Alternative finance

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June 2015 | business-reporter.co.uk

A 16-pa on how ge repor t finance alternative is Britain’ funding s growt h

EXCLUSIVE INTERVIEW

Michael Birch THE MAN WHO SOLD BEBO FOR £850M ON LIFE AS AN ANGEL René Carayol WHAT WE NEED IS RISK-TAKING ON AN INDUSTRIAL SCALE Simon Ashby WHY ALTERNATIVE FINANCE HAS HISTORY ON ITS SIDE

And introducing…

Let’s get personal

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Business Reporter · June 2015

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Alternative finance

Opening shots René Carayol

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HE HIGH street banks are taking out full-page adverts in the national Press to tell small businesses that they have been and still are supporting them. But why are there some 10,000 projects, in the UK alone, looking for between £30k and £30m from 400 VCs, private equity houses and regional funds (some from European sources)?

It’s probably because most of these ventures have an element of risk, and the only people who appear to be willing to really take a punt these days are the high-net-worth individuals (HNWs).

The government has made some positive attempts to take the sting out of risk with incentives such as SEIS and EIS tax allowances. This can reduce the risk to an investor in the case of a complete loss, by allowing significant write-offs and incentivise them with low or zero tax on capital gains. These schemes are frequently too small or overthought and bound up with rules. All these entities still want to be banks (except the banks, who recently just don’t want to be implicated and are not allowed to be involved in anything risky) and take no risk.

At a recent meeting, an institutional investment dinosaur asked the management team: “How much skin do you have in the game? Have you all remortgaged your houses?” Did she know how

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Why are there no risk investors anymore?

As ever, culture is the key issue difficult it is to obtain a first mortgage these days?

And that many young entrepreneurs don’t own properties? She also ignored the fact that the team had been paying themselves the minimum wage for three years, largely self-financed.

Most of the people taking decisions on whether to invest or not have no idea what it’s like to wake up in the middle of the night wondering how to make payroll this month. They tend to want to heap even more stress and strain on the everresourceful entrepreneur. Now, if they put their families and homes at risk, it nearly guarantees that they will take the wrong decisions for the business.

On the upside, an SEIS funder has completed nearly 40 investments in about 12 months. This is the way of the future in the UK and Europe; a cookie-cutter process which involves an initial interview, then a meeting directly with a credit committee. They often give a decision there and then. Money in the bank 10 days later!

In many UK and European institutions the credit committee members don’t deign to meet with the investee executives. This is a complete anathema; what are they investing in if not the team?

If they don’t meet them they are relying on the spreadsheets and plans and some third-party assessment of the market opportunity.

They miss out on the passion and knowledge of the founders and execs – the major asset of the business. They’re usually more interested in obtaining a fixed and floating charge on the

secondary assets. The former is relatively simple to understand and applications can be made online.

The feedback on non-success is transparent and can be helpful and a second submission is allowed.

So, without wanting to sound like a creaking gate, there are NO risk investors anymore.

Every time the government tries to encourage risk-taking, some apparatchik somewhere tries to pervert it to mitigate the risk.

Do we suppose that John Doerr (Kleiner Perkins) and Ben Rosen (Seven Rosen) went into months of diligence and credit committees before they put the first couple of million dollars into Intel? No. They bet on two sides of A4 and the persuasive power of Gordon More. This is certainly why we have no A mazon, Facebook, Apple, Cisco, Oracle, Salesforce or Über class of success in Europe.

As ever, the culture is the i s s ue . It fe e l s l i ke investment institutions think the entrepreneur is out to screw them. If they’ve had a prior failure (commercial or personal) they’re probably not going to gain any investment for their next venture.

It’s not about risk, it’s about risk-taking, not only a punt but sometimes on an industrial scale.

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Alternative finance

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By Joanne Frearson THE DEVELOPERS of Fourex, a self-service currency exchange machine which recently won £671,450 worth of investments through crowdfunding, have made it into the final ten to pitch their business idea to Sir Richard Branson in Virgin Business Media’s “Pitch to Rich 2015” competition.

The start-up, founded by entrepreneurs Jeff Paterson and Oliver Du Toit, is to be launched in August 2015 at Transport for London stations at Canary W harf, K ing’s Cross and Blackfriars, as well as Westfield Stratford shopping centre. They are also in talks with a major currency exchange company about the possibility of licensing the machines to use in airports.

Paterson, co-founder of Fourex, says: “It took us about two and a half years to develop image-recognition technology that can scan a coin in about a 10th of a second. What it does is takes a look at each and every coin and says, okay, this is one Fijian dollar, calculates the exchange rate for it and turns it into pounds.

“It is superfast and exchanges coin from literally any country in the world. We do something similar for banknotes as well.”

The exchange rates are updated daily in line with market trends, and can convert unsorted coins and notes from more than 150 currencies into British pounds, euros or US dollars.

Paterson and co-founder Du Toit came up with the idea after both were stuck with jarloads of coins from other countries, which they found

Jeff Paterson’s (left) and Olivier Du Toit’s currency conversion machine (inset) has been shortlisted for Richard Branson’s Pitch to Rich competition

Cash exchange innovators strike crowdfunding gold difficult to swap. They built the kiosk to be able to accept even the smallest denominations that no big companies are willing to exchange.

A lt hough Fourex was overfunded through crowdfunding, Paterson and Du Toit found it difficult when they were first trying to gain finance for the project.

Says Paterson: “People did not want to give us money because there is no model to

compare it to. We could not tell anyone we could do X-amount of turnover per day, or there are going to be 20 people using it, because there is no model to compare it with.

“They said it was too much of a risk. We could not prove it, and that was a difficulty. The fundraising has been one of the most difficult things we have had to encounter.”

The do-or-die approach of put t i n g t he pr oj e c t on

crowdfunding was the pair’s last option. But they decided to go ahead with it and, through CrowdCube, the pair offered investors shares for £5,000, which gave them a voting right along with discounts for buying currency at the machines – which proved to be very popular.

“We put it on crowdfunding and we were blown away,” Paterson says. “We reached the target in six days and had to pull it off very quickly because we

were 244 per cent overfunded.

Our experience with it was phenomenal.”

They are now shortlisted in the ‘New Things’ category of Virg in Business Media’s competition, where members of the public will vote for who gets the chance to speak to Sir Richard Branson. The top three

will go through to the final and, if they win the pitch, prizes include invaluable mentoring from the brand’s bigwigs, as well as an option for Virgin to invest in their company.

Paterson says: “It confirms that we’re on the right track and have a product the public can relate to.”

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Alternative finance

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How technology is unlocking the financial supply chain

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ungsten, the leading global electronic invoicing and supply chain finance company, is constantly innovating to support and simplify the invoicing process between large organisations and their suppliers.

Britt Lintner (below) is a former banker turned entrepreneur, and Tungsten’s new head of sales. She is responsible for managing and growing the company’s relationship with the hundreds of thousands of suppliers who use its e-invoicing network. Here, she discusses how Tungsten can work with its customers.

As someone who has owned small businesses, what do you think are the biggest issues facing SMEs today, and how can Tungsten help?

For the past two decades, large corporations have outsourced to cheaper

foreign countries, and it has been difficult for local SMEs to compete. Today, new online technologies and automated products allow SMEs to streamline processes, lower costs and become competitive again. Tungsten enables SMEs to simplify their invoicing activity and increase productivity.

