Growth Company Financing

Some KIN Investments reviewed

A review of past investments.

Medical Devices company
The company has made good progress in the 18 months post investment.

At a conference of NHS consultants, the device was mentioned on the platform by one of the early adopters, and there was quite a flurry around the small pop-up exhibition stand!

Time wise, things have progressed somewhat slower than hoped:  even with the most pessimistic of estimates, the medical world with trials and so on seems to work slower than anyone can imagine!

The business will as expected be now seeking additional funding:   the current management are rather renowned for their slight caution (or is that being sensible ?!) and so whilst the business bank account is still healthy,  are bringing in the new finance.

Travel sector
A number of KIN members invested some time back in a niche travel businessSince then, the business has gone on to acquire another company: that has been successfully completed.  There is still scope in the top end of the holiday market for growth and potential further acquisitions too: so an exit is likely to be some 5 years into the future.

Franchise Business
This business grew vary rapidly after KIN invested.  Like all franchise businesses, managing the franchise network is a huge part of the management work, to  ensure that all parties pull together.  The last  six months has been an important time of doing that work, and adjusting to the new, larger franchisee list: as well as giving focused help to under-performing franchisees, and in some cases tough decisions to end the relationship.
That inevitable bedding down period is now over, and management focus is back on another period of expansion.

 

Helping Kent companies to grow and over-come hurdles to growth

A new spin on one of the most mundane of FMCG consumer products you can imagine.  The new angle effectively meant the product did the role of two existing types:  and all at lower waste and energy costs.

Although pre-revenue, one key to the product’s chance of getting traction in the market was the scope for it to be picked up by retailers, as a cheaper and greener way for them to address a product niche that for many retailers is basically a loss, not a profit right now.

Helping growing companies to grow faster and bigger

But a good chunk of the meeting was taken up with a situation that was entirely new to us –  a company wasn’t seeing us in order to exchange X capital injection for Y equity – the usual Dragon’s Den one line didn’t apply.  Equity wasn’t even on the table!

Instead, they wanted a brain-storm, they wanted to explore a range of options they have been mulling over; to explore a number of different routes the company could go next, in order to grow – and how to finance that growth.

Not really unexpected, as all the companies that approach us are Kent (or South East at least) business looking for growth finance.

They have been selling their product for 2 – 3 years now: and a good part of the success is the value-added customer service they wrap round it.  This year is break-even year, and next will start to show profits:  how much depends on how much more they want to grow.

They had already been able to get advice from their accountants,  and their bank; but just didn’t get anything of meaning – nthig that would help them steer the next 3 or 4 years.   It is sadly a fact that good businesses here in the South East with good prospects get a cold shoulder even from their own bank, even after 2 or 3 years track record of cash volumes  going through the account.   If you don’t exactly fit the banks profile of ‘good’, then the only loan or overdraft you’ll get is one where you sign away your own house to get it!

In this case, the business had strong cash flows and could show good gross margin: but the sales cycle was very seasonal: and the bank was scared by the rather extreme cash flow peaks and troughs.

With 12 experienced Business Angels round the table:  the brain-storming was fast and detailed.  There was interest to follow up with the company; one idea mentioned was a 4-year loan kind of model, no equity but maybe a debenture wrapped approach.

There was also some considerable exploration of the overhead situation for the business, and it’s implication on growth strategies.

Part of the success had been the building of a more effective bit of manufacturing kit, than is available to purchase off the shelf, (other than at crazy pricing).

This factor and many diverse options were covered in a short space of time, as we got our heads round the bigger picture, and a combined wisdom rarely seen in one room at one time, was put to bear: options like

  • selling the kit itself, to overseas users
  • expanding the core business through franchising: providing the manufacturing kit and the marketing/on-line platform as a start-up package to franchisees, to get fast UK-wide coverage
  • expanding the current established local Kent and Sussex market base, where demand was already bigger than the current year ability to finance through the product life-cycle cash dip.
  • how to manage scalability in the overheads
  • how to run the business in the next 12 months to start getting on the radar for regular banking finance
  • What skill gaps in the two-man board need addressing

So, certainly a first for KIN – a growing company pitching for finance, but no equity on the table!

At the end of the June meeting:  we let the FMCG company know that we couldn’t proceed with them right now, but had some interest and asked them to contact us again after they have completed their scheduled pre-Test exercise with a major High Street store.

As for the curious ‘finance but no equity’ situation: we liked the two guys we met and their business, and what they’d achieved with so little, and so agreed that a couple of us Business Angels would meet with them, to get to another level of detail of their situation both in terms of financials and also regards the ceiling on size placed by the limits of their current location / equipment / workforce etc.  This would be then fed back to the group, and we’d discuss what funding packages we could assemble would best fit this particular company’s needs.

One thing we do pride ourselves on at KIN – for the businesses looking for funding we contact us, whether we ultimately  turn them down or accept, they regularly say that the advice and input we gave had really helped, and a lot more than advice from other sources,  and they appreciated the fact that we don’t charge companies to come pitch to us!

The money is vital for an expanding business, but as the TV Dragon Den often emphasise when dragon’s are pitching against each other, it is also the sector expertise, knowledge and contacts that can make a difference between a slog, and a smoother growth.


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