Read

Price Bailey

As the pandemic continues to play out and impacts the UK economy far more significantly than we ever expected, many fall on hard times; pushing some to commit a crime they would not typically have done.

This article covers some of the main risks to businesses and individuals and provides some of the key, easier to implement, preventative measures. For further information, the Action Fraud website is a library of support for businesses and individuals and allows you to report a fraud both as a victim and witness.

Unfortunately, the main reason for the increase in fraud on UK businesses is the large number of individuals who will use change and uncertain times to exploit people and organisations.

Fraud is more prevalent around key dates and holidays. Fraudsters are more likely to attack when they think the individual or business will be most open; busy bank holidays, busy seasonal periods or simply Friday afternoons when people try to leave the office. Currently, nothing is very normal, businesses are trading at reduced capacity, staff are on and off furlough, and many are completing different roles than they would have previously; all these factors open businesses up to fraud.

There are two main ways to categorise fraud types, authorised and unauthorised. Authorised is where the fraudster tricks the individual into authorising a release of funds into an account controlled by the fraudster. Unauthorised is where funds are taken from an individual or company without their permission and, often, their knowledge.

The first line of defence is knowledge; this article goes some way to explore the most common types of fraud that UK businesses are subjected to.

What are the most common types? And how can you protect yourself, your employees and your business?

Authorised fraud types

We can stop many of these types of fraud with training, process and consideration.

Invoice redirection fraud

This fraud is committed by a fraudster impersonating a company’s supplier, reporting to have amended their bank account details, and asking that all further payments are sent to a new fraudulent account. The account details are that of an account opened fraudulently, the business is often only made aware once the real supplier contacts them requesting payment.

The fraudulent request can be received in many forms; email, phone call or letter. The fraudster will often have done their research and found the named company is a genuine supplier, what they supply, and an individual’s name at the company. They will often make the request via email with a spoof email address or via letter on headed paper.

Prevention

• Educate all staff; letters are often sent to staff not in the finance team, hoping that the letter is left on someone’s desk in the finance team to amend without question,
• Have dual authorisation activated on online banking. That way when a payee’s details are amended, it requires a sign off from another member of staff who can question the validity,
• Implement a process to always complete a call back to a known member of staff at the supplier, making sure not to use a number from the fraudulent email/ letter but one from a readily available source (internet) or preferably a known regular contact number,
• Using technology to automate invoice receipt and processing can be an easy way to prevent this fraud. The systems flag inconsistencies in invoices received which can prevent payments from being made to new account details without prior authorisation,
• The supplier needs to be confirmed as a genuine supplier for the scam to work, so keep invoices safe, out of sight and internet security up to date.

Bogus Boss/ Director/ CEO fraud

This fraud is a regular occurrence, which often preys on the more junior members of the team. There are two reasons fraudsters may use this type of fraud; firstly to get a member of staff to click on a link so that malware may be installed on their system, secondly to request payment be sent to a fraudulent account.

The fraud is committed by impersonating a director/ manager / authoritative figure within a firm; easily found on most websites. The fraudster emails a member of staff, most commonly requesting a payment be made to an account. The email is often sent in an urgent nature confirming the payment needs to be made quickly and for reasons such as; it is for a new client win, the boss is stuck somewhere, or there will be recompense for the individual’s colleagues if not made quickly. This urgency is designed to make people think quickly and not clearly.

The email will often come from a spoof email very much like the directors; these are easily guessed or again found on the website. The fraudster will have often intercepted emails from the director and will mimic the email wording and tone so as not to alert the individual.

Prevention

• Educate all staff, not just the finance team. Emails are often received to random email addresses within the firm. Some will unwittingly forward the email to the finance department; if this comes from another director, it carries even further weight. It also covers instances where staff are covering sickness, mat/paternity leave and secondments,
• Have two-stage authorisation set up on online banking so that another member of staff is required to authorise all payments before release,
• Have policies and procedures; if the company has a stance that no payment request will be accepted via email or telephone, then when one is, they can politely decline and tell it is a fraudulent request,
• Contact your bank as soon as you are made aware funds have been sent. The banks have a duty of care to work together to stop and recover funds for individuals that are subject to fraud.

Internal fraud

All businesses put trust into their staff to do the right thing by the company; if owners don’t, they restrict their opportunities and often get bogged down in tasks they could delegate.

Most individuals are not calculated fraudsters, but some are opportunistic. It is often easy to hide your fraudulent ways if you are the only person working, or with authority, in your department. Internal fraud, fraud committed by the company’s staff, can be the hardest to spot and the most devastating. It often leaves the feeling of betrayal for the businesses owner and the feeling of guilt for the remaining staff due to not spotting the issue. There are too many ways of committing fraud, but there are some key characteristics to watch out for.

Prevention

• Educating all staff that it is not always the colleagues they would expect to commit fraud that do. They should keep an eye out for:
• • Changes in their colleague’s behaviour; seeming quiet or secretive,
• • A change in a colleague’s personal circumstances, which may cause them to require cash or feel desperate,
• • Changes in their colleague’s buying patterns or them living a lifestyle you would deem to be outside of their means,
• • Changes in their colleague’s pastimes, i.e. gambling, drinking or drugs.
• Make sure that not only one person has access to sensitive data or access to monies, and that dual authentication as a minimum is implemented,
• Make sure that both security and monitoring are in place. Employing a suitable IT consultancy can be a worthwhile investment,
• Create a culture where staff can ask for support and guidance when they have life events that may require work support; this may be the difference between them reaching out and them stealing from you.
• Also, create an environment where staff can speak up about their colleagues in an anonymous fashion.

Impersonation scams

Where a fraudster impersonates a professional body such as a bank, the police, IT security firm or a utility provider and dupes the employee into transferring cash, entering sensitive information or downloading malicious software.

This type of scam can be devastating for the individual involved. The fraudsters are often very good at what they do, will pick their timing impeccably, often meaning the company only realises once it is too late.