Many SMEs are also facing a cash flow crisis due to poor payment practices from their corporate customers, and a lack of available financing options from the traditional lenders. They therefore need to use every available opportunity to finance their businesses and optimise their financial supply chains. With Tungsten’s Early Payment Service, our clients can get their invoices paid early, on the date they choose, which frees up cash for other activities.

Technology and innovation are said to be revolutionising the

way we do business. Do you agree?

When I started as a broker 20 years ago, I used to buy or sell securities for large clients, piling up paper tickets during the day before passing them on. Ten years later, everything was electronic. We needed 35 traders in 1995 and only seven in 2005; profits stayed the same despite higher competition, and the businesses that embraced new technologies were the eventual winners.

Cash payments are gradually disappearing from our daily life, so why would companies still issue paper invoices to each other?

E-invoicing will eventually be the norm. In some countries, it already is.

E-invoicing is easier, cleaner and faster, and opens up alternative avenues for finance.

There are a growing number of alternative finance options on the market. What’s unique about Tungsten Early Payment?

There aren’t many reliable and

New players: social trading versus traditional investing

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nline collaboration now reaches into almost every corner of the internet. From picking which hotel to stay at on your next holiday using tips posted by fellow travellers on TripAdvisor to finding a new recruit for your team with the help of industry experts via LinkedIn, we’re all now using the information-sharing qualities of the world wide web on a daily basis.

By many accounts, however, true community collaboration is yet to be harnessed when it comes to investing – yes, you can go online to a fund platform and find out how an investment performs against another using a set of qualitative metrics, but asking fellow investors for some hints when it comes to formulating a strategy is fraught with difficulty, whether you’re investing for a pension or looking for a short-term dabble in currency markets.

The problems have been two-fold. A lack of transparency means it’s historically been difficult to sort the signals from the noise. Are anonymous posters on bulletin boards really star traders who are happy to shout about the virtues of the latest unheard-of mining stock? And if they are, why would they really be passing off potentially valuable information for no rewards?

The advent of social trading is, however, now starting

to fill this gap. Companies such as eToro are bringing together the latest collaborative technologies and integrating these with trading platforms. Investment communities can now exist with complete transparency, while bulletin board profiles are backed up with clear historical details of participants’ trading performance.

Members of these trading communities can share ideas, see how others are performing and start to understand what is driving the successful trades. The pinnacle of all this, however, is the ability of community members to follow one another. Find one or more traders whose approach you like, and, with a few simple clicks, you can automatically start to copy the trades they place.

The traders who attract the largest followings are remunerated from the social trading provider, but it’s vitally important to understand the approach taken by the different providers in this field. eToro looks for long term, sustainable returns – very deliberately not rewarding those who take the high-risk approach. Social trading won’t replace traditional forms of investing, but it seems poised to become an integral part of many welldiversified portfolios.

James Hughes is chief marketing analyst at eToro jameshu@etoro.com www.etoro.com

consistent ways to finance yourself when you’re an SME. You hear a lot of noise around B2B financing platforms, but Tungsten is different: we finance our clients directly so they don’t need to rely on anyone else to lend to them, which gives consistency to the financing relationship. In a nutshell, we offer the service of a UK-regulated bank but with more flexibility thanks to our unique technology.

Force banks and credit providers to be transparent about their lending criteria to SMEs. Reduce the bureaucratic burden on SMEs by eliminating regulatory red tape. And deliver less rhetoric and more action regarding the late payment epidemic, and do more to promote the use of e-invoicing as a proven means of speeding up the invoice process.

Tell us four ways the new UK government can start helping SMEs.

info@tungsten-network.com www.tungsten-network.com

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Tech innovation adding fuel to the alt-finance revolution

By Joanne Frearson FOR SMALL companies it can be extremely difficult to get funding by the big banks.

There can be a lot of paper work and banks can take their time in making a decision.

Once they get approval they can be locked into a product for a long period of time and have high break-out fees if they want to get out.

More and more small companies are shunning the big banks and turning to alternative finance, with advancements in technology making it easier for entrepreneurs to set up online platforms to cater for this market. According to AltFi Data, alternative finance is now a billionpound industry.

“This form of finance really gives businesses the oxygen they need to run their business, play their suppliers, recruit people, cover overheads and export into new markets,” says Anil Stocker (below), CEO and co-founder of Market Invoice.

“It is really important to them.”

Stocker started online platform Market Invoice, which gives clients access to funds in outstanding invoices, when he was 27, and soon after was named in the Forbes top 30 under 30 in finance for his work.

He started his business because he wanted to offer people a new experience of funding which was different to what they got at the banks.

At Market Invoice everything is online and customers can get an answer the same day, they are not locked in to contracts and there is only one fee which is clearly laid out. If a customer comes back to Market Invoice again they get funding at cheaper prices. Stocker believes that in the next five to 10 years, up to 50 per cent of finance will come from non-bank providers and technology, and that the move towards online platforms is

helping to accelerate that push. “Businesses are going to get used to having a better service, having everything online, transparent pricing and dynamic pricing that gets cheaper as they use it,” Stocker says. “They are going to get use to that just like they have got used to it in other industries.

“The internet has changed travel, music and retail, and the same thing is going to happen with finance. This is just the beginning – although fintech, alternative finance and peer-to-peer is small as a percentage of the total, it is very high growth. Just like Amazon disrupted the way we buy things, we are going to be disrupting the way we think about accessing finance.”

As the sector has grown, Stocker is seeing a change in the types of companies coming to it for finance. He says: “It typically used to be the industries banks were not comfortable around, such as software and technology. But now what we are seeing is quite old-fashioned traditional business owners realising they do not need to rely on the banks anymore and that they can use our platform.

Wholesalers, people who are exporting goods, people who are doing educational training, recruitment companies, supermarket suppliers, companies that are not very financial or tech savvy fashion as well, but they need the cash.

“We are also helping very fast-growth businesses, so we have many companies backed by venture capital funds who are growing quickly who are using us. Of The Sunday Times top 10 fastest-growing companies three have used us.”

Peer-to-peer financing is certainly giving companies the oxygen they need to bring life to their business – and perhaps Stocker’s experiences are just the start of alternative finance crossing to the mainstream.

Lack of due diligence the biggest risk to investors THE BIGGEST risk when it comes to investing in companies through crowdfunding platforms is not doing the proper due diligence on them, according to Matt Novak, CEO and co-founder of InvestDen. Novak says: “We vet the deals to the greatest extent possible, so we can put the best forward to our investors and they can make their own independent decision.”

According to Novak, there have been a couple of examples on some

alternative finance platforms where companies have been proven to have claims that are not verifiable. He believes it is a social responsibility of all platforms to provide their investors with good quality deals.

He says: “Crowdfunding by its very nature is open to everybody.

It is the democratisation of finance.

Mum and dad or someone who has their £50 to take a punt on something, are investing.

“But they should still be given the right opportunities and opportunities that have a higher degree of success. We have a social responsibility to give them a great deal. We are the only ones stepping up to that social responsibility.

“We examine all of the material. If they are making claims, are the claims true, verifiable and bona fide? If they are saying they have got this wand

and you wave it and it will turn someone into stone, is this actually accurate?”

