Some useful facts about the UK venture capital industry
	Securitisation

Through our FSA registered investment business team at Williams & Co we are able to provide an unusually strategic consultancy approach to corporate finance. With the wealth and depth of commercial skills within the ISA Group at our disposal we provide our clients with a uniquely strong and holistic approach to putting deals together. We focus on adding value and providing creative project management skills along with our core competences of financial modelling, business planning and fund raising. Our services can be categorised into five main areas as follows:

Raising finance for expansion

Working closely with entrepreneurs and companies alike we help prepare the business plan. All funders and investors whether institutional or private do require a strong, commercially astute plan addressing the key aspects of the proposition.

We have excellent contacts with a large number of relevant funders, which include

Venture Capitalists
Banks
Mezzanine funders
Private individuals
Factoring and invoice discounters

Management Buy-Out (MBO)

The MBO is the purchase of a company from its existing owners by its management. Businesses may be sold to management in a number of circumstances including:

	When the business is part of a large group which seeks to divest of non core activities
	The parent company is in financial difficulty and is forced to sell part of the group to raise cash
	The company is family owned and there are succession problems within the family
	The company is a private company and the owners now wish to sell

Management Buy-In (MBI)

The MBI is the purchase of a company from its existing owners by a management team who are not currently involved in the management of that business or company. The MBI, as it involves a change of ownership and management, is perceived as more risky than an MBO.

We work with very high calibre management teams and individuals who seek to identify target companies they wish to acquire. We advise them through the whole complex process from identifying targets, agreeing the Heads of Terms for the deal, assisting them in the writing of the business plan, raising the funds and managing the deal to successful completion.

Raising finance for Start-ups

In order to successfully fund start-ups, a combination of a good concept, a strong business plan and a well-rounded strong management team is required. Within the ISA Group we can assist in the setting up of companies, advise on the tax and VAT issues and ensure you have the most appropriate structure available.

Due diligence and lending reviews

Within the team we are able to provide commercial, financial and human resource due diligence. An independent accountant’s report makes a valuable contribution to the decision-making process. Our high quality Human Resource due diligence methodologies are very valuable especially to investors be they private or institutional Venture capitalists. 

Ruth Storm, Partner Union Banque Suisse says of these methodologies “We find this tool very useful in evaluating the appropriateness of an individual to a role, either at UBS Capital or in one of our portfolio companies”

The role of Private equity/ Venture capital

Venture Capital is unsecured equity capital (i.e. shares) invested in private companies to generate a capital return over a target period, usually 4 to 7 years. Specialist fund managers invest on a portfolio basis i.e. invest in a number of investments. In exchange for their money they often take a seat on the Board and usually seek a minority equity stake, typically 25 to 45%. Venture Capitalists are motivated as shareholders by the same goal as the existing management and shareholders; which is quite simply, making money on their investments. Whilst as investors they can exercise some control over the company they are ultimately investing in the management of the company to grow it successfully.

Venture Capitalists typically invest in companies where the detailed financial projections indicate a high return when the dividends, capital redemptions and ultimate capital realisations upon the exit from the company are all taken into account. Their requirements for high returns reflect the risk of investing in private companies.

Typically Venture Capitalists invest in companies who need to finance rapid growth both organically and by acquisition. Venture Capitalists typically receive hundreds of proposals and business plans; out of 150 plans they receive they will only invest in one. Accordingly, it is vital to get proper professional corporate finance advice on not just the financial projections but on the content and nature of the text in the business plan. There are many reasons why certain funders like certain deals but not others. We know many funders and are aware of their specific investment criteria. This can range from location, specific sector preference, their past success in certain industries and views on historic and future projected performance.

Typically Venture Capitalists pay more attention to business plans received directly from Corporate Finance specialists, as they know we have pre-screened and provided input into the proposal. Furthermore they know the deal is more likely to proceed as the client is getting specialised and Authorised professional investment advice.

Venture Capitalists will typically review your business proposition in three key ways.

	The real potential to enhance the value by growing the business. They will analyse the market sector, business strategy and the detailed financial projections will need to stand up to rigorous scrutiny.
	The quality, past performance, skill and motivation of the management team. If there are additional skills that your company or team need our Human Resource experts can be brought in to help.
	The likely exit alternatives ensuring they can realise their gains. Typically this needs to be thought out as there are various alternative routes including a trade sale, an initial public offer (“IPO”) or an MBO/MBI.”