A common approach is the fraudsters call confirming that the companies systems are at risk of attack, and they need to move funds to a safe account. They will often call from a supposed known number and have done their research to know which organisation to call from (bank details and accountant details are usually easily found at companies house) and contact the correct employee to deal with the issue.

Prevention

• Make sure that dual authorisation is set up for all outward payments, meaning another colleague will need to question the reason and sign off the payment,
• Educate staff, often just taking some time to consider their situation, will make them think something doesn’t feel right. Making staff aware impersonation scams are a thing is the first step; the second step is to empower them to challenge if they feel something is not right. Empower your team to request the caller calls a director or hangs up and calls the company back on a number, and to an individual, they know.

Unauthorised fraud types

Malware

Malware, ‘malicious software,’ is the term given to any software designed to harm or exploit. Fraudsters will aim to gain access to your system via many different methods, but the two main ways are:

• Phishing emails/ texts – emails with an embedded link or attachment that contains a virus.
• Using an external drive, like a USB stick. These can be plugged in, and unknowingly to the member of staff, contain a virus. Fraudsters are innovative in their approach and have been known to drop USB sticks next to a director’s car; a supportive colleague picks it up on their way into work, plugs in the device to confirm it is the directors and infects the computer system. But it can be as simple as a member of staff plugging in their personal device that doesn’t have the same security level as your internal system.

Malware comes in many forms (see ransomware below), but it is always embedded in the system to cause harm or exploit. Malware can provide false screens, mirror websites and many other things. The fraudster may not act straight away, and some malware will lay dormant in the computer system for some time. Unwittingly the staff member continues about their standard processes while the fraudster can watch and read everything they do. This is particularly dangerous if the staff member has bank access and sole authorisation to amend payees or send payments.

Fraudsters can gather all the login information required to access online banking, create a new payee with their fraudulent account details and send themselves money. If the individual that has been compromised, only has the ability to amend payee details, then the fraudster may lay and wait for the day before the company’s monthly payment run, amend all the payee details to theirs and when the payments are made the business is unaware until their suppliers make contact requesting payment.

Prevention

• Implement good quality IT security, and restrict the ability to download software to only those who need it,
• Create a culture that asks staff to think twice before they take action and consider risk,
• Educate and test staff; some organisations send test emails with links imbedded to educate staff on how easy it can be to open the business up to attack.

Ransomware

A type of malware particularly devastating for businesses. The ransomware is delivered into a system in any of the ways noted above; it then sets about freezing the system or locking the files/ data held on it. The company/ individual is then contacted requesting a ransom; usually, money, to release the system/ data. Ransomware, being a type of malware can spread through a company’s system and, with the reliance on technology to run most businesses these days, make many inoperable.

The fraudster can often take some time to make contact, so the business starts to feel the true impact. The sums requested as ransom can be significant as well as the loss of income throughout the process.

Prevention

• Back up all files and data to a remote server so that systems can be wiped, cleaned and reloaded,
• Insure against the risks; insurance companies will have negotiators that will deal with the fraudsters on your behalf, hoping to gain a better deal,
• Make sure firewalls and procedures are robust, preventing the malware breach.

Summary

With all these types of frauds education, robust systems and processes and an open culture can reduce the risk. Educate staff to be vigilant and suspect all transactions until confirmed genuine. The police and banks are backing the Take 5 Campaign, suggesting that taking time to think before taking action can help you clarify your situation.

Fraudsters are very good at what they do. Prevention is the best method of protection, but quality insurance can be the difference between a company surviving an attack and continuing to trade after.

Care for individuals

Outside of the business community, it is important to consider the vulnerable when thinking about fraud. As technology and security continue to improve, fraudsters are turning to scams and deception to dupe people into handing over their cash. Educating family and friends is the easiest way to limit the impact.

Frauds to make more vulnerable family members aware of:

Investment Fraud

A fraudster calls pretending to be from an investment company, often with an investment too good to be true. The individual is tricked into sending monies, they think will be invested, to the fraudster. Often only when the investment is due to mature or the welcome pack the individual was expecting doesn’t arrive do they realise what has happened.

Online purchasing fraud

Often through an online auction or from an unknown seller or website, goods are purchased which never arrive. Always ensure purchases are made from reputable sources and paid for in a way which provides protection against such frauds.

Deception fraud

As above, the individual is called by someone pretending to be from a professional organisation, i.e. a bank or the police and suggests their money is at risk and they should move it immediately. The individual then transfers funds to the fraudsters account and is told to leave it there until they make contact again.

Romance/ friendship fraud

Individuals are befriended by fraudsters who build romantic relationships or friendships over an extended period. Once the bond is strong, they request cash support, this can be to live and get by, or it can be as extravagant as they are stuck in a foreign prison and require bail money, or are flying over to see them and need money for flights. These types of frauds are not uncommon and can be devastating for families that see life savings disappear.

This article was produced by Matt Hector, Business Development Manager at Price Bailey. To contact Matt about any of the points raised in this article, please get in touch using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

 You can view this original Price Bailey article here

Price Bailey

We are continually asked to value businesses, something that you will find any advisor saying is always an art rather than a science. With that in mind though in current circumstances, we are being asked: how do we factor in the impact of COVID-19?

It would be glib to say that there is no real impact as a valuation should always be based on the net present value of future cash flows as, as is the case for many of our clients, they do not have a financial model of the next five or so years of future cash flows. Instead, we are more often looking at the recent past financial results as the proxy to establishing maintainable earnings and applying a profit multiple.

This leads to the next question, what is maintainable earnings?

The majority of businesses have fared very differently due to COVID than they would have done in the normal course of business.

• Once they adjusted to social distancing requirements, supermarkets have seen demand increase and huge growth in online shopping. 
• Zoom saw demand sky-rocket.
• Kooth, a business focused on children’s mental health, has seen demand increase, unfortunately. 