Novak advises it is important to look at both debt and equity when undertaking due diligence.

InvestDen goes back three years to look at a company’s forward financials and do market comparables to see if the business already exists. It also looks at the valuation of the company and the expected return and cash flows.

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Financing Britain’s growth through asset based lending

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ithin the rescue community, putting in place an ABL funding package (which may involve receivables, stock, plant and machinery (P&M), property and often a cash flow loan) can enable a company to come out of either a stressed situation or a formal insolvency process. Benefits of ABL funding, in these circumstances, can include an improved financial structure, a stronger balance sheet, and a lender that is more comfortable funding the business.

Additional investment from a private equity fund or an alternative equity funder, alongside ABL funding, can add an additional layer of strength and confidence to a business’s financial position. When coupled with an ABL funding package, the investment can enable a business to consider expanding into new markets or geographies, while its working capital is funded.

The ABL market in the UK is not as mature as in the US, but what we are seeing is encouraging and evolving positively. The ABL community is constantly challenging itself to stretch its product offering to service client needs – for example, providing only P&M or stock lines, without the need for receivables as security.

At Duff & Phelps, we have a comprehensive understanding of the domestic ABL market, having worked both within and beside it for more than 20 years.

This experience gives us a unique vantage point to guide clients in finding the right ABL funding package, whether you are an adviser, corporate, financial sponsor or stakeholder in a business.

John Potts is director, Duff & Phelps (London) +44 (0)20 7089 4820 john.potts@ duffandphelps.com

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Looking for investment finance: how can you tick all the boxes?

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he UK government recognises that companies with more than 250 employees remain the powerhouse behind our economy, and their success or failure will determine the rate at which we move from recession to sustainable economic growth.

But 98 per cent of those businesses looking to expand are unable to get the finance they want, and need to be more aware of the criteria for successful applications.

Helen Gammons, programme director for Henley Business School’s SME programmes, said: “The funding landscape has changed radically in recent years. So while there are many more opportunities for companies to get investment from business angels, crowd funding etc, most applicants are totally unprepared for the realities of the bid process.

“New research has identified some gaping chasms between the two sides. Companies seldom understand the need for due diligence, even if they have a businessplan.Andwe’vecompiled achecklistofaround50documents that applicants should have ready, but almost none does.

“So the funders are frustrated too, but Henley’s research-based programmes are helping ambitious businesses looking for high growth to understand what the funder is looking for, by providing a general SME support programme as well as the recently-launchedInvestment Readiness programme.

“This helps SMEs see the process and the opportunity moreclearly,andsignificantly improves their chances of getting the funding they want.

Ultimately, we believe it will help more businesses to get the financial investment that they want and need, to grow successfully and profitably.”

+44 (0)1491 418767 exec@henley.ac.uk

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Peer-to-peer is

By Joanne Frearson

A

WAITER greets me with a cocktail as I walk into a fifth floor apartment of the St Pancras Clock Tower. He ushers me into the living area where a table is set up for 12 in the middle of the room. The ambiance of the place is tranquil and homely, with candlelight and amazing views over London where you can see The Shard.

I feel like I am dining with friends in a luxury apartment, but I am actually at a pop-up restaurant called UNA, a supper club creation of Latin American chef Martin Milesi.

Our host for the evening is Gloria Molins, founder of peer-to-peer travel platform Trip4Real, a website which can connect travellers with personalised authentic local experiences in a city.

UNA is one of the many experiences travellers can book through the site and Molins is showcasing what travellers can do when they look at the local authentic experiences of a city.

Molins created Trip4Real out of her passion for travelling which started at the age of 11 when she and her family moved from Spain to Chicago. Since then she has been living and working around the world, in places like Holland, Australia to Barcelona, as well as journeying to the more off the beaten track places in China, India, Africa and Latin America.

“Travelling changed something inside me,” says Molins. “I realised it was amazing to discover new ways of doing things, to discover new cultures and especially to meet people from around the world. Travelling opens your mind.

That moment when you connect with someone local in your trip, it is the moment that you always remember.

Locals can take you somewhere which makes you think, ‘Wow’.”

When she returned from her travels to her hometown Barcelona, she decided it was time to create a social web where locals could offer travellers authentic experiences in their city. Inspired by the peer-to-peer business model of Airbnb, she decided to use that kind of platform for Trip4Real.

“We are changing to a sharing economy. It is something that empowers everyone to share something that they already own and make money with that,” she says. “It is a real benefit and positive impact to everyone in the world.

It really made sense to create a peer-topeer marketplace.”

under Airbnb fo lecharczyk B n a th Na Adrià f Ferran and che oth have b (above) Trip4Real a stake in

“Obviously we are entrepreneurs, we are in love with the idea. But if you cannot raise funds you have to decide if your company makes sense” – Gloria Molins Her online platform has grown quickly and has attracted the attention of some heavyweight angel investors.

Ferran Adrià, former chef of El Bulli, voted the world’s best restaurant five times, was the first big major investor in the start-up.

She says: “Having Ferran Adrià involved, you suddenly think, ‘Wow! Dreams do come true’. He is amazing.

He is an ambassador for so many things.

He has been my mentor, my investor and my partner. He has been everything and is always helping.”

The company also attracted the attention of Airbnb after Molins

contacted Nathan Blecharczyk, Airbnb’s CTO and co-founder, about her project.

Airbnb is now a partner to Trip4Real, with Jeroen Merchiers, the company’s managing director in Spain and Portugal, acting as an adviser to them.

“I met Nathan two years ago after I contacted him,” Molins says. “He was really surprised about how much peerto-peer content we had in Barcelona.

We started talking and really connected.”

I ask Molins what is the best advice Airbnb has given her. “To focus on the users,” she says. “ Make your users love you because that is what it is all about.

I could build a huge start-up but that is

not the point. At the end it is focusing on making a difference to each one of your users. Focus on those happy stories that come out.”

Molins loves stories and believes what you can get better travel advice from a local in one hour than you can spending 20 hours online. “We have had travellers contact us and say finding Trip4Real really changed their trip,” she says.

“I cannot imagine Barcelona without Trip4Real and Paris without Trip4 Real.

That is the most magic. The peer-to-peer market is fantastic because it is just a connection of stories. But there is a lot of hard work that goes on behind the

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on the up

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Banks beware: why alternative finance has history on its side EXPERT INSIGHT

Simon Ashby

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scenes to make a business work. Molins knows all too well the ups and downs of starting a business. When she first set up Trip4Real she got knocked back for funding of €200,000 and thought her dream was over. However, she did not let it deter her and, four months later, she got a deal for €1,000,000.

What’s her advice to people starting out? “Do your business plan really well.

I know it sounds boring, but it helps you a lot if you are caught up in that moment of passion and ideas. It helps you to see what will eventually come.

“Starting off is all about challenges – whenever a challenge comes up I just

Below: St Pancras station, where chef Martin Milesi has established a pop-up supper club bookable on Trip4Real; main image: Trip4Real founder Gloria Molins

think, everything happens for a reason and it is for a good reason. Something better will come. You really have to listen to what happens to your company because obviously we are entrepreneurs; we are in love with the idea, we are in love with the team, we are in love with everything. But if you cannot raise funds for it then you really have to decide if your company makes sense. Execution is super important.”

