Funding is a minefield. There are a variety of options from debt and equity to licensing, all with different terms and conditions. Some of those conditions are onerous and may not be in your best long-term interest. Some are run-of-the-mill and unavoidable. Let's also not forget we need to determine how much you need and when. There are professional props required that need work: business plans, financial forecasts and investor presentations. But these are secondary to the critical factor in fund raising - proof of concept and use of funds.
What is proof of concept and how much do I need? Proof of concept is your argument that you are investment ready. How much you need is determined by the position you find yourself, whether you are a startup with no revenue or a corporate looking to expand. It is a judgment call and one we are used to making.
You need to be detailed and carefully explain where you intend to spend the funds. There are rookie mistakes to avoid here.
There is also one really critical point that we don't want you to misunderstand: you typically only get one chance at this fund raising process. So we need to get it right the first time and set up a competitive process.
BSF is here to help guide you through this torturous process, firstly ensuring you are successful in raising the funds and secondly ensuring you negotiate the best acceptable terms available on the market.
Now let's not get ahead of ourselves, because there is the other side of the coin: the investor. His or her concerns and needs are critically important. We have a suite of investors who expect us to vet projects and only propose the very best to them. We take this very seriously.
But then that's our job: marrying the investor with an investor-ready project. We must ensure that it is a marriage made in heaven and that ongoing communication with the investor is current and timely.
Below is a selection of case studies we have chosen that illustrate the work that BSF, its founders, and staff have completed. Browsing the case studies will give you an insight into the type of funding work BSF can successfully undertake. You will see that none of our projects are run-of-the-mill, as funding brings a catalogue of sometimes confusing options. Before you even decide on your best funding option, considerable work on the company needs to be completed, in order to be investment ready. This works needs to be creative, and you will see our efforts are always characterised by a bold yet proven entrepreneurial methodology to raise the necessary investment.
If you are looking for investment and like our approach, then click below on For Entrepreneurs. It asks for the very basics and allows us to see if we can help you. In the first instance we contact you so we can meet and determine and the best path for us to follow.
For Investors our promise to you is that we are: transparent; detailed; conduct all necessary due diligence; and present the opportunity in a way that allows you to make an informed decision.
Funding Case Studies
What an exciting time it was for Virgin, with its first foray into financial services through Virgin Direct booming. However you need deep pockets in the financial services sector, not only for the operations but also for the liquidity requirements set by the regulator. The funding requirement for further growth was an incredible 900 million Pounds. For a private company like Virgin that was too much! The existing launch partner was not as aggressive as Virgin and this frustrated the growth plans, so the hunt was on and we were leading it. Financial services are, of course, heavily regulated and Virgin was more of a marketing and sales outfit. So it seemed sensible to try and find a replacement financial services partner with deep pockets who shared Sir Richard Branson's vision. Business plans were done and redone, management was beefed up and incentive plans agreed upon, and marketing programs put in place.
Concurrently, a short list of possible partners was devised. After some teasing out, Australia's largest insurance company and at the time the world's 16th largest, The AMP, became the front-runner. It shared our vision for growth and faith in the UK market. The negotiations were hard and sometimes ferocious but a shareholder agreement, a funding agreement and a Virgin license were signed and this allowed the business to flourish. It took nine months for us to secure Virgin's largest ever fund raise on the best terms it had ever achieved. The AMP was prepared to fund the venture on a 50/50 shareholding split in return for use of the Virgin brand. The bar was set for future deals!
Approached by a former Virgin Active manager to raise funds for his planned foray into the Health and Fitness markets through boutique gyms, this project showed the importance of proof of concept when raising funds for a business that was essentially an idea with no revenue. We agreed to take this on and a plan hatched. First we needed to ensure there was a strong management team in place to handle all aspects of the business from operations to promotion. Some of our people were seconded to ensure this was the case. Business plans, financial plans and gym concepts were developed.