Other businesses were shut in the first lockdown, but reopened in June 2020, having furloughed large numbers of staff. And then most of the leisure and non-essential retail has been largely closed or operating at a fraction of previous levels since March. Furlough income has paid for unproductive wages. In fact, we are already experiencing scenarios where businesses have made more profits because of furloughing temporarily, and many businesses have seen their overheads reduce dramatically. Therefore, calculating maintainable earnings means examining the business’s future trading plans and adjusting historical results to fit.

• It means assessing whether previous sales and staffing levels are likely to recover, and if so, how quickly.  
• It means stripping out furlough income, non-productive staff and missed sales months. For many, missed sales in 2020 are gone forever whereas for others, e.g., construction, the sales are just deferred.

Have Multiples been impacted?

There is some evidence that multiples have reduced by about 25%. However, it’s important to remember that this is only measurable on completed transactions. Indeed, that would primarily have been transactions completing in the first 6 months of the initial lockdown due to the lag in reporting accurate deal data. Of those early deals, many sellers will have succumbed to selling out at a last-minute discount, rather than risking deferring the deal indefinitely. Therefore, it is no surprise that the data would show such discounts.

The alternative is true when we look at the stock markets, which rebounded quickly from the huge initial impact in March 2020. Therefore, rather than focussing on comparable historical transactions, we must again take a more common-sense view based on long term trends.

Debt and working capital

Most transactions and therefore, most valuations are also impacted by a net debt/net cash calculation and consider the necessary working capital position. Whilst it is easy to say that debt is easy to calculate, this misses part of the point. We will see a shift for some businesses in the sustainability of debt, as we suspect the average business’s debt capacity will not be as great in 2021 as it was in 2019. For working capital, the impact of deferred VAT payments (which I would transfer to debt rather than consider in working capital), rent payments, and the impact of changes to supplier payment terms (as well as non-COVID issues such as changes due to Brexit) all mean it is not as simple as just taking the average actual working capital of the last twelve months as the basis on calculating the next twelve months average requirements!

So, valuing trading businesses in the COVID impacted world has certainly made valuers think back to fundamentals and makes the job that much more interesting, but not impossible.

 This article was written by Simon Blake, For any questions regarding this article, you can contact Simon on the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

 You can view this original Price Bailey article here

Price Bailey

It may not surprise you that there is a general expectation amongst insolvency practitioners (and beyond) that a significant rise in corporate financial distress and, therefore, formal insolvencies are on the horizon. Many commentators, though, have used the phrase ‘perfect storm’ to describe the potential severity of the situation we may all be facing. Current historically low failure rates may mask the growing number of factors that could converge to make 2021 the toughest trading year in living memory. Why might there be such choppy waters ahead?

The (more obvious) factors include:

The end of government support

The raft of measures, including CBILS & BBLS, the furlough scheme and VAT deferrals, clearly cannot go on forever and will need to be repaid. Sectors such as hospitality and leisure have suffered significantly and, without wishing to state the obvious, the damage will take a toll on many. Within the insolvency profession, there has been much talk about ‘kicking the can down the road’ each time support is extended. While the availability of support is to be commended, there is a growing sense of saving up problems for another day.

Catch-up

Official figures show that UK insolvencies in 2020 were at their lowest since 1989 and 40% down on 2019. Clearly, this isn’t because more businesses are thriving than in the previous 30 or so years. Rather, it suggests some of the measures introduced to help otherwise good and profitable business have also served to artificially prop up those businesses that were already doomed and would have failed. Measures such as the prohibition on winding up petitions, unless the reason for non-payment was non-COVID related (good luck proving that!), have held the number of business failures artificially low for the last 12 months. It cannot be the case that the injection of ‘COVID cash’ and creditor forbearance have turned these otherwise failing businesses into profitable entities. Aside from the unlucky casualties of the pandemic, a spike in insolvencies just to return us to where we would have otherwise been should be expected.

Other important factors:

The return of Crown Preference

For those old enough to have been in business before 2002, you might remember that HMRC used to be able to claim ‘preferential status’ (i.e. would be repaid before other unsecured creditors) in formal insolvencies.

From December 2020, HMRC became a (second-ranking, behind former employees) preferential creditor again regarding some taxes, most notably VAT, PAYE and National Insurance. This places the Crown back ahead of banks and funders with floating charges, making those lenders more vulnerable when a company enters an insolvency process. Read more on the return of Crown preference here.  

The Enterprise Act introduced the concept of the ‘prescribed part’ – where some of the cash otherwise due to a floating charge holder was instead paid to unsecured creditors. The ‘quid pro quo’ for this change was that HMRC’s preferential status would stop, and they would be repaid the same proportion as other unsecured creditors, such as trade suppliers. The new Crown Preference provisions come with no such counterbalance to ensure the banks are no worse off in an insolvency situation.

The proposed reintroduction of HMRC preferential status attracted much criticism when announced (even in the good old pre-pandemic days). I was one of many that suggested that the likely damage to the UK’s rescue culture would far outweigh any potential benefits to the Treasury. With all the government assistance afforded to businesses in the last few months, it seems incredible that HMRC’s proposed bump up the pecking order was not postponed at least.

For example, preferential creditors cannot be bound by a Company Voluntary Arrangement (CVA) without their consent. As such, unless the company hoping to enter a CVA to trade its way out of difficulties is confident of repaying crown debts in full, HMRC now effectively hold a veto on the entire process. Moreover, even if HMRC can be repaid, it is very common in the current climate for businesses to have large tax arrears from taking advantage of the option to defer VAT and PAYE payments. The need to find these amounts in full, ahead of all unsecured creditors, is likely to make many proposals simply unworkable, meaning that ‘terminal’ rather than ‘rescue’ proceedings may be the only possible option.

The banks

Barclays recently reported a 30% fall in pre-tax profits for 2020 and has set aside £4.8 billion for loan defaults due to the economic fallout of the pandemic.