The peer-to-peer marketplace has worked well for Trip4Real and Molins plans to keep growing in more cities this year and prove it can become a truly global network for local experiences.

HAVE always been amused by the label “alternative” and the things it is applied to. Perhaps that is because for most of my life I have been attracted to anything that resides out of the mainstream: alternative music, alternative living (my wife and I try to be as self-sufficient in food as time allows), alternative energy and, of course, alternative finance. But it is also because the things that are considered alternative are rarely as oddball as they seem.

The term alternative is typically used to refer to anything considered outside the mainstream, but this is a moving feast: today’s alternative is tomorrow’s mainstream and vice versa. In fact, much of what we call alternative finance today is based on financial, economic and social principles that predate the modern financial institution.

Long before there were banks, finance companies and insurance firms, people found their own local solutions to the problems of lending, savings and investments and loss financing.

We have evidence from the Bible that wealthy merchants were lending to those less fortunate than themselves in religious temples, something we really would consider alternative today, but it was arguably logical (if not entirely ethical) at the time, because it was a place most people visited. We also had the coffee houses in London, which formed the basis for modern insurance markets – again, a place where those in need of 18th century financial services frequented on a regular basis.

Then, over the last 200 years or so, we saw the rise of what we might call the traditional, or mainstream, financial institution – where people went to a specialist financial intermediary located in a dedicated building (odd that so many of these look like temples or similar monuments – even new ones like the European Central Bank) to fulfil their financial service needs.

Now, over the last 20 years or so this has changed, first via telephone and postal distribution networks and more recently via the internet – opening

the way for the growth of alternative finance.

Traditional financial institutions have typically been slow to exploit the full potential of new distribution channels. Their approach has primarily been to give us more flexible access to traditional financial services products, but they have not generally thought outside the box in terms of new product development. Plus, following events like the financial crisis and all the increased regulation that has followed, it is becoming more difficult for many households and businesses to access established financial institutions – especially bank lending. So they are now using these new distribution channels to find new sources of finance and investment.

In recent years a bewildering array of so-called alternative finance options have emerged, aided by the internet and social media to help connect those in need of finance with those who have money to invest. This includes the growth in peer-to-peer lending, crowdfunding initiatives and Dragons’ Den-style business angels. Such options are not necessarily more expensive than traditional bank products and can provide greater returns for investors at a lower cost for borrows – thanks partially to more efficient business models, sophisticated IT systems and lower levels of regulation.

So if you have money to invest, or are a business in need of finance take a look at the alternatives, although remember that they are not as alternative as they might seem.

People have been investing and lending without the aid of financial institutions for far longer than they have been using them. The internet has simply increased the scope of our social networks.

Will this mean the end of traditional financial institutions? Probably not, but perhaps we will consider them the alternative option sometime soon.

Dr Simon Ashby is Associate Professor of Financial Services at Plymouth Business School

Business Reporter · June 2015

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Alternative finance

EXCLUSIVE Joanne Frearson

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HEN MICHAEL and Xochi Birch first started building websites in their home in 1999, they did not think they would be taken seriously enough to be able to raise finance for their projects.

So they decided they needed to prove themselves first and build something that was successful and popular before they could obtain any real finance, and re-mortgaged their home, twice.

Michael Birch had just left his job as a computer programmer for Zurich Insurance and thought he would spend a few months at home to develop websites and if he was not successful he would get another job. However, it ended up taking a bit longer than a few months for them to start making money. It was only three years later that the Birches’ first project, online greeting card service Birthday Alarm, broke even. In 2003 their financial turning point came when they sold their social networking site, Ringo.com.

It was social networking where the pair finally struck paydirt – setting up Bebo.com in 2005 which, at the height of its popularity, was the most widely used social networking website in the UK, with 11 million unique users in the UK and 40 million members worldwide.

In 2006, the Birches received $15million in financing by Balderton Capital to develop Bebo’s business model, and they eventually sold the social networking website to AOL in 2008 for a staggering $850 million.

“That was the first time I had been on the receiving end of finance and soon after that I started doing investments in other companies,” says Michael, who is now based in San Francisco. The pair have since invested in around 70 to 80 enterprises, mainly in the tech space, and some of these start-ups have gone on to become global names. They were one of the first investors in Pinterest, the photo-sharing website, which is now valued at $11billion and has more than 70 million users.

Birch says: “Our single most successful investment has been Pinterest. We were the first investors in it. There were two really smart founders working from home and they had built this beautiful product.

“They actually found it very hard to raise venture capital, which was really bizarre. They were turned down by every venture capitalist in Silicon Valley at least once. It is kind of bizarre considering how successful they became.

“I remember at the time when I was looking at them, they had this really passionate user-base.

You would go on Twitter and they would be saying I love Pinterest, I am addicted to Pinterest. There were not many of them, but the people who were into it were really into it.

“I was like: ‘Can this have mass appeal? Can everyone be that into it?’ That was kind of the bet we were taking. That was the standout one.

It has done very well since.”

Another company the Birches invested in was Eventbr ite, a global

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The big interview Michael Birch

I have to like th

person. I will no invest in someone just because I think they a going to be successful.

They must have a visio about where their business could go marketplace for live experiences, which now processes four million tickets a month. It was founded by another husband-and-wife team, Kevin and Julia Hartz.

“We were actually close friends with the couple that founded Eventbrite,” says Birch. “We invested as angels. Eventbrite was another husband-and-wife team and we were just huge fans of them. We always had great conversations with them about what they wanted to do with it. We invested early on and that again has done incredibly well.”

But not all of Birch’s investments are driven by financial return. “Far from

it. There are a lot of times I invest because I think something is really cool and I want to see it succeed.

In Silicon Valley there are more and more companies that have a social purpose. The lines between a non-profit and for-profit are becoming a bit more blurred. There are a lot more for-profit ventures which have a non-profit outlook on life.”

An example which the Birches invested in is Soma Water, which makes biodegradable water filters, for which a proportion of the income goes towards water projects in developing countries.

“When you think of investment you think of doing it purely for the money, but often that is not the case,” Birch says.

Indeed, when he decides to invest in a company, one of the most important things Birch looks for in an entrepreneur is their values and passion for what they are trying to achieve. He says: “First and foremost it is about the entrepreneurs. We have to

hit it off with the person. I have to like the person – I will not invest in someone just because I think they are going to be successful if I do not like the way they go about things.

“The idea, to some degree, becomes secondary to the person – the attributes I look for is just a genuine passion, someone doing it for the right reasons. Someone who is clearly smart and has thought it through – you can see they have something special about them. It is not just someone talking about an idea. They must have a vision about where their business could go in the bigger picture, and not necessarily the obvious short-term goals.

“We try to look for that sweet spot, where they have formed a company, hired some initial team members, built a product and have a core user-base that is passionate about the product, coming back frequently and sharing tweets which have positive sentiment about the product. Then the big question

Business Reporter · June 2015

Alternative finance

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he not st are

9

The CV: Micha el Birch Michael Birch is an En

glish computer pr entrepreneur. H ogrammer and e grew up in Her tfordshire and ha in physics from s a degree Imperial College London • In 1999, he st arted his busine ss with his wife who he met in Xochi, the UK. They no w live in San Fr ancisco.

