New Company - Raising Capital

[newventure2026]

Hi all,

First, thanks in advance to anyone who reads / responds to this post. I'm at a crossroads and some realistic input from people with more experience in this area would be massively appreciated right now.

I've worked in a senior position at a business in the South of England for 12 years, during that time I have progressed from middle management and helped to grow the business turnover and profit significantly over that time.

Company owner is looking to sell the business and has an offer on the table from a US competitor which I believe she will accept. I have no desire to work for a large US corp and think going back to being a small cog in a huge machine just isn't where I see my future. Given the owner is over 70 its unsurprising that she is keen to realise the value of the investment over the years but we all believed the company would be kept within the family to capitalise on what looks to be a very busy period in our industry over the next 5-10 years.

This leaves me with 2 realistic options, either go freelance / contract in my professional capacity or look to start a business of my own within the same industry.

Freelancing does appeal to me to a degree but going from company to company having no real impact or ability to drive the direction and success really does detract from the benefits I would derive from this.

My real passion is for the industry I'm currently in, its a technically challenging high risk and reward business in a niche area of the construction industry but to have any chance of starting a new company in this field there would be significant investment required in plant and machinery.

In reality I would need to raise £300 - £500k at startup for the venture to have any chance of hitting the ground running and being able to make this a success, my questions for the forum are where would I even start / is it even feasible to raise this level of investment at startup stage?

I genuinely feel like my head is spinning right now - only thing I am sure on is that I dont see myself as part of the picture post takeover so any advice (positive or negative) / insight / constructive criticism is very much appreciated.

Thanks in advance!!

 

[Mark T Jones]

This is my specialist subject - and the answer is really extremely broad! Far too broad for a forum post, but let's get the ball rolling:

Debt vs equity? (Or mix of both)

Equity you 'sell' a slice of of your business - bringing in ready, flexible cash and probably people with skills & knowledge which can be of value.

On the other hand, your investors will want input & returns!

Debt: most needs to be specific to a purchase or purpose (with some exceptions)

Asset Finance for equipment
Invoice finance to get paid on delivery (if you offer credit terms)

Will always require PGs on start up - to some extent, availability will depend on the value of those PGs

That's barely touched the surface

A good starting point is to start work on a detailed cashflow projection, which in itself will be a guide as to how much/what type of funding is best.

 

[newventure2026]

Thanks for taking the time to reply.

In terms of invoice finance, would this apply to contracting - ie when invoicing milestones at certain stages of a project? The materials element would be minimal the main cost is in labour & plant.

With regards to raising cash through equity, are there certain forums / pools of investors to approach for different markets?

Thanks!

 

[Paul Kelly ICHYB]

Why don't you look at buying the business, alone or with colleagues?

 

[newventure2026]

Why don't you look at buying the business, alone or with colleagues?

Hi, thanks for the reply.

Already broached with the owner that one but no interest from the owner as she already has an offer for a quick sale unfortunately.

Her opinion of it would be that it would drag on for too long to be of interest.

 

[Mark T Jones]

Thanks for taking the time to reply.

In terms of invoice finance, would this apply to contracting - ie when invoicing milestones at certain stages of a project? The materials element would be minimal the main cost is in labour & plant.

With regards to raising cash through equity, are there certain forums / pools of investors to approach for different markets?

Thanks!

Don't for for quick easy answers! Getting it right will involve challenging thoughts and questions

@Ian J is our resident factoring expert.

Before you even think about where to find investors (the online forums are hotbed of fraud) work on a compelling but equitable pitch.

 

[newventure2026]

Don't for for quick easy answers! Getting it right will involve challenging thoughts and questions

@Ian J is our resident factoring expert.

Before you even think about where to find investors (the online forums are hotbed of fraud) work on a compelling but equitable pitch.

I'll be be focusing on pulling together a realistic business plan, cashflow forecast alongside the pitch for the business to highlight the opportunities ahead, along with a lot of soul searching as to if this is the right route to commit to.

My posts today were more fishing for if it was a complete pipe dream and it would be outside of the realms of possibility to raise significant levels of finance for a startup. Its reassuring to see that there are options and nobody has shot it down in flames!

Thanks again!

 

[Mark T Jones]

60% of my customers are start up at first transaction - so by no means impossible.

However, not easy either.

Once you have some kind of plan/projections in place you can get more meaningful answers to more focused questions.

 

[newventure2026]

Thanks, appreciate the replies. I'll update as / when there is anything and get cracking with the plan, pitch and forecast.

 

[pentel]

Already broached with the owner that one but no interest from the owner as she already has an offer for a quick sale unfortunately.

Her opinion of it would be that it would drag on for too long to be of interest.

That offer for a quick sale will need to be a really low offer for it to happen really quickly.

As well as looking to go on your own it might be worthwhile giving some thought to being in a position to dive in when the issues start to crop up with this sale.

Most sales don't run smoothly and will definitely take several months to complete.

What can you bring to the table re cash and security against a loan? Is there any tangible value in the business which you could raise a loan against to provide cash to the seller? Can invoice factoring be part of the equation?

If the business is well known (in a good way) it will be a lot easier to succeed than from a standing start.

 

[Paul Kelly ICHYB]

Most sales don't run smoothly and will definitely take several months to complete.

