an analysis of 23 research studies published under the title “The Big Five Personality Dimensions and Entrepreneurial Status” recently comparing entrepreneurs to corporate managers found that the entrepreneurs scored far more highly on traits such as openness to experience and conscientiousness but significantly lower on neuroticism making them much better able to cope with stress.

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Retail start-ups – opportunity or lack of opportunity?

An estimated record 10,000 new retail businesses were launched in 2014 compared to 2013 according to Creditsafe, a company providing information on the health of businesses.
The new retail start-ups included shops, online retailers, cafes and restaurants and the development was being interpreted as a sign that entrepreneurs are leading the economic recovery partly because retail is seen as a major indicator of consumer confidence.
However, it remains to be seen how many of these fledgling businesses are still trading in 12 months’ time and whether this is indeed a case of entrepreneurs seizing opportunities or whether it is in fact a response to the lack of alternative opportunities.
It has been clear for some years following 2008 that retail is a volatile sector and has been in the throes of huge changes. While there are positives in the rise of the “shop local” initiatives aimed at supporting independent small traders, there has also been evidence that people have become very cost conscious and cautious in spending with smaller but more frequent trips to the shops.
Online shopping and a disenchantment with major High Street chains and edge of town superstores may indeed be a positive sign for the 10,000 fledgling retailers, but they will need to be very canny about pricing, marketing and controlling cash flow to survive.
We await the January post mortem on retail trade during Christmas and New Year, but already it looks like 2015 is going to be an interesting year.

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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery Turnaround

Concern about Start-up support scheme is growing

The Sunday Times has been highlighting issues with the Government’s £150 million Start-up loans scheme, which is administered through the Start-up Loans Company chaired by James Caan, a former Dragons’ Den judge.
Information on the company’s website is minimal unless the user is a potential applicant and goes through the registration process, but using a disclosure of information request the paper has discovered that initially default rates of up to 40% had been expected, but were anticipated to be between 30-35% by the end of the scheme in 2018.
Under the scheme start-ups can borrow up to £25,000 at an APR of 6% which must be repaid over a five-year period. According to both Government and the Loan Co websites these loans are unsecured.
The new businesses also receive mentoring as part of the package, which matches their applications with a “delivery partner” with whom the loan terms have to be agreed.
At the moment around £95 million of the £150 million pot has been lent and of this calculations are that repayments on around a fifth of that money are in arrears, leading to fears that the debts may have to be written off.
Most recently, the paper has discovered, up to 3,000 of the current 18,000 recipients have not been given access to a mentor.
It quotes Mr Caan as saying that mentoring was “encouraged but not compulsory” and that the company did follow up on those recipients who were not using it. He has also said that every effort was made to recover funds.
While, of course, not every new business will be successful, this does raise questions about the anticipated level of failure and the viability of this scheme.
We understand that a criteria for loans under the scheme is the need for a personal guarantee. If this is the case, are we to expect a large number of bankruptcies in the next couple of years? Do get in touch if you have a Start-up Loan under the scheme.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Investors need to rethink their requirements

Many of us believe that a change in investor culture is long overdue. We need to incentivise long-term investment in sustainable growth instead of short-term ‘quick flip’ or ‘get rich quick’ schemes that deceive everyone into thinking that making money is risk free and easy.
It is this short-term thinking that has made it more difficult for Private Equity firms to raise new funds for further investment.
Private Equity firms depend on their reputation for making profits for their investors and their problem since the Credit Crunch of 2008 has been that funds have been tied up in businesses that are effectively zombies because of the amount of debt they have, no matter whether these businesses may have good potential for growth.
Similarly both lenders and investors are very wary of taking a risk with new and small businesses, hence the Government’s failure to persuade funders to support start-up companies and SMEs, even profitable ones and those with potential for growth. The only source of funds really available for such businesses are book debt and asset based lenders but these only improve cash flow they don’t provide equity or loan capital for investment.
To address the funding culture issue we need to justify a switch from investing in property to investing in businesses. This will involve understanding a risk rated return on investment that provides for better returns to investors.
There are a number of ways of achieving this change of investor behaviour, one is to penalize investment in property by taxing them, another is to provide for matched funding from banks alongside new equity, possibly with a Government guarantee, another would be for debt forgiveness by banks to restructure their ‘zombie’ client loans alongside new equity, others could be an expansion of the Enterprise Investment Scheme and Seed Enterprise Investment Scheme, or simply a reduction in the corporation tax rate.
But all this requires a Government to confront those who view property as their source of security.