• Their first proj ect was Birthd ay Alarm, an on greeting card se line rvice which they still own.

• In 2005, they launched social networking site which AOL bo Bebo, ught in 2008 fo r $850million. T couple recently he bought it back for $1million an launched it as a d remessenger app in December 20 14.

• They have be en angel invest ors in many fir including Pinter ms, est, Eventbrite and Soma Wat er.

• In San Francisc o, the pair have set up a tech in called Monkey cubator Inferno and mem bers’ club The Battery.

• In the UK, Birc h was one of th e co-founders PROfounders C of apital along with lastminute.com founder Brent Hoberman.

on

Above: Michael Birch during a photoshoot at the British Museum promoting online visual dictionary Wordia; opposite page: the Birches at a power breakfast at the House of Lords in 2012

is, can they grow it from this small user-base of passionate users to the kind of numbers we need nowadays – which is often tens of millions of members – to hit your scale?”

Birch believes entrepreneurs should not try to isolate themselves when starting up a business.

“You should find a lot of other really smart people to bounce problems and ideas off. You are much more likely to succeed when you do that rather than when you just work in isolation,” Birch says.

“Often very early on it is really hard to get investment because you do not tick all the boxes.

There is all this stuff you have to do to get to that stage where someone will believe in you and invest in you. What you can do prior to that is to get to know other people and learn through that process.

Things that you need to know to get to that stage.”

In their ambition to dream up even more cool internet projects to nurture into successful businesses, the Birches have founded a tech incubator called Monkey Inferno. Here, they are back working on Bebo, which they reacquired in 2013 for $1million, relaunching the service in December 2014 as a messaging app.

The pair have also launched a private members’ club in San Francisco called The Battery – just for the challenge, says Birch. “We spent many years doing tech and we were interested in being real entrepreneurs and doing something we knew nothing about and learning the hard way. It has worked out.

“Ironically, it has got me back to technology. We launched the business and realised that hospitality software is some of the worst software in the world.

I started coding again – I got back to the keyboard and started developing hospitality software for the club, so now we are going to turn that into a real business and license that to other clubs and hotels in about a year.”

For the Birches, long gone are the days working from the home they’ve had to remortgage for funding. They have certainly proved themselves when it comes to start-ups, creating and investing in some of the world’s most popular websites. The pair’s passion for being entrepreneurs is obvious and the world will be looking at their investments with excitement for years to come.

Business Reporter · June 2015

10

Alternative finance

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Crowdfunding done right: a great resource for the investor and entrepreneur

T

he crowdfunding phenomenon continues to gather momentum across the globe. The current addressable UK market exceeds £1.5 billion and is growing at an exponential pace. Crowdfunding pioneers talk of “disrupting” traditional finance, which they say no longer efficiently delivers capital to the broader economy and has left many promising companies starved of capital. The idea of crowdfunders is to remove the middle man and bring businesses and investors together directly through online platforms.

As crowdfunding shifts to the mainstream and becomes the first funding choice for many early-stage businesses, it’s more vital than ever that investors get up the education curve to take advantage of crowdfunding opportunities in the right way and avoid the pitfalls.

First off, investors need to decide which crowdfunding platform to use.

Some key differentiators between sites are the due diligence policies and financial expertise of the team operating the platform. Some platforms simply showcase businesses without

undertaking significant due diligence.

Other platforms take a more proactive role and engage in detailed due diligence to provide their members with what they see as the better opportunities (although there can never be any guarantees of performance).

For example, the InvestDen crowdfunding platform draws on many years of investment banking expertise in an effort to filter the companies it showcases. InvestDen follows a diligence process which involves investigating the business and the market in which it operates, corroborating key facts about the business and analysing its financials. Investors should never rely on any platform to do the work for them, and must make their own independent investment decision, but it’s important to be aware of the differences in technology, expertise and diligence that each platform offers.

Another challenge facing investors is the sheer number of opportunities available to them. No investor can be knowledgeable about all businesses and markets, so investors need to be discerning and focus their efforts on the businesses, markets and geographies that they truly understand and have time to

research. InvestDen alone showcases opportunities across a vast spectrum.

Currently, its showcased businesses includes Bedlam Brewery, a delicious modern brew; Henchman, an everything delivery service; Sup, a new social app; Lono, cutting-edge outdoor intelligence; The Work Crowd, the UK’s premier freelancers community; and Little Bu, the leading nontoxic French-made nail polish for girls.

On the more technical side, an area often given insufficient attention by investors is the legal rights which attach to their investment. Showcased businesses may look fantastic and investors may get dazzled without taking a sober look at what investment terms are being offered. Just because a company looks great doesn’t necessarily mean an investor should be happy to buy a share that doesn’t come with any voting or pre-emption rights (a right of first refusal on future share offers).

Investors should give serious consideration to becoming fully informed and knowledgeable about their crowdfunding options. If done right, crowdfunding is and will remain a great resource for the investor and entrepreneur.

InvestDen’s mission is to mitigate the shortcomings of finance and deliver a best-in-class user experience. It is crowdfunding 2.0 with enhanced technology, a secondary market to offer liquidity, unique deals, and an expert team.

Matt Novak, left, is CEO and co-founder of InvestDen Twitter: @InvestDen www.investden.com

For mo re inform ation a bout R3 201 5 plea call M arc Mo se rrow on +44 ( 8349 0)20 6453

TUESDAY 29 SEPTEMBER 2015 • THE BRITISH MUSEUM • LONDON At some stage, every company will be breached. What do you do next?

After the record-breaking security breaches of 2014, information security has never been higher on the corporate agenda.

The challenges remain, however, both in managing colleagues and partners, and in keeping security strategies agile enough to compete with increasingly sophisticated attacks. There is also the question of the coming EU Cybersecurity Directive, and how that will impact on commercial operations.

For more information, go to www.biztechevents.co.uk/r3

Themes

P Managin g reputat ional risk P Debunk ing the regulator y myth P Best pr actice P Breach response P Recoveri ng forwar d P Data los s P Consequ ences

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Alternative finance

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Inspector Dogberry

By Matt Smith, web editor

Make it a date

Being a hopeless romantic, the Inspector was delighted to hear about comedian Maddy Anholt’s unusual attempts to find love – with a kick-start from a crowdfunding site.

Maddy, a 27-year old who lives in London, first performed at the Edinburgh Fringe in 2013. She told comedy.co.uk: “This year will only be my second Fringe, and I know many people out there will think of me as a mere stripling.

After my debut, I remember reflecting on the train home that the Fringe is very much like an abusive relationship – it hurts, it’s painful, you want to leave, but you love it, adore it even, and you know you’ll keep on coming back for more.

And I did... I am!”

But this year, Maddy is going about things slightly differently. She is looking to raise £3,500 through crowdfunding site Indiegogo to help her perform her new onewoman comedy show, Diary Of A Dating Addict.

She is hoping

her campaign will enable her to land her ideal man in Scotland – something which has eluded her so far south of the border.

“Dating can be an expensive business,” says Maddy. “Having spent all my money dating the men of London, I’ve barely got the train fare to Watford, let alone Edinburgh. So I’m turning to the public to fund this fairytale ending.

I’m appealing to the wider community to help fund my fledgling love life as I take my hunt for Mr Right international with my onewoman show.”

