Planning a management buyout or expansion
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Venture capital funds are the obvious source of finance for new or developing companies looking for £250,000 or more. For larger management buyout's specialist venture capital funds and City institutions offer a better chance of success.
According to leading accountants there are three main reasons for failing to win backing: management lacking a proven track record; the proposition not being commercially sound; and poor presentation of the proposal.
The starting point is a detailed business plan. It must reassure potential backers on the viability of the service and its ability to fill a market gap, but should also show a knowledge of the market, quality of management, financial grasp and realistic forecasts. The most important selling point will always be the management team and its ability to exploit an opportunity.
In most funding cases buyout teams will enlist a financial adviser to guide them through the labyrinth of financial
institutions. The adviser will help identify the appropriate backer and will present the management's case professionally. He can also negotiate terms of the acquisition with the vendor and set up the deal so that the management team safeguards its own investment and incentives.
It is important to distinguish between 'venture' and 'development' capital. Many so-called venture capital houses will only invest in the development or expansion of a proven busif)ess.
While the big clearing banks have become less likely sources of Funds, their venture capital off-shoots are worth approaching. Smaller banks are showing more flexibility, and most merchant banks have appropriate funds in place. For example, Morgan Grenfell's Development Capital is looking for management buyouts in the £20m region and Schroder Ventures has also announced the launch of new Funds. by Wilf Altman