A change in accountancy regulations brought about by IFRS 9 (stay with me!) means that the way the banks recognise these losses will change. Previously they would have only been recognised once the loss incurred. The movement to an ‘expected’ loss model, meaning that these lenders must fully recognise anticipated credit losses in the financial year relating to any loan default. Simply put, the banks’ balance sheets will take a bigger hit all the sooner.

The implication of this and the reintroduction of HMRC’s preferential status is that would-be lenders are likely to become less willing to advance new cash. Unless a company has significant assets, access to finance – especially in a rescue context – is expected to become more difficult.

Lenders might also seek tighter covenants around HMRC payments and greater control of book debts to maintain a fixed charge claim over such debts. In some instances, this might limit directors’ ability to manage immediate cash flow difficulties, removing an often important lever to defer HMRC payments in the short-term.

Pre-pack bashing

They don’t have the best of reputations, driven in no small part by media misreporting, but pre-packaged administration sales (where a buyer is found before a company entering administration and the business and assets are sold with little or no notice to creditors) are an important part of the UK rescue culture.

Numerous government attempts to ‘clean up’ the use of this procedure and improve ‘stakeholder confidence’ have been introduced, the latest of which seeks to make it mandatory for management looking to buy-back a business to employ an independent (but unlicensed) Evaluator. Whilst it can never be a bad thing to increase scrutiny and transparency of such a process, I have little doubt that the criticism of pre-packs has been somewhat overstated. Any IP entering into a pre-pack already has a staggering amount of hoops to jump through to agree and justify the outcome to creditors. The introduction of another barrier seems unlikely to provide any party with any real comfort but will further increase the costs of the process.

Crisis or opportunity?

I don’t wish to paint an unnecessarily pessimistic picture here. It is a common misconception that all insolvencies are bad (and far be it from me to suggest to anyone losing their business or their job to ‘cheer up & look on the bright side’). On an individual level, it is a tough and emotionally draining process for business owners to wind up a company’s affairs after many years and one I never take lightly.

On a more macro-economic level, however, insolvencies serve a vital function for the economy. At best, rescuing viable businesses and preserving jobs is often misunderstood and undervalued (I would say that, I suppose). Even at the lower end of the scale, terminal liquidation procedures, where a business often cannot be saved, serve to recycle assets into the economy and provide opportunities and new growth.

New legislation under the Corporate Insolvency and Governance Act 2020 or ‘CIGA’ (more on that another day perhaps!) has sought to improve the rescue landscape within the UK. My concern, however, is that many factors are potentially conspiring to make the use of tried and tested rescue procedures such as Administrations and CVAs less viable.

Focussing on the positive, the seemingly inevitable rise in insolvency rates affords those well-run, agile businesses with cash reserves and/or quick access to finance many new opportunities for acquisition and growth in the coming months and years. If you look hard enough and plan your journey carefully, perhaps there are some calmer waters to be found and some sunlight poking through the storm clouds ahead.

This article was written by Stuart Morton, Insolvency and Recovery Director at Price Bailey. If there is anything in this article that you would like to discuss or find out more about, please contact Stuart on the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

You can view this original Price Bailey article here

Price Bailey

Please note that, as of March 2021, this article is only applicable to early-stage founders (<£500k revenue and pre-profit) seeking equity investment.

Why pay an advisor for an investor list?

It seems like a strange question.

Surely finding names of investors is as simple as Googling ‘Series A investors’ or looking at websites providing lists of investment funds and angel networks?

We think not.

We have around 100 pre-profit businesses ask us to help advise them on growth and then raise equity funding each year. We only work with around 3 to 5 that fit our very specific criteria to raise funds. The other 97 or so, we help as far as we can and often assist with strategy, forecasting, valuations and market research, but do not work with them to place funding. The question is, what happens to the rest? Do they ever find investors?

At Price Bailey, we have relationships with a lot of investors, hundreds of angels and probably a hundred or so investment managers and directors at various venture capital funds. Investors have very specific criteria, and, sadly, most businesses asking them for funding either do not fully understand this or do not appreciate the importance. It can be heart-breaking for everyone to see a founder with emotional fatigue endlessly sending out pitch decks, occasionally getting to chat to an angel who may invest a small sum, but really hoping that Sequoia, Accel or Index call back. Yes, the US has a better market for early-stage funding, but unfortunately, no, it is not likely a UK business without any current US activity will raise US VC investment (though our experience suggests corporate investment from the US is very possible at an early-ish stage).

Whilst, for most funds, the money is there, and investors want to invest it, what we tend to find is that the lack of interest comes from companies not fully understanding the funds they are approaching.

Funds have rules and criteria. They also have target returns to meet, which vary considerably. They can be closed or evergreen. They can have rules to comply with regarding tax-advantaged monies. They have typically ‘sold’ an investment thesis to their investors and need a founder’s pitch deck to clearly and realistically show how they fit in. While many funds are increasing their focus on sustainability, diversity, and social causes, they still have to make money for their investors and money for themselves (how they do this is really important).

Despite founders being told they don’t need to care about this stuff, how a fund is structured, how they finance the day-to-day, if they have any money (funds run out of cash frequently) and how they produce returns to their investors are, therefore, critical pieces of information.

Added into that is the answers to questions around how a fund does a deal, for example:

• What stage do they invest?
• What are some live examples of recent cheque sizes and valuations?
• Have preference shares been used?
• Was EIS money mixed with VCT money?
• What types of businesses did they invest in?
• How experienced were the Boards?
• What traction does the typical investee company have?
• Do they co-invest at an early stage, and if so, with who?
• Do their early-stage investments all already have angel and/or grant funding?

We believe it is critical for founders to understand this type of information about the investors they are reaching out to.

Knowing this stuff enables a founder to make an informed choice about who to go to, why and what to expect. They can profile investors properly, with more accurate data than Google can provide alone, and with commentary and analysis that helps unearth possible angles that show why investing in their business makes sense for that specific fund. The outcome is higher probabilities of success, a more informed approach and a shorter, smarter list of realistic investors.

In other words, knowledge is vital.

This is particularly important because in our experience (and we ask a lot of investors this question directly), once they have rejected an early-stage equity funding opportunity, they very rarely say yes later; even if they say ‘no’ by saying “you’re too early for us”, that is still normally a hard no. This means that if you go to the right fund at the wrong time, or worse with the wrong plan, the odds of you getting a “yes” later are very low in our experience. We would suggest to founders who get told this line (“you’re too early for us”) to ask the investor if they have ever bought into a business that has been told that later on. There will be exceptions, we’re sure (please also tell us as we would love to know!).

Relationships do help, and we rely on many of ours, particularly for transactions involving more established and more complex businesses. However, particularly for equity cheques under £1m, investors prefer to deal directly with founders than go via pure success fee driven brokers. Unfortunately, time has proven they can’t be trusted. What matters most is the relationship and trust between the future shareholder and founder team. That’s the critical part. Brokers on a success fee can muddy this and do not help build trust – they have been known to exaggerate, they do not advise on diligence, terms and legals effectively, and when the investment sums are small, a 5% or 6% share is quite a lot. Advisors like accountants, lawyers and corporate financiers do help build trust, but they are expensive, and the economics seldom work at an early stage because they will want to be paid to say “you should walk away”. Therefore we think that, for early-stage equity funding, founders should be building relationships directly with investors, not through a broker on commission.

Most importantly, if the right group of investors all say “no” and provide feedback on why then a founder has clarity. There are only 5 outcomes. Their concept has to:

1. Look for corporate investment.
2. Wait for new angels or newly formed funds to come along.
3. Bootstrap and grow organically, ideally funded by customer revenue, or if not with founder/family and friends funding and reduced costs.
4. Sadly come to an end.

This is a tough pill to swallow, but the certainty of the outcome provides many founders (and their closest loved ones!) with much reassurance.

So, coming back to the question, why pay for an investor list?

We don’t really mean ‘just a list. We mean a short report that gives founders exactly what they need. This includes: 

1. Listing the most relevant investors (angels and funds).
2. Providing the rationale as to why they are relevant based on deals completed, interests, history and criteria. This way, you are focussed on the most meaningful, relevant and likely investors, not a long list for whom you’re not going to be relevant.
3. Giving real case studies (not the ones investors show online!) with real data to show what really happened.
4. Giving real deal data and insight into terms, investment sums, dilution – this means diving into transaction data and the Articles of Association. This way, you can know what to expect if a deal happens.
5. Details into how the funds are structured, what they may be trying to achieve and what that means for investee companies.
6. And of course, where publically available, contact details.

Combined, we think this gives the founder a shortlist of the most relevant investors and arms them with exactly what they need to know to present themselves in the best possible way.

We think this is a powerful tool because:

• Googling only surfaces a tiny proportion of the overall number of funds and is not a reliable tool for finding an exhaustive list of relevant investors. Advisors have knowledge, experience and expensive tools that do this.
• Google will not tell you why a fund invested in one early-stage company but not yours.
• Deal data on cheque sizes, dilution, stage of investment and the size of companies that have taken investment is hard to access without some of the tools and databases that advisors have.
• Understanding the fund structure and criteria is key knowledge to have at your disposal. What a fund shows online and what comes out of deal data can be very different – what matters most is the recent deal data.
• Case studies on deals for similar businesses at similar stages are incredibly helpful in assisting founders in describing why they are a great match for certain funds.
• Early-stage investors typically want to hear from founders directly.
• If the right investors all say “no”, you have 5 clear choices.

We think empowering founders with all of the above is the right way to raise early-stage equity funding successfully. It is our way of trying to help those that, during the earlier stages of their growth, it is not financially viable that we support and gives passionate founders the chance to still find equity investors who can help unlock their business dreams.

We do charge for this service as a fixed fee.

If you do find an interested investor from those that we have identified for you, all that we ask is that we, as advisors, receive first refusal in negotiating the deal between you and the investors. You will not be committed to working with us on this, but we would like the opportunity to continue building the relationship together.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide, and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

 You can view this original Price Bailey content here

NatWest Business Builder: Value Proposition

A chance meeting at a networking event, conference or, yes, even in a lift, could turn out to be with the investor, partner or customer who propels your business into the big time. We look at why – and how – you should develop a winning elevator pitch.

The ‘elevator pitch’ is a one- to two-minute summary of who you are, what you do and why you do it. It’s a vitally important business tool, crucial to taking on new clients and partnership ventures. We spoke to three experts for their advice on how to make that time matter.

What makes a good elevator pitch?

“The first thing you come to realise is how often you simply can’t understand what somebody does,” says Sheraz Malik, director of the Yorkshire Enterprise Network. Malik has been the recipient of a diverse range of pitches across a wide variety of sectors, and suggests that younger entrepreneurs in particular need to hone their offering.

“They almost seem to feel there’s a necessity to create an illusion around what they do,” he says. “It’s like they believe that ambiguity, in some way, creates more interest. An elevator pitch is an explanation of your value proposition as a business. It’s important to have a clear definition in order to be able to network and promote your offering with clarity.”

Malik suggests that a pitch delivered to a chance encounter should be more akin to an extended job title. “It’s not your mission, or even your story; it’s what you actually do and your USP. It’s so easy to send out a convoluted message when the opportunity of a prospect presents itself. You can find yourself responding to that impulse to pour out a mass of information with the hope of demonstrating absolutely all of your abilities. The general environment surrounding an elevator pitch demands a more subtle approach. You need to give the recipient a chance to absorb and process what you’re telling them.”

Body talk

Connie Galle, an executive recruiter and trainer who has worked with SMEs, corporates and academic institutions in Europe, the US and Latin America, agrees. “Psychologically, there’s a maximum of three pieces of information that people will take away from a chance conversation,” she explains. “In order to make sure the person you’re speaking to takes away the information you want them to retain, you need to spend a lot of time reflecting on what you want those messages to be.”

And, says Galle, body language is equally important in ensuring the messages and the person who delivered them are retained in a positive light.

“There are two levels of communication when you’re speaking to someone: a verbal level and a non-verbal level,” she says. “Corporal language is so important, because it insinuates whether you’re likeable and self-confident; you need a solid stance and open body language.”

Adapt your approach

There can be a very fine line between confidence and arrogance, and likeability is subjective. When addressing a stranger in what could be an informal setting, it’s important to ensure you don’t alienate them by acting in a way that they may find inappropriate.

The key to this, says Mario Schäfer, a portfolio manager for Sanofi in Germany, is adapting your style to observe the idiosyncrasies of your enquirer’s culture.

Schäfer mentors start-ups and teaches new venture creation in his role as associate professor at ESADE Business School. He is also MD of the European arm of Canadian global tech start-up Prevtec and has delivered and received many spontaneous pitches around the world.

“It’s important to have a clear definition in order to be able to network and promote your offering with clarity”

Sheraz Malik, director, Yorkshire Enterprise Network

“It’s really important to know who you have in front of you and adapt what you say and how you say it in accordance with their cultural background,” he says. “In the US, the culture is much more business direct: they don’t care that much about the emotional element. In Latin culture and southern Europe, they place a lot more importance on the emotional aspect of what you say and do.”

The nature of an elevator pitch means that you are unlikely to know too much, if anything, about who you’re speaking to, so it’s essential to listen carefully to what they say before you attempt to explain your business offering.

Says Schäfer: “One of the basic rules of business is always let others talk first so you can adapt your approach according to who you’re speaking to.”

Sheraz Malik agrees. “While the proposition needs to be well defined, you do need to gauge what ancillary information you present, and your approach will naturally be affected by who you are speaking to. A question I always ask myself is: ‘If I were in the other person’s shoes, what would I want to know about my business?’ It’s always easy to head off on a personal mission when delivering a message – but you must always have objectives. Every single conversation or pitch can have value if you let it.”

How to pitch a business idea: top tips

1. Be clear and concise

Your pitch should include a defined overview of your value proposition and USP. Focus on the three main messages you want your enquirer to take away from the conversation and don’t be tempted to give as much information as possible in the hope that they’ll remember it – they won’t.

2. Ask first, talk later

Ask as many questions as are appropriate or you have time for to discover who you’re speaking to. Do some homework on the business styles of other cultures so you can react accordingly, and have three or four questions in mind to ask that will help you to draw out key information.

3. Be prepared

Be ready for questions they might have and have answers prepared. You’re unlikely to have any written material with you, so make sure you’re prepared mentally and have memorised essential facts and figures.

4. Refine over time

You know your business inside out, but they don’t. Listen very carefully to what people are asking you and use the feedback to develop your pitch.

Click here to download the NatWest Pitch app

We have a thriving and diverse community of thousands of entrepreneurs from multiple sectors, backgrounds and skill sets helping you to connect with the right people at the right time. No matter whether you’re looking to upskill, get feedback, engage with new people or simply observe, there’s something for everyone.

‘Want to learn more? Register for NatWest Business Builder to view all of their business development tools. Click HERE‘

NatWest Business Builder: Customer Segments

Business success depends on your ability to reach out and hold on to new customers. Here, four experienced entrepreneurs discuss how their approach to attracting new clients has evolved.

No matter how well run your company is or how impressive your products or services are, your business will only be successful if it can manage to attract and retain customers.

For new enterprises in particular, identifying a target market and developing a strategy to reach people in that market are two of the most important elements to consider.

Social media and digital marketing have made it far cheaper and more straightforward to promote what your business has to offer while also focusing on specific demographics, for example. But an online-only approach isn’t necessarily the right choice for every company.

We spoke to a number of entrepreneurs to find out how they go about attracting new customers and making their businesses stand out from the crowd.

The value of the personal approach

Entrepreneurs shouldn’t overlook the importance of the human touch, says Claire Gamble, managing director of Unhooked Communications, a Manchester PR agency.

“In a digital world, the power of face-to-face interactions can be really effective when it comes to winning new business – especially if you run a service-based business,” she says. “And I don’t just mean attend some networking groups and hope to meet someone who you’ll work with in the future – think bigger than that.”

Gamble’s approach involves Unhooked organising its own events – from panel discussions and workshops to purely social functions – aimed at people who work in the marketing and creative industries. “Since January we’ve organised several events on topics such as influencer marketing, women in business and GDPR for marketers, which have attracted hundreds of attendees who are relevant to our business somehow.

“These events serve so many purposes – they get us in front of prospective clients, introduce us to other marketers who we can collaborate with, generate great content we can use in our marketing and PR, and help us improve our knowledge of current hot topics. We’re only halfway through the year and we’ve already secured three new clients and several projects as a result of the events that we’ve organised.”

Gamble says the events are promoted to attract specific target audiences or relevant businesses. “The beauty of these events is that you get to meet people who aren’t in your network yet, which is really valuable – especially if you’re a new business or looking to expand into new sectors or regions.”

Know your customer

For James Woodall, co-founder and chief technology officer of Intoware – a business that develops software for wearable devices – there’s “no magic bullet solution” when it comes to finding new customers.

But ensuring sales staff understand the businesses and sectors they’re selling to is crucial. “We make sure our salespeople are experts in the industries we’re targeting,” Woodall says. “Of course, this means they understand particular nuances and speak the right language. But more importantly, it means they absolutely know where the inefficiencies and real headaches are, which a generalist wouldn’t.”

“In a digital world, the power of face-to-face interactions can be really effective when it comes to winning new business”

Claire Gamble, managing director, Unhooked Communications

He adds: “Being able to target the specific pain points has worked well for us. Automotive businesses have different issues to manufacturers, who use different processes to those in aerospace. Being able to tailor our approach so we understand them and, more importantly, they understand us, has been key.”

