Everywhere you look at the moment is risk, whether it be political, economic or financial, particular in relation to the ongoing travails within the EU. Venture Capital by definition is risk capital. Venture Capitalists understand and accept risk and as a result look for reasons to invest in business regardless of the economic environment and cycle – where others see risk venture capital often sees opportunity. Midven is particularly active, despite the environment, having made 26 investments during 2011, supporting 17 new businesses in the process.
At the risk of sounding like the government it is clear the UK needs to promote more entrepreneurial activity if the economy is to return to growth, it will be SME’s driven by entrepreneurs that will be the engine of growth. Entrepreneurs take risks but it is very difficult to take risk without funding to support your business.
Many growing businesses do not have a strong trading history, existing profits or a strong asset base. This makes raising funds from traditional sources e.g. banks and asset based lenders difficult, and in fact even profitable businesses are finding it hard to raise bank debt. Venture capital looks beyond these basics – venture capital does not focus on security and personal guarantees - it is focused on people, products (or intellectual property) and market opportunity.
Most importantly in the current environment venture capital is a long-term funding partner that is unlikely to take flight at the first sign of difficulty. At Midven we understand that businesses take longer and need more money than planned to succeed. This is why we will look to support our investee companies over a number of funding rounds to help them achieve their growth plans. We are very clear at the outset that the plan is to grow the business for sale but we are not dogmatic about the timescale.
Venture capital, however, should be about more than just money. At Midven we consider ourselves to be a partner in the business and work closely with management teams to help them achieve their aims. At the higher level this mean helping shape and drive the strategy of the business to ensure that it will become a strategically valuable acquisition target in years to come. We share the experiences of our large portfolio of companies many of whom face similar issues as they grow – we facilitate experience sharing between the management teams of our portfolio companies.
At Midven we provide an even greater level of support than this. Our investment team has a wide range of operational experience and this is often used to supplement the teams at our portfolio companies, whether as interim financial controller or by implementing a sales management structure. We utilise our vast years of experience across a wide range of successful businesses to mentor our management teams through their companies growing pains.
Finally, venture capital, rather than operating in isolation, can in fact be the catalyst for a businesses ability to raise funding from other sources. By providing a core level of equity funding venture capital often reduces the perceived risk of a business to other sources of funding or enables the business to achieve a level of profitability that makes other funding viable.
Roger Wood