The funds raised through crowdfunding will help pay the hire of her venue, The Gilded Balloon, and transport and accommodation costs.

She will also be performing previews of her

show across London this summer, starting on July 3.

For those wanting to donate to the cause, there are £10, £25, £50, £100 and £150 options. In return, rewards include 50 per cent off a ticket to her show, a romantic three-course dinner (not with the lady herself), or a DIY dating kit which includes a oneto-one dating advice session and a handmade card to give to your date.

MySingleFriend is part-sponsoring the project, and Sarah Beeny, TV personalityandfounderofthedating website, says: “We’re thrilled to be helping Maddy in her quest for romance.

We all love matchmaking our single friends but this is taking it to the next level. This army of crowdfunding cupids could be contributing to the greatest love story of our generation or, at the very least, a Highland fling or two.”

Hopefully the Inspector will be trying on his morning suit for a summer wedding any day now …

GrowthFunders Crowdfunding Blog http://blog.growthfunders.com How can your start-up maintain momentum, clearly communicating with investors and providing them with the key metrics that they really need to know? Online equity-based crowdfunding and co-investment platform GrowthFunders gives advice on these issues and more.

of the European crowdfunding market.

Startup Crowdfunding

Peter Jukes

www.startupcrowdfunding. com/blog

www.peterjukes.com

This blog, which is part of Startup Crowdfunding’s global crowdfunding community, keeps a close eye on developments in the area around the world.

Check the site’s most recent posts for information on changes to crowdfunding regulation in Germany and news on the value

H

Writer and literary critic Peter Jukes crowdfunded his livetweeting of the phone-hacking trial. On his blog he explains the coverage and looks at other services, including journalism crowdfunding platform Byline. Alternatively, follow the links for an archive of his tweets from the trial.

Seedrs http://learn.seedrs.com/blog

Indiegogo (FREE – Android, iOS)

Crowdfunding site Indiegogo’s app lets you discover new campaigns or manage your own campaign’s contributions and comments.

Tendr (FREE – Android, iOS)

Self-described as “the Tinder of equity crowdfunding”, Tendr lets you swipe right to like a good idea for a business or product.

Why it’s worth listening to the angels who do their research ow do you decide if a company may be worth investing in? The answer is to take a few tips from experienced professional investors, or “business angels”.

Typically, before making a decision on whether or not to invest, a business angel does his or her due diligence. They will examine aspects of the company such as its product or service. They will look at the market and how the company plans to make money. And the management team will come in for particular scrutiny, as this can often make or break a business.

11

A business angel will also pay a lot of attention to the financials – both current and forecast. Plus, they will examine the company’s proposed valuation and the investment terms to see if they are realistic.

Finally, the business angel will want to understand the company’s exit strategy and the different ways they will be able to get their money out of the company in due course.

Doing due diligence does pay off.

A NESTA research report, Siding With The Angels, reveals that carrying out 20 or more hours of research into a company helps business angels reduce the chances of their investment ending in a loss.

It also increases the likelihood of

getting a higher return. However, due diligence is not the only success factor.

It’s equally important to ensure that you diversify your investment portfolio.

Business angels know that no matter how much due diligence they carry out beforehand, some of their investments will fail. For that reason they plan their investment strategy, play the long game and don’t put all their eggs in one basket.

Goncalo de Vasconcelos (left) is CEO and co-founder of Syndicate Room. Learn more about investing like a business angel by visiting SyndicateRoom’s Investors’ Academy at www.syndicateroom.com/learn

Seedrs aims to make it easier to invest in businesses and shares relevant news and stories on its blog. Recent posts include an inforgraphic showing some impressive stats from 2014, and the news that tennis star Andy Murray has entered a strategic partnership with the group.

12 · Business Reporter · June 2015

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INSIDE TRACK

Higher education: why SMEs need to get smart about finance options

G Planning for the future with alternative finance F or a huge number of businesses the uneven nature of cash flow can all too easily become a roadblock to investment in growth.

By securing finance to meet your businesses requirements, you can ensure that your payments are regular, convenient and predictable, allowing you to focus on reinvesting your profits into growth and expansion.

Two of a business’s biggest bills come in the form of corporation tax and VAT payments.

VAT payments can be particularly tricky, since they are paid on invoiced work rather than bills paid. It’s not rare for a business to take on a big new client, invoice them for work, and have to pay a large VAT bill on that work before receiving payment.

A VAT finance agreement can spread the cost over a three-month period, giving you the convenience of a regular smaller bill each month, rather than a big bill once a quarter.

Structuring your payments in this way ensures that it does not impact your cash

flow, and you can focus all your efforts on driving your business forward in the knowledge that your VAT bill is not going to negatively influence your plans.

Corporation tax bills come along only once a year and tend to be more predictable, so the benefit of spreading them into 12 manageable monthly payments is clear: certainty.

Peter Alderson, LDF managing director, says: “We have seen an increase of more than 20 per cent in the number of businesses looking to fund their corporation tax and VAT payments over the last two years, as more businesses aim to take advantage of the economic recovery. For some, this takes the form of growing their order books, while others want to take on new staff, or invest in new equipment and machinery.”

In addition to corporation tax and VAT finance, spreading the cost of key equipment investment is a major opportunity for businesses but, in comparison, it is still relatively underused.

The Annual Investment Allowance was introduced to support businesses to deduct the full value of capital investments from their profits and significantly reduce corporation tax bills.

Currently the maximum deduction is £500,000, although this is only in place until the end of 2015. With uncertainty over the value of the allowance in 2016, many businesses are now choosing to bring forward their investment plans to take advantage of the allowance at its current generous level.

LDF can assist businesses to do this by tailoring a leasing plan for their needs – spreading the cost of new equipment over a period that suits them, while making the most of the Annual Investment Allowance.

Whatever your business’s plans, alternative finance for your tax or capital investment needs can provide the certainty you need to thrive.

Peter Alderson (left) is managing director of LDF. For more information on alternative finance or to apply for a business facility, contact LDF on 01244 527300 or visit www.ldf.co.uk

overnment plans to provide small businesses with a referral to another finance platform if they are rejected for funding by a bank will help educate the sector on what type of finance options are out there for them.

Robin Skuse, press officer of the National Association of Commercial Finance Brokers (NACFB) believes that small businesses lack knowledge when it comes to what are all the different types of finance available to them.

Speaking at the NACFB Annual Conference in Birmingham, Skuse said: “The vast majority of small businesses, especially start-ups, will only go to the banks because they are not aware of their other options.

The referral scheme, if it comes, is a big opportunity.

It is a good way of raising awareness for alternative finance.

“Psychologically that is very important, because you are not just getting a rejection, you are getting advice. Economically it is very important, because if a business is turned down, they might say, I am not going to grow my business because I do not know what the next step is.”

Skuse believes that small businesses should be referred to a commercial finance broker

to look at what their possibilities are, instead of a more traditional lender, as they have a better knowledge about the financing options.

There is a tendency for lenders to reject a small business because they do not fit their profile.

But Skuse believes that small businesses simply need to know where and why they are failing with one finance application if they are to succeed at landing the next. “If the small business does not know it is just about a profile not fitting, they might think there is no funding out there for them,” Skuse says. “Now a broker will be able to say that the reason why a company was turned down is most certainly for a particular reason, therefore let’s do this differently when we go to the next lender.”

