Creating a Suitable Environment to Foster Venture Capital

“Creating a Suitable Environment to Foster Venture Capital and Private Equity” Dr Spinder Dhaliwal University of Westminster, UK Author, Making a Fortune, learning from the Asian Phenomenon (Capstone) Jamaica, November 2013

Vijay & Bhikhu Patel – Waymade Healthcare

Access to Finance ‘I wanted to borrow £ 6000 to buy a business but the banks turned me down’. Vijay had no collateral, no experience no money, ‘They could not see the fire in my belly and my desire to succeed’, ‘once you’re established, they can’t do enough’. Once they see you are a sound business, they love you. You have a history. ’

Networks, Family and Growth ‘I spoke to an uncle who guaranteed the loan but for 15% of the business. ’ Repaid loan within 6 months Organic growth first- moved from one pharmacy to a chain, then move to developing pharmaceuticals

Strategic Thinking Brother Bhikhu joined business: ‘I needed financial discipline and I needed someone I could trust’, Vijay. ‘I look at where the growth should be. I am prepared to pay over the market price if need be, just to acquire the right resources, no city accountant would do that’, Bhikhu. ‘I try to anticipate the changes in legislation in the market’. The brothers were one of the first to spot the legislative changes in Europe and how this could aid the growth of their business.

Legislation ‘We seem to be legislative mad in the UK’. Bhikhu concedes that whilst the UK and Europe are less stringent than the US, they could still be better, ‘We need more freedom to operate, there are too many rules and regulations and too many types of taxes. We need simplification’.

Noon Family – Noon Products plc

Family Businesses, Growth and Succession Food production company. In 1999 WT Foods made an offer to buy out Noon for £ 50 million, and in a shock move, Noon welcomed this offer. He remained as Chairman Noon realized he needed more professionalism, and did not believe in hanging onto a family concern. He did not want to burden his daughters with the business.

Problems Following merger, WT Foods suffered a sharp drop in its share price. Noon, ‘there wasn’t a hope in hell for the group to tap the markets for the funds required to build a major new factory’. The City did not understand the company the massive and sustained growth in ready meals and curries failed to register.

Solution The company was taken off the market. Noon approached a venture capital company and a management buyout was effected in 2002 resulting in Noon buying back most of the shares from the market. Backed by private equity house Bridgepoint, WT Foods was “released” from the City in a multi million pound deal. His entire conglomerate of eight companies was bought out for £ 126 million.

Noon’s role remained much as before – chairman and managing director of Noon Products and executive director of WT Foods. Bridgepoint immediately injected funds so he could set up his third factory which was opened by Prince Charles in 2002.

In 2005 Noon was approached by Kerry Foods Limited to which he sold only Noon products, retaining the other seven companies, for £ 124 million. He continues to be a non executive Chairman.

Lord Karan Bilimoria – Cobra Lager

Raising finance The biggest challenge was raising finance. Cobra Beer got under way in one of the worst recessions since the war. The base rate was 14%, banks had clamped down on lending – it was not a good time. The real challenge, however, was to raise money ‘in a way in which we could protect and hold on to ownership of our business’ Karan. He took on a large overdraft and a £ 55 000 loan through a government backed loan scheme. He also used his community contacts, in particular Gandhi Oriental Foods in Bow, East London, who acted as distributors for Cobra had no credit rating so they made an arrangement with Gandhi, as the company’s credit rating was impeccable.

Fast Growth Cobra was listed on the 1999 Virgin Fast Track 100 list of the fastest growing privately owned companies in the UK.

Perween Warsi – S&A Foods

From kitchen to major enterprise Indian snacks for a local restaurant. Other orders poured in. Won major contract with Asda supermarket Larger premises were needed to accommodate the growing business.

Losing Control? Joined forces with the Hughes Food Group, a local company, in order to generate the funds necessary to build a factory, ‘we were not strong enough financially to build a factory on our own, ’ Created 100 jobs. But Hughes Food Group soon faced financial difficulty and went into receivership. This meant Perween’s portion of shares also went into receivership.

Long Drawn Battle We fought the case and won, ’ ‘I didn’t sell, I refused to give in and we went independent. ’ Perween completed a management buy-out in November 1991 with the backing of the venture capitalists, 3 i.

Wayde Lyn – Cleone Foods

Island Delight Range – Caribbean Style Patties Steady rather than spectacular growth. Sells £ 2. 4 m worth of pastry snacks. Registered business a year before he started trading 6 years to outgrow factory – regeneration grant

Challenges of Growth Avoided large supermarkets at first: • • “you need a proven track record. ” They offer tiny margins, intimidating order sizes and lengthy payment periods. Started by selling to independent retailers and takeaways – cash flow. Problems with regulation, staff issues dominated - lost technical manager, employed more ‘mature’ people.

TOP TIPS ON SMALL BUSINESS LENDING Develop a robust business plan Build your financial understanding Check your track record – Be honest Federation of Small Businesses (FSB) and the British Bankers Association (BBA)

Rejection Collateral Shortages Poor credit worthiness (credit scoring) Lack of formal savings Poor financial record

Creating a Suitable Environment Pick winners Family, community, networks Human capital Intellectual capital Business Readiness/Prepared. Market failure means you need intervention