Not made any easier by being a US buyer!

 

[newventure2026]

That offer for a quick sale will need to be a really low offer for it to happen really quickly.

As well as looking to go on your own it might be worthwhile giving some thought to being in a position to dive in when the issues start to crop up with this sale.

Most sales don't run smoothly and will definitely take several months to complete.

What can you bring to the table re cash and security against a loan? Is there any tangible value in the business which you could raise a loan against to provide cash to the seller? Can invoice factoring be part of the equation?

If the business is well known (in a good way) it will be a lot easier to succeed than from a standing start.

Hi,

It's not the first time she's gone through this process so I've a small amount of hope that there may be an opportunity at some point.

There's plenty of assets (>£5m plant at market value) that could be used to raise finance in an MBO. We have a very good reputation in our industry and have secured significant repeat business over the last 5 years.

MBO would be my preferred option but the owner is adamant she wants to take the offer on the table. The offer (in my opinion only) is probably around 20% less than where it should be - completely aware I'm probably looking at the value through rose tinted glasses.

Given she is now over 70, I think its a case of now or never as far as the sale is concerned unfortunately.

 

[newventure2026]

Not made any easier by being a US buyer!

I doubt it- and even less reason why I see myself as part of the picture post acquisition!

Given the amount of control the senior team has had without the owner's involvement, I doubt I could go back to the line manager / big company scenario now.

Did that in my earlier years starting out in my career and the thought of that had me up half the night!

 

[pentel]

It's not the first time she's gone through this process so I've a small amount of hope that there may be an opportunity at some point.

MBO would be my preferred option but the owner is adamant she wants to take the offer on the table.

You definitely need to get your ducks in a row. I have been through something similar recently ( at the a similar age to your owner) where my business partner had a buyer set up which fell through, we very quickly moved on to another buyer who could move quickly and had funds. You need to be in the same position as the buyer we eventually went with

 

[newventure2026]

You definitely need to get your ducks in a row. I have been through something similar recently ( at the a similar age to your owner) where my business partner had a buyer set up which fell through, we very quickly moved on to another buyer who could move quickly and had funds. You need to be in the same position as the buyer we eventually went with

I can pull plans and forecasts together but the sticking point in my mind is obtaining finance in principle to be able to carry out the MBO without the owners approval to share financial details whilst she still has the offer from the US bidder. How could the fund from financing, which would need to be against existing company assets be put to the owner without having a conditional offer in place? Thanks

 

[DontAsk]

Do you have any non-compete clause in your contract of employment?

Will this prevent you using your existing contacts in the industry in a new venture?

 

[newventure2026]

Do you have any non-compete clause in your contract of employment?

Will this prevent you using your existing contacts in the industry in a new venture?

No non-compete clause is in place thankfully!

 

[Ozzy]

Jsut mentioning that the owner may now find herself in an excluivity period forbidding her from having any sort of discussion such as MBO or alternative buyer.
All other advice above is top notch

 

[newventure2026]

Jsut mentioning that the owner may now find herself in an excluivity period forbidding her from having any sort of discussion such as MBO or alternative buyer.
All other advice above is top notch

Thanks for the reply and thanks to everyone else who has taken the time to reply - it really is appreciated

 

[Ian J]

In terms of invoice finance, would this apply to contracting - ie when invoicing milestones at certain stages of a project? The materials element would be minimal the main cost is in labour & plant.

There are one or two invoice finance companies that are happy with contracting. Have a look at https://factoringsolutions.co.uk/construction-industry-factoring/ for more information plus my contact details if you want to have a chat at the appropriate time

 

[newventure2026]

There are one or two invoice finance companies that are happy with contracting. Have a look at [LINK REMOVED] for more information plus my contact details if you want to have a chat at the appropriate time

Thanks for the info, if anything progresses at all I'll definitely be in touch

 

[Porky]

I would say its odds on there will be an exclusivity clause. Most unlikely a US buyer once heads of terms agreed would fund DD to complete without one.

Still risk deal falls through, it happens but you would need to be ready to buy. It does look like you have arrived late to the party, you could have done with the sale IM when she started looking for a buyer to explore MBO rather than now she has a buyer in completion stages.

You think you need £500k as a start up, do you have any idea what she is selling for? I doubt the deal is 100% cash, could be 50% and 50% on earnnout? But you probably have more chance funding a proven business under an MBO than raising £500k as an unproven start up.

If you or family own your own home you could raise cash against it and do some equity alongside it but equity raise would take at least three/ four months IMO - how much time have you got?

Its doable, very hard to construct but you need to establish really a) how much you would need to offer her and b) how far down the process she is to calculate if you have a chance

Good luck

 

[pentel]

I would say its odds on there will be an exclusivity clause. Most unlikely a US buyer once heads of terms agreed would fund DD to complete without one.

You think you need £500k as a start up, do you have any idea what she is selling for? I doubt the deal is 100% cash, could be 50% and 50% on earnnout? But you probably have more chance funding a proven business under an MBO than raising £500k as an unproven start up.

If you or family own your own home you could raise cash against it

a) how much you would need to offer her and b) how far down the process she is to calculate if you have a chance

These are the key points, it will all depend where the owner is in the process. It is not unknown for owners to think they are a lot further down the road than they actually are.