Robin Skuse is press officer of the NACFB 020 7489 2056 admin@nacfb.org.uk

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My view: From the alternative to the mainstream

T

he Asset Based Finance Association is pleased to be supporting this edition of Alternative Finance. The title does, however, prompt some self-reflection. Can an industry that has supported hundreds of thousands of UK SMEs over 50 years be properly described as “alternative”? Where does the alternative meet the traditional, and the challenger the challenged?

W

hether we in the industry like it or not, peer-to-peer lending has, for some time, been lumped together with the likes of hedge funds, certain offbeat types of investment vehicles and even payday lenders in what is known as the “shadow banking sector”.

This term was originally designed to cover those entities outside the regular banking system which were in the business of extending credit – and P2P certainly fits this definition.

In the wake of the global financial crisis, regulators were understandably worried about what other sources of systemic risk might have been overlooked. As a result, the likes of the Bank of England and its counterparts overseas have made it clear that the shadow banking world should come under greater scrutiny.

One might see a certain irony in the fact that those institutions which were actually responsible for the meltdown in 2008 are by implication defined as “non-shadow banks” – particularly when it was the complexity of their disastrous multi-billiondollar derivative trades and poor credit risk management that brought the financial system to its knees.

But my aim here is not to go over old ground. Rather, I want to make the point that the activities of the P2P lender that I help set up, Zopa, is as far from shadowy as the most diligent regulator could hope for. A founding principle of P2P lending is to ensure platforms are open and transparent about lending. This avoids being labelled black boxes or accused of operating in the shadows.

When Zopa became the first P2P platform to launch in 2005, we knew that persuading consumers

No one wants to be seen as the commercial finance world equivalent of the middle-aged man sheepishly shuffling around Hoxton wearing skinny jeans. But as an industry we have potential to provide more finance to more UK businesses and – quite frankly – we want to talk about it.

The UK benefits from a diverse and evolving commercial finance landscape. Technology

is facilitating exciting new products and allowing older products to be provided in ever more accessible ways. But to allow UK businesses to properly understand the finance options available to them we are going to have to move on from the alternative/mainstream duality and recognise that we should be talking about a range of often complementary options. Instead of focusing on product we all need to look at what businesses need. And we

have to give them the tools and information they need to understand what sources of finance are appropriate for them at what stage in their development, and where they can find them. This publication is a great start.

Jeff Longhurst is CEO of ABFA, representing the invoice finance and asset-based lending industry in the UK and Ireland jeff.longhurst@abfa.org.uk

How P2P property investing can help produce high returns

Peerto-peer steps out of the shadows

W

hether your nest-egg is £5,000 or £500,000, you can get involved in peer-topeer property investing and multiply your savings in the time it takes to build a row of houses. And it’s a great way for developers to fill that funding gap.

CapitalStackers pays both small and large investors to part-fund property building projects – with returns from 5 per cent to 20 per cent.

• Each project is divided into a “stack” of investors, with a high street bank putting up most of the money and ordinary investors like you putting in the rest.

to trust us with their cash was crucial to our business.

This meant being a transparent and responsible lender from the start, extending credit to “superprime” borrowers and building a risk function robust enough to withstand the seismic economic shocks that came along a few years later.

More recently, Zopa has become one of a handful of platforms to open up its loan books and provide loan data – to the public and analyst AltFi Data – so that anyone can see exactly what returns we have been able to offer customers over the past decade, and at what level of risk.

Furthermore, P2P lending is

perhaps the only part of the banking industry that has actively lobbied for greater regulation – again, we see Financial Conduct Authority oversight as vital in fostering consumer confidence in the sector.

There is every indication now that P2P has emerged from the shadows: figures from the Peer-to-Peer Finance Association (P2PFA) show that more than £459million was lent in the first quarter of 2015, an increase of almost a third on the last three months of last year.

Zopa itself should see its lifetime lending break through the £1billion barrier in the summer of this year.

Meanwhile, the Treasury has recently indicated that a new third type of ISA (individual savings account), devoted solely to P2P lending, is likely to be given the green light later this year, providing a mainstream platform for our industry.

Whatever labels are attached to our sector, though, the fact is that the mainstream banks are nowhere near regaining the trust they lost between 2007 and 2008, and consumers are increasingly of the view that P2P offers a much brighter and more transparent alternative. One where no shadows exist at all.

Giles Andrews (left) is co-founder and CEO of Zopa contactus@zopa.com www.zopa.com

• You choose what rate of interest you want to earn depending on your preferred level of risk and reward – so the higher the return you choose, the higher you are in the “stack”.

• Invest in one project, spread your capital across a few

different ones, or even invest at different risk/reward levels in the same project.

• Any risk is secured on the value of the property being built • The developer’s own cash is at risk before any of the investors’ cash.

• With CapitalStackers, you can be a property investor with as much or as little money as you like.

• CapitalStackers is the brainchild of two experienced former bankers who have specialised for decades in property lending.

So don’t leave those spare thousands languishing in your deposit accounts – get them working hard for you.

Find out more at www.capitalstackers.com or call Steve Robson on 07774 718947 or Tony Goldrick on 07788 373126

Business Zone

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The future

Innovative funding model helping businesses that take card payments

I

t has often been said that we’re a nation of shopkeepers and it has unfortunately been our high-street businesses – shops, restaurants, beauty salons, hotels, hairdressers, garden centres, cafes, bars, garages and the like – that have been hit particularly hard by the dearth in bank lending.

Usually owner-managed and micro in size, these businesses have traditionally relied on loans and bank overdrafts to help with working capital. Despite the economic improvement, these remain in short supply for such businesses.

Consequently, business cash advance has carved a niche in this area, with its unique funding model designed around businesses that take card payments. Unlike any other finance product available, repayment is solely performance related.

A business cash advance provides an unsecured cash injection based on future credit and debit card sales, repaid via an agreed percentage of the business’s future card sales. A cash advance is not lending money to a company – it is rather buying a portion of its future revenue. Because payback is directly linked to card takings, it is only repaid when the business makes a sale. Plus, all non-card revenue is kept by the business.

Furthermore, the repayment cost remains the same regardless of

how long it takes to repay, and as it’s unsecured funding, there’s no risk to homes or assets.

Used primarily for cash flow, new stock and equipment and refurbishments, a business cash advance allows for the inevitable ups and downs in revenue.

One of our customers who owns an MOT and repair garage in Brighton says he hardly notices the payback because it comes off at source and describes it as completely painless because he pays more when he’s busy and less when he’s not.

Advances of between £2,500 and £300,000 are available depending on card income, and the application process takes

minutes, with minimal paperwork required. Funds can be in the bank within a few days and approval rates are high – at around 90 per cent – due to modern underwriting criteria.

Funds aside, business cash advance offers an additional value exchange of convenience, flexibility, transparency and simplicity that works for small businesses.

Paul Mildenstein (left) is CEO of small-business funder Liberis.

As well as providing direct funding, Liberis works with brokers and offers a market-leading commission structure. Brokers should contact Liberis on 020 3170 7894

In focus: Adopt the right platforms to deal with regulatory scrutiny

S Video special

Quarsh Director Lucy James discusses the implications of using recruitment process outsourcing as a recruitment methodology: http://bit.ly/1Lkfghk

ources of alternative finance present significant opportunities for borrowers, both now and in the future.