All of this built a compelling case but it was not sufficient to attract investors. We needed more. The next step was to find a site and develop a clear plan around that but it was a difficult process scouring Sydney for sites. However the time allowed us to establish a solid plan which involved taking over failed gyms and developing a believable marketing plan including customer repositioning. A critical part of the process was to renegotiate the property lease and secure equipment. The net result was significant cost savings that allowed a robust and profitable business to be launched. We finally found a site at the Entertainment Quarter in Sydney.
Negotiations with the gym owner ensued and after ensuring all of our cost objectives were met, we returned to the fund raising process. After re-doing the plans with a live site and set cost budgets, we successfully raised the capital and Centennial Gyms was launched. This is now a profitable sustainable business. The key here was to generate sufficient proof of concept to allow the investors to truly believe the project would work. There are no short cuts here, simply some lateral thinking, creativity and a lot of hard work.
Arranging the funding for Fuel Investments stretched our capabilities to the limit but we came home with a result. Fuel was created to take advantage of the dramatic interest amongst consumers in personally purchasing investment property. The concept was to establish a mortgage provider to fuel or provide the investment for property purchases of individuals. The amount required was 600,000 pounds and this relatively modest amount presented problems. It is notoriously difficult to successfully raise amounts in the hundreds of thousands of pounds to a little over a million. This is often too large for angel investors and to small for VC's, particularly when it is a start up.
To further compound the situation, the founders felt they had a unique company and were reluctant to give any equity away! So the team put it's heads together and swung into action. Like any start up, the company needed expert props: business plans, investor presentations, cash flows etc. but critically it also needed sufficient 'proof of concept' to show that it was a business worth taking a risk on. So we worked on these issues concurrently and then considered our funding options. A critical part of the "proof of concept" was ensuring the products were practical, useful, well funded and offered unique service opportunities, and this led us to hit on a devilish plan to get the funds for no equity. We approached the largest buy-to-let player in the market and offered them exclusivity to a unique product at an attractive commission. They liked it.
So time to explain the hitch. We asked them to loan the business the working capital it needed to get going in return for exclusive use of our special product. We worked hard on the pitch and the right way to deliver it, and after several meetings, incredibly they agreed. A wonderful result and better still a win-win situation. The funds were returned within 12 months with interest and Fuel investments grew to be a very large mortgage broker.
Chillcan was, at face value, an exciting beverage industry technology that allowed the cooling of warm drinks in cans by pressing a button at the bottom of the can. However we were approached to fund raise at a critical juncture. Chillcan was on the road to stardom when Michael Meacher, a UK politician, claimed that the Chillcan released environmentally unfriendly gases when used. This led to the current form of the technology being banned. So back to the drawing boards. A new technology was developed using most of the existing patents but with different ingredients. However significant funds were required to finalise the technology, commercialise it and pay for existing patent renewals.
To ensure the ultimate dilution to the founders was not catastrophic a three-way strategy was developed for fund raising: a small raise from family and friends, followed by a more traditional capital raise and finally the sale of geographic licenses. However, sufficient proof-of-concept showing both the viability of the technology and credible demand from customers would be key. We raised the small fighting fund at the expected expensive rates to enable us to undertake the proof of concept work. Technology-wise, old suppliers were re-energised and arrangements with the new ingredient supplier BOC were finalized. Further canning lines were re-tested to show beverage companies that the operations would not entail high cost investments by them to manufacture the Chillcan with their product inside. Without this, no beverage company would touch us. Over many months demand from major beverage customers for global deals were agreed in principal.
With this ammunition we had sufficient proof-of-concept to go into a major fund raising process at an acceptable valuation. Suitable props were written and we began the process of finding suitable territory licensees and negotiating payments from them. Territory business plans were developed and a short list of candidates was identified. This led to a number of key licenses being granted and this injected funds into the parent company. The end result: the funds were raised at an acceptable dilution level to the founders underpinning the absolute key of sufficient proof-of-concept and flexibility in capital raising methods, in this case employing geographic licenses.
Public Company Funding
One method BSF uses to fund businesses is through the public company route. We have extensive experience and we illustrate two methods to hopefully illustrate the full range of our abilities. We have built considerable expertise using shell companies and using our full range of expertise that has led to a turnkey process. We are part of a club of investors who will fund a public company shell. BSF will invest on the same terms.
