Funding Q&A with North East Fund

How can you access appropriate finance for your business? Ahead of our free monthly funding mobile drop-ins, we had a chat with James Holloway, External Engagement Officer at the North East Fund, to pick his brain on funding & investment.

1. Hey James. Can you tell us more about the North East Fund and the £120m you’ve got to invest?

The North East is very poorly represented in the private finance market: BVCA (British Venture Capital Association) figures show that as a region we accounted for less than 1% of all UK private equity investments in 2017! Additionally, SMEs are still finding it difficult to access loan finance from the banks; particularly if they are not willing to put personal security against their business borrowing. The North East Fund has been set up to fill this gap by allowing SMEs to access loan or equity funding at any stage of their journey. The £120m is split into 5 different funds which, across them, provides a suite of finance options of between £10k-£2m.

2. And we’re super excited to be hosting monthly drop-ins with you at the Software Centre. What type of questions can you help entrepreneurs with during these drop-ins?

The main thing I’d love people to get out of these sessions is the de-mystification of business funding. It’s very, very normal for businesses to need funding as they grow, but there can be a really powerful attitude that it is somehow admitting failure. In a lot of ways I take that as a good thing, it shows how self-reliant we are as a region! But it also holds us back: you’ll struggle to find a success story where the business did not take on finance at some stage. Helping entrepreneurs understand that it is normal, and maybe even easier than they expect, through answering any questions they have is my main aim in these sessions.

3. Are there any common questions you get from entrepreneurs who are looking for investment? (and what are they)

Stepping back from the nitty gritty details of how the funds work (I can answer those on the day if you want!) there are a few common questions and concerns that pop up frequently. The biggest would be an entrepreneur going for equity investment asking what share we will take: the concern being losing both control, and the financial incentive of owning a successful business. Every deal is different, and it’s impossible to give a consistent figure, but my answer is always twofold: first, we never buy a majority stake in the business. Second, don’t see it as us “taking”. See it as you “selling”! During an equity investment you are selling something even more valuable than your products or service: it’s a share of the business you have invested so much of yourself into.

Once you have that mindset, it is easier to see the relationship between you and the investor as another type of business transaction, albeit one that is very different to those with a customer. Think about value for money (is owning a large share of a business worth £10m better or worse than owning all of a £1m business?), think about what else is involved (can your investor bring more to the table than money?), and also think about what the investor wants from the relationship. We want a good return on our investment, which could be achieved by buying a huge stake in a successful business, but would be much better achieved by ensuring the entrepreneur has the incentive to continue to grow their business to even greater heights, with us as a valuable partner.

4. Is there a “perfect timing” for a business to start looking for investment? Is it ever too early, or perhaps too late?

It can definitely be too late! At best, our Small Loan Fund can turn around an application in a couple of weeks but even that would be considered a quick deal. Expect a more complicated investment, particularly an equity round, to take a number of months: if you need the finance straight away it is too late. I wouldn’t say it can be too early to start looking: different investors will invest at different stages of a company’s life so it won’t always lead to an application, but we love to keep a finger on the pulse of the North East’s SME community and having a conversation with an investor now, might bear fruit when we seek you out in a couple of years! For myself, I represent our entire suite of funds rather than any particular one, so can guide an entrepreneur to the best place to start if they want to open an application with an appropriate investor right away.

5. If you could bust one stigma when it comes to investment, what is it and why?

It’s not like Dragon’s Den! I love the show, but in real life I can’t think of anything worse than making entrepreneurs sweat and trip over their words to try and raise the money they desperately need. It’s not big people in big suits; for us an investment journey begins with a friendly chat over a coffee. You don’t even need a business plan to get started.

6. Finally, what advice do you have for anyone who’s considering signing up for a drop-in or initial investor meeting? 

Just do it! There is absolutely no obligation on the day, you don’t need to bring a business plan or make a presentation to a panel, it will just be the pair of us having a coffee and chat about what you do. If our fund is right for your plans, fantastic! I’ll let you know how to get started. If not, I can hopefully point you in the right direction to one of the many other funding and support options out there.