Mainstream banks operate under a strict set of capital and other rules within a clearly defined regulatory framework, and consequently their appetite for the more esoteric debt requirements can be more limited than other providers.

Where finance for individual projects is needed offering flexible repayment

terms, and without the more formal approach of the bank style credit committee, borrowers may better be served by peer-to-peer and similar platforms. Clearly, there are limits to what alternative platforms can provide and the types of organisation to whom they will appeal, so there will remain a place for each in the market.

The regulatory focus on platforms has narrowed in the last couple of years, and recent developments in other jurisdictions

have indicated that there may be a further regulatory squeeze to come. While the banks have suffered their own regulatory tribulations in the recent past, there appears to be a softening of that squeeze, and as and

when retail investors suffer losses through lending or investing via platforms, so the regulatory focus will shift.

While platforms should not adopt systems which “overcomply” – that is, adopt procedures which do not apply to them, there are various safeguards which platforms can adopt to make things easier for themselves should they be the subject of downstream scrutiny.

Richard Tall (left) is head of the financial services sector group at DWF Richard.tall@dwf.co.uk 020 7645 4108

Become an angel and invest in ideas

I

f you want your money to do something more impressive than just sitting in savings accounts, why not invest your time and expertise in some of the UK’s most exciting and rapidly growing businesses as a business angel?

Co Angel Investment helps investors to do much more with their money by matching hand-picked, sector-specific groups of angels with the next potentially gamechanging entrepreneurs.

This new service, backed by the Combined Authority of Greater Manchester, was launched in November 2014 to emphasise the importance of encouraging angel investment. Co has a pipeline of £40m and already closed two deals in excess of £1m.

Co has created a new front door for investors from across the UK to enable them to access some of Manchester’s most exciting and innovative new businesses.

Co, delivered by the Manchester Growth Company, is partnered with the British Business Bank Angel Co Fund, meaning syndicates can complete larger, lower-risk funding rounds supported by an end-to-end investment management service, to provide a far more realistic chance of a profitable exit.

To find out more about becoming an Angel call 0161 237 4047 or email us at info@coangel.co.uk

Michael Oglesby, chairman, Bruntwood, at the launch of Co Angel Investment

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F

inance 4 Business is a multi-award winning specialist finance brokerage, operating independently and whole of market. As one of the UK’s leading brokers we are a reliable barometer for ascertaining levels of appetite for finance, trends and conversion levels. The sector of finance that we have experienced the steepest growth curve is that of property development and heavy refurbishment finance. Our analysis highlights that seasoned investors and developers have returned to market and demand for land and assets that’s value can be improved has increased.

Developers and investors more often than not rely upon leverage to grow their business, and this is where we are seeing the uplift in enquiries – some 323 per cent more than the same time last year. I believe the reason behind this is twofold: improving market conditions and the continuation of the high-street banks’ appetite to be funding against completed properties generating income or owner-managed businesses.

More clients are seeking out a good broker partner to work with in securing the finance to match their requirements and easing the time burden of trying to source the finance themselves. One call to Finance 4 Business and we will research the whole market.

The alternative finance market has experienced dramatic growth as investors seek security and reasonable rates of returns, economically

A developer’s heaven: alternative routes to finance

matched by the demand for finance. The growth shows no signs of abating and clients are experiencing the excellent service from providers who are keen to lend and nimble and flexible when costs overrun.

Finance is available for all sorts of developments, be it residential housing, blocks of apartments, office conversions, commercial developments and student accommodation. Each development type has its nuances but there is a lender out there that will have an appetite to support the

applicant, assuming they can demonstrate their experience and viability of the project.

Senior stretched finance is available up to 90 per cent loan-to-cost (land and build), interest and charges are deducted from the advance. A new product has recently been launched by one of the largest lenders in the alternative finance market and for the right development they will advance 85 per cent of all costs with interest and charges rolled up for a maximum term of 36 months.

Permitted developments has been another area exploited by savvy developers and lenders are keen to support these types of deals, as generally there is good margin in the project and it suits the funding mechanisms of a number of alternative lenders. A good example of this is a deal Finance 4 Business has recently arranged.

An experienced developer approached us with an instruction to raise as much leverage as possible, as the client had a number of other sites under development. The deal was to convert a derelict office building into 40 apartments, ideal for the rental market.

Finance 4 Business secured 95 per cent loan-to-costs to the delight of the client.

Whether you have a single dwelling development or a large multi-million pound scheme that requires financing, seek out a quality specialist finance broker such as Finance 4 Business, and they will introduce you to the prolific alternative finance lenders.

Russell Martin (left) is managing director of Finance 4 Business 01827 230045 www.f4b.biz

Funding that stands out from the crowd

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rowdlending provides a straightforward, cost-effective source of financing for SMEs, with which the banks seem unwilling to compete.

The overhang from the financial crises of 2008, the removal of an entire tier of managers and the new, stringent, capital adequacy ratios imposed by Basel III, have combined to leave the “big four” unwilling and unable to provide finance for the UK’s SMEs. The worst-hit are those businesses seeking to borrow between £100k and £1m. These are the businesses upon which the UK’s growth depends.

Under normal circumstances, banks can lend to whoever they please under the terms they choose. However, the 2008 bailouts, the Funding For Lending Scheme, the British Business Bank Investment Programme and quantitative easing have seen the government pump billions of pounds into the “big four” with the purpose of encouraging lending to businesses. To date, only the merest trickle has found its way to where it is needed most. As far as SMEs seeking finance are concerned, the

banks may as well be closed for business.

Where they do lend, they push SMEs down the invoice discounting, or even factoring, route with all its restrictions, loss of control and pernicious personal guarantees. These last are something we never take. Either a business can support the loan or it cannot. Taking assets from

outside the business is tantamount to admitting the business cannot support the loan. Also, the cost of invoice discounting is usually more than 20 per cent by the time all charges are accounted for.

This is where the ArchOver crowdlending model comes in.

Typically, a UK crowdlending loan is for short-term finance, averaging £75k for terms less than a year and

at double-digit interest rates. The ArchOver model starts where the others end. Our average loan is £220k-plus, and rather than providing short-term finance we set out to replace an incumbent source of mid-term finance with a product that is better in both price and process. Such a loan allows the borrower to regain control of their customers, with whom ArchOver

has no contact, and financial future, all without personal guarantees, with a simple monthly reporting process.

Security for ArchOver loans rests entirely on the strength and insurability of a company’s trade debtors. Historical performance and the character of the directors are taken into account, but the key criteria are the solidity and regularity of a broad group of credit-insurable customers.

ArchOver, on behalf of its lenders, takes a first floating charge over the trade debtors, while the borrower takes out credit insurance with our lenders joint insured. Loans up to 80 per cent of the borrower’s average debtor book are achievable.

ArchOver leaves the rest of the balance sheet free, so borrowers can access other forms of finance.

At a time when the banks are turning off the taps and other borrowers restrict, ArchOver aims to be an active contributor to the rejuvenation of the UK economy by being better on price and planning.

Angus Dent is CEO of ArchOver 020 3021 8100 angus.dent@archover.com