You should then have the “Useful facts about the UK Venture Capital Industry” and “Securitisation” to finish off this page. In the “Useful facts…”section can you just tidy up the last one which starts “on average venture backed…” so that the sentence runs properly, it looks like somebody put in some “carraige returns” when it first got typed!

Under the “securitisation” heading “Some of the asset types….” the distributers line has “(containers” in it. Can you just delete that word. Also the “Finance Companies” heading just take out the unwanted space before the word “Credit.” Insurance Companies, can you change the word “premia” to premiums, which I suspect is the more readily used word. Public Project Operators, can you take out the words “subsidies and public sector cont” and make the line above it say “and power contracts.”

Some useful facts about the UK venture capital industry

	The UK Venture Capital industry is the biggest and most advanced one in Europe. It accounts for almost 50% of the total venture capital funds invested in a year. The USA market is the largest.
	The UK venture capital industry has invested over £35 billion (£29 billion in the UK) in close to 19,000 companies since 1983.
	A record £7.8 billion was invested in 1999, in over 1,300 companies, of which £6.1 billion was invested in the UK.
	Almost 50% of venture capital financings are for expansion - specifically to help existing businesses to grow and compete.
	Over £1 billion was invested in UK high tech companies in 1999.
	In 1999 over £1 billion of new funds were raised for future investments in high tech companies.
	Over the four years to 1998, venture backed companies increased their staff levels at a rate over three times that of FTSE 100 companies and almost 60% faster than companies in the FTSE Mid-250.
	The number of people employed in venture backed companies increased by 24% p.a., against a national growth rate of 1.3% p.a. Over one million people in the UK are estimated to be employed by companies backed by investment from British venture capital.
	On average venture backed companies increased:· sales by 40% p.a., or twice as fast as FTSE  100 companies profits by 24% p.a. exports by 44% p.a. compared with a national growth rate of 8% investment by 34% p.a. compared with a national increase of 7%

What is venture capital ?

	Venture capital provides long-term, committed, risk sharing equity capital, to help unquoted companies develop .
	It seeks to increase a company's value to its owners, without taking day-to-day management control.
	Owners will need to sell some shares in their companies (generally a minority stake) to the venture backer, who may seek a non-executive board position and attend monthly Board meetings.
	Venture capital investors not only provide equity capital, but experience, contacts and advice when required, which sets venture capital apart from other sources of business capital.

It is sensible before considering talking to corporate financiers about raising venture capital you need to answer these questions:

	Do you have high growth aspirations for your business/company?
	Are you prepared to have your business strategy scrutinised and sometimes enhanced, occasionally with additional skills brought in
	Are you willing to sell some of your company's shares to a venture capital investor in order to be able to increase your overall wealth to more than that of your original share holding within a few years?
	Venture capital firms only target companies with real growth prospects, driven by a skilled, ambitious management.
	The majority of venture capital firms target firms requiring investment of over £300,000, mainly in expansion stage companies and MBOs/MBIs. The overall average deal size in 1999 was £5.6 million, although 51% of companies backed in 1999 received sums of venture capital of less than £1 million. There are some specialist and regional firms which invest outside these parameters.
	Business angels or wealthy private investors tend to invest between £10,000 and £70,000 in start-up and other early stage financings - the average investment in 1998/9 was around £50,000.

SECURITISATION

Securitisation is a form of financing.   An asset-backed security is a tradeable instrument supported by a pool of loans (or other receivables etc).  The interest and principal payments provide the cash flows for the securities holder.   Turning a group of loans into this form gives the benefit that they are tradeable in a secondary market.  Securitisation also increases the range of funding sources availability and potentially adds marketability to assets, which may not have much liquidity.   We work with specialist funders to offer such funding provided the project requiring funding meets certain criteria.

Why securitise?

	Freeing capital to develop the business.
	Access to potentially lower funding costs.
	Interest rate management.
	Diversifying funding sources.
	Off balance sheet issues.

Key issues for funders

Some of the key issues funders will consider are:

	The quality of the cashflow?
	The ability to clearly "ring-fence" cashflows relating to the specific asset portfolio.
	Are the assets assignable?
	Would the lessees/borrowers need to be informed and would there by any issues associated with them being told?
	The quality of the client management information systems.
	What is the payment history in relation to default and/or late payment?
	The ability to perfect security over the assets.
	The reputation of the originator in terms of ongoing performance risk in the cash collection process/lessee management.
	Securitisation deals typically take 3 to 6 months.
	Generally the lender will commission an independent review of the business opportunity/due diligence before proceeding.

Some of the asset types that might be opportunities for Securitisation: