Lehman Brothers failed on 15th September 2008, which was the first day we went to see a VC about raising investment for our start-up business. We had been going for 2 years, supported by angel investment and needed to start gearing up. Talk about bad timing!!
But, every cloud has a silver lining and so it was with this story. One of our Angels is a stockbroker and he reported that his investors were looking for somewhere to put their money as an alternative to the stock market, which at the time was not looking like a good bet. So he introduced us to some of his clients and we were on our way…
Since then we have repeated the exercise a number of times and we now have over 100 investors and have raised around £15 million – all without a single VC. It has proven to be a very flexible and effective formula.
Unlike VC money it is more patient. We have a single Shareholder Agreement and one class of shares – no preference shares. The only down-side, if it can be called that, is the challenge of managing over 100 shareholders but this is a small price to pay for the flexibility this model has given us.
Scaling up the model
The government is currently consulting on its industrial strategy green paper. Post-Brexit there is no doubt that we need a growth strategy and not a standard old-style industrial strategy. The Secretary of State acknowledges this in his introduction, but it fails to carry through to the paper itself, which, in my view, lacks focus. It needs some innovation, some new thinking.
There is a strong argument that small businesses are the engine of growth. Last year 650,198 start-ups were created. Evidence suggests that only 7 per cent of these will survive but if we take our performance as an average, in ten year’s these businesses will have a combined turnover of nearly £1 trillion and employ over 2.5 million people.
What does this tell us?
That we should dare to be different and put small business growth as the overall focus of the new industrial strategy, and not just one of the ten pillars on which the government is intending to build its approach.
For example, our investment strategy could look at our funding model and how angels and High Net Worth Individuals could be helped further as they are the engines of small businesses. The faster their money is released the faster this engine will run.
So, one thing that the government should look at is putting in place growth funding, part of which is designed to release Angels so that they are free to re-invest in next year’s start-ups. It is this sort of investment flexibility that could really start to drive business growth post-Brexit.
Written by Simon Anderson, founder and chief strategy officer of geo.
Further reading on investment
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