Once the shell is funded, BSF is responsible for finding and vetting deals to put forward for consideration to the investors. Once a deal is agreed upon, our panel of hand picked experts ranging from lawyers, company secretarial to accountants, finalise the agreed deal and ensure the process complies with all applicable laws. Further funding is undertaken if required. FIE is an Australian example. Funded in late 2014, an exciting deal was negotiated with the management of "Linius", an exciting software company with an experienced management team. After successful negotiations, "Linius" was injected into FIE in 2015 and the additional top-up funding was finalized in the first quarter of 2016.
The share price moved from the initial public offering of 2 cents to 7 cents. This provided a great return for investors and there is still significant room for further profit and share price growth. Our second example leads us to the UK, where Virgin's was undertaking its first public company raising since privatizing itself in 1987. This is a more traditional approach to public company funding. We raised 45 million pounds for Victory Corporation, to fund Virgin's foray into cosmetics, toiletries and clothing. This required extensive work on business plans, locating world-class management and doing enough proof-of-concept to excite investors. Institutional investors were courted and presented to, and after a six-month process, the raising successfully closed at a price of 110 million pounds. This was a remarkable achievement for Virgin and the team.
Selling is the flip side of fundraising. Many of the same skills are needed and, indeed, investors often need to be able to see a clear path to a profitable exit to before they invest. The sale of Bond Coal illustrates many of the principles to keep in mind when selling a company. There are many parallels to the capital raising process, at least in document preparation. The parent of Bond Coal was in deep financial stress and needed to sell Bond Coal for a good price to pay off debt and provide the parent company with some working capital: easier said than done. We prepared the typical props: business plans; sale presentations; financial forecasts and a data room was set up. Our obvious first step was to approach industry players. The Japanese Trading companies were cashed up and known to be interested in Australian resource companies. Approaches were made and long meetings and dinners were held, but with no result.
The highest offer was $85 million for an asset we felt was worth over $200 million. Everyone smelt blood. If disaster was to be averted we needed to come up with solutions, and fast. We had become close to the management team whom were great people, and an idea occurred to us. We lacked credible alternatives to bid the price up so what about a management buyout? This needed real teeth so we attacked this option with urgency and after considerable persuasive work, Westpac agreed to back the buy out to the tune of 220 million dollars. From Bond Corporation's perspective, at a bare minimum we had a real viable offer to keep suitors honest. The hope was that management would win out. However time was our enemy as the parent's worsening financial position meant a bid from our debt holder (who had been circling and had made previous derisory offers) came up with $220 million offer, which was accepted, and the deal was done. What a tortuous six months.
Turning to a trade sale option, let's consider Virgin Atlantic. Trade sales require work to identify strong synergies with a potential suitor. This was the case when Singapore Airlines purchased 50% of Virgin Atlantic. A major amount of work on possible reduced costs, joint marketing efforts and code share arrangements led to a deal being done. The interesting footnote here is that proportionately Singapore Airlines' offer for 50% was higher that the 100% offer. The reason: the strength of Sir Richard Branson's personal brand. A key learning is you must divorce the founder's brand and role from the company prior to a sales process.
Members of BSF have written and undertaken extensive short training programs and lectures. They have lectured at institutions like Oxford University, University of Western Australia, Oxford Brookes, Australian Society of Chartered Accountants and other prestigious organisations and institutions. BSF employees are members of entrepreneurial organisations including the UK Entrepreneurs Ambassador Program and entrepreneurial not for profit organisations like TIE, the worlds largest not for profit organization.
Additionally BSF has developed successful and powerful two-day programs dealing with a range of start up issues ranging from target market identification, branding, customer proposition, funding and negotiation. The programs are a combination of lecture and case study using the Harvard approach to learning, with an emphasis on practical outcomes for attendees. Both in Australia and the UK thousands of entrepreneurs have attended with outstanding participants reviews.