The way Intoware pitches to potential customers has also evolved over time, Woodall adds. “It’s not about our product solving all a business’s problems – customers simply don’t buy that – but it’s about identifying one big problem and giving them a solution to address it.”

Stand out from the crowd

Nathan Cable is co-founder of Party Hard Travel, a package holiday business aimed at “a niche audience” of people aged roughly between 18 and 23.

“That has a huge impact on our marketing,” he says. “You can’t just put an ad on the radio as our audience are more likely to be listening to music on Spotify. And we wouldn’t spend on a huge outdoor advertising campaign as the majority of people walking past it wouldn’t be in the right age range. So when it comes to attracting new customers, we’ve had to think more creatively.”

For the 2018 summer season, Party Hard decided to organise a tour of UK nightclubs to give clubbers “a true sense of what being on holiday with Party Hard Travel in a resort would be like”, Cable says. “Travel is a very competitive industry: young people have really high expectations of their holidays and, like the rest of the population, are really busy.

“You can’t expect that customers are going to just come and find you, even if you have the best product offering in the world. To be successful means finding new and unique ways of connecting with potential customers that align strongly with your brand values.”

Use publicity wisely

Danny Curran, founder of heir-hunting firm Finders International, says that businesses that do interesting work should leverage the fact to generate publicity, as well as fully exploit any publicity that arises.

“It’s no longer enough to expect potential clients to be reading publicity or press releases when they’re published,” Curran says. “We are lucky to enjoy a healthy degree of local public relations stories in areas where individuals concerned with families we help trace are located. But these stories need to be put to good use.”

He says that the company’s sales reps, for example, populate their social media profiles with articles on the business in order to gain trust. “You should also ask new or potential clients if they have seen recent relevant articles about the company; this helps provides trust, credibility and familiarity.

“On a recent taxi journey I took, the cabbie told me he’d heard me on a radio interview and referred me to a solicitor with a case which we were eventually given instruction on. Publicity helps, but promoting it once it’s live is just as important.”

To view the Introductory video for this module click HERE

‘Want to learn more? Register for NatWest Business Builder to view all of their business development tools. Click HERE‘

NatWest Business Builder: Customer Segments

Angel investors often say that they’re investing in a person as much as their idea. But what does this mean, and can subtle changes make entrepreneurs more attractive?

You don’t have to watch too many episodes of Dragons’ Den before you see Deborah Meaden smile at a shaky hopeful and say, “I like you.” The subtext often seems to be that she sees more in the pitcher than their business proposal – thus offering a glimmer of hope to would-be entrepreneurs everywhere. Could it be that a person is worth investing in even when their idea lacks lustre?

The answer, sadly, is probably not. While angel investors tend to agree that it’s belief in the person who is pitching that will ultimately win them over, a bad idea will struggle to find backers no matter how dazzling the entrepreneur.

In fact, great entrepreneurs and hopeless ideas seldom feature in the same sentence. Michael Queen, president of the Surrey 100 Club, one of the South East’s leading angel investment networks, explains why: “If someone is a really skilled business person or entrepreneur they can usually see the different components that are required to make a business work and be investable. You don’t tend to get that combination too often.”

It’s also worth pointing out that when people are described as ‘investable’ it’s not their dapper wardrobe or state-of-the-art presentation software that’s winning over the angels. “How people dress and all the rest of it, I couldn’t give a monkey’s,” says Fiona Cruickshank, co-founder of Gabriel Investors. “What I’m looking for is pretty boring: people with good ideas who just want to get on with it.”

Unusual levels of resilience

Michael Queen has had “literally thousands” of hopefuls standing before him looking for investment over the past 35 years. What he’s after is a credible person (or better still, a team of people) with a strong idea and lots of tenacity. “Running a small business is incredibly stressful and demanding and it requires people to commit to a ridiculous extent,” he says. “So angels are looking for someone with almost unusual levels of resilience – as well as a realistic idea of what’s going to be involved.”

The kind of entrepreneur you definitely don’t want to be is one who fails to grasp the big picture. Queen says that those in the “very new inventor-type category” are among the worst offenders. “They have one amazing engineering idea and are obsessed with the sheer brilliance of it,” he says, “but they can’t understand that people who are investing want to know who they are going to sell it to, how it compares to the competition and why people are going to buy it.”

While polished salespeople often fare better, Queen cautions that an angel will recognise when he/she is being sold to and will know how to go beyond the patter. Nevertheless, he admits that it’s always easy to sit and listen to someone who has good interpersonal skills – something that a novice entrepreneur can work on.

“Angels are looking for someone with unusual levels of resilience and a realistic idea of what’s going to be involved”

Michael Queen, president, Surrey 100 Club

A word that angels often use to describe someone who is investable is ‘authentic’ – and what may be surprising is that this usually means it’s OK to own up to your shortcomings. Cruickshank, for one, is turned off by people saying: “I can do everything”, when she strongly suspects that they can’t. “If they are 110%, full on, ‘This is brilliant, I’m brilliant’, that’s not going to cut it,” she says. “That’s not real life.”

Rashid Ajami, who raised £4.1m of development capital for his student community platform Campus Society, agrees: “Securing investment is definitely not about proving you’re too good to be true,” he says. “If you had the complete package right now you likely wouldn’t need any investment. Paint a real picture of where you are and where you want to go and talk about what’s possible with the right investment in place.”

Long and challenging road

Sean Mallon was already a successful businessman when he hit the road in search of £1m in funding for a new venture named Bizdaq – an online marketplace for buying and selling businesses – in 2013. Instead of angels falling at his feet, the path was a long and challenging one. “It took over 12 months,” he says. “Getting investment isn’t pretty and it definitely toughened me. You go in thinking everyone’s going to be nice and cuddly but it can be brutal.”

Most criticisms of Mallon’s idea came with a silver lining. The angels’ comments drove him to make changes to his pitch that would ultimately make him investable. “By the end, the articulation of my plan was more refined and I became much clearer in how I was going to achieve my goal,” he says.

In fact, he adds, the original backer who ultimately invested in Bizdaq often tells Mallon that he was more sold on him as an entrepreneur than he was his business idea – proof, if more were needed, that it is faith in the individual that usually seals the deal. Says Mallon: “He tells me he believed enough in my vision that I would do it.”

Top tips

Four ways to get angels onside:

Share your passion: “Yes, you need a great product, interesting idea and a practical business model,” says Rashid Ajami, “but the passion to deliver something you believe in is paramount.”

Don’t be afraid to think big: “One thing I see often is that businesses don’t raise enough money,” says Michael Queen. “It gets used up quite quickly and they spend the rest of their life raising subsequent rounds of capital.” He says there will certainly still be investors in the room when you’re asking for £500,000 as opposed to £150,000.

Practise your pitch: “And really understand your key data, too,” says Fiona Cruickshank. “When people don’t know the numbers it feels like you haven’t got the whole package.”

Know your limitations: “It’s OK to say that you know most of the answers but that you want someone on board who can help you find some of the solutions,” says Sean Mallon. “For most angel investors, the idea of being able to add value beyond cash is quite exciting.”

‘Want to learn more? Register for NatWest Business Builder to view all of their business development tools. Click HERE‘

NatWest Business Builder: Customer Segments

One of the hardest lessons for many entrepreneurs is when to share authority, but for many, it’s only by letting go that a business can grow.

It should have been a dream come true. Just 10 days before Christmas, star YouTuber Zoella made mention in her vlog about the personalised diary she’d bought from Gabi Cox’s small stationary brand.

“I couldn’t believe it,” says Cox, who founded Chroma Stationary in 2014. “Zoella had 11m subscribers, and my orders went from 300 per month to hundreds per day.”

Cox found herself working 17-hour days for three weeks straight to get the orders out in time. And while spikes like these are largely unforeseeable, the surge in sales highlighted a major problem: Chroma Stationary was outgrowing Cox, and she had to delegate tasks in order to help the business thrive.

Trying to be both conductor and orchestra is a common trap many business owners fall into.

“Entrepreneurs are visionaries with an extraordinary work ethic, powered by an inner drive that only they have,” says business coach Matthew Davies, who works with leaders from companies such as mobile provider Vodafone and commercial print company MOO.com, through his business Inspiring Managers.

Working in the business, not on the business

Successful leaders are those who can move away from line management and execution to focus primarily on strategy, says Davies.

Cox now employs five freelancers to handle much of the graphic design work, leaving her time to focus on strategy and marketing, while still being responsible for the physical production.

“I was spending all my time in the business and not on the business before,” says Cox. “The hardest thing was trusting the freelancers to do it, but I did, and now my sales are up by 67%.”

Building trust

For entrepreneurs looking to scale, trust is essential – and they must be careful to delegate the tasks they enjoy or consider important, as well as the jobs they don’t like doing.

“To delegate effectively, you have to give employees a greater level of freedom. Do this and you’ll find the tasks are getting done and you have more time to think about the strategic issues”

Adrian Hobbs, founder, Workvine

“It’s about building trust so people are willing to make changes and create a different future, otherwise they’re doing the same thing over and over again,” says business strategist Rose Cartolari. “The goal should be to get everyone to a new place where they can make their own decisions with a common purpose.”

“To delegate effectively,” says Adrian Hobbs, founder and CEO at employee-engagement firm Workvine, “you have to give employees a greater level of freedom and instil that ‘get up and go’ drive in teams. Do this and you’ll find the tasks are getting done and you have more time to think about the strategic issues.”

Six steps to mastering delegation

1. Determine why you’re not delegating There are two key reasons why a business leader won’t let go, says Jenny Knighting, founder at marketing firm Nutcracker Agency. Either the leader is insecure about their role and worried that delegating responsibility will be a threat to their prestige, or the person is fearful that by letting go mistakes will be made. “The first step towards learning to delegate is to work out which one it is,” says Knighting.
2. Analyse how you spend your time Your commercial value as an individual is likely to be at odds with the pricing and payment structure set up in your workplace, says Lara Morgan, founder at global manufacturer Pacific Direct. “In order to maximise value, you should only be performing tasks that align with your hourly rate/profit. Your role should be 40% delegation and 60% growing the business.”
3. Understand that delegation isn’t abdication Once you’ve analysed how you’re spending your time – it may help initially to keep a diary to determine this – and what you should be delegating, it’s not a question of simply handing over the tasks. Susy Roberts, founder at business consultancy Hunter Roberts, says: “If you’re going to delegate to somebody, you need to set that person up for success by being really clear about what you’re looking for and what you think a successful result will be.”
4. Coach the person you’re delegating to Being as clear as possible from the outset should prevent any need to manage too closely. “If you’re delegating for the first time – whether it’s the first time you’ve delegated a particular task, or the first time you’ve delegated that task to a particular person – it’s important you coach them,” says Roberts. “Be very clear about whether you simply want the person to get from A to B regardless of the route they take, or whether there’s a specific path to follow. Help them think about how they’ll approach the task and how they’ll achieve the end results.”
5. … And then stand back Many business owners are still guilty of micromanaging – often without realising it. Key to effective delegation is learning to take a step back once you’ve delegated the task and responsibility. “Remember that their journey and outcome will be different to your own,” says Morgan. “Nobody is perfect and your juniors may even produce better results. Understand everybody’s strengths.”
6. Measure the results You can determine how well you’re delegating by examining the quality of your time; the extent to which your employees are developing; and by asking customers, peers and colleagues for feedback. Do a good job, and you’ll eventually “empower people to have the autonomy to complete tasks proactively”, says Morgan – who sold her first business for £20m. “This is the real difference between good and bad delegation.”

‘Want to learn more? Register for NatWest Business Builder to view all of their business development tools. Click HERE‘