Leading experts from the investment community – Will Schaffer, Investment Director of Mercia Asset Management and Hannah Crosland, Senior Associate at Squire Patton Boggs – spoke to us about the fundamentals of Series B investment and what business owners will need to do to grow their business to the next level – providing the foundations for discussion, ahead of our event this September.
What is Series B funding?
“Series B funding in the UK is typically funding for somewhat more established businesses,” said Will. “Most often it comes after an initial pre-seed and/or Series A from institutional investments of up to £5 million – so you are looking at mid-range funding for Series B, which is often around £10 million.”
“It’s effectively development funding, it takes businesses past their original stage with the support of investors to expand their market reach,” said Hannah. “Usually, this is equity-based financing, meaning investors provide capital in exchange for preferred shares. It’s a great opportunity for businesses to find funding, but to also find the right partner to stand shoulder to shoulder in a management team with as their business takes the next step.”
Who is eligible?
“Businesses applying for Series B funding will have a certain level of maturity – they are businesses that have proved themselves in their field and have reached certain targets within their own market which demonstrates further potential,” Will explained. “Their risk profile will need to demonstrate execution over adoption – however, risk profiles will differ widely depending on the type of business and their respective markets.”
“Generally, those eligible are companies who are looking past their initial development stage, who generate stable revenues, usually these are businesses who are in profit,” added Hannah.
What have you noticed in the marketplace?
“As a general statement, there is a significant amount of equity available currently, we’re seeing a lot of interest for high-quality businesses and also a lot of competition in the marketplace,” said Hannah. “The competitive element ensures that business managers can work with an investor team and find the best fit for a business.”
“There is a lot of healthy competition for Series B funding, many businesses are seeing opportunities for investment and working hard to demonstrate that their business is going to make a viable impact in the marketplace”, says Will. “The bar to achieve funding will continue to raise higher, but businesses will adapt their game plan to ensure they are considered.”
What effect has the pandemic had on fundraising?
“With change comes opportunity – some markets have slowed down, but others have accelerated,” explains Will. “The impact in terms of raising money has added significant questions – are you benefitting? Is it easier to win work and sell your solution? If yes, then it’s easier to raise funding.”
“Initially, last March we saw a number of investors pause on new investments, instead focussing on their existing investments and supporting their portfolio companies,” Hannah added. “However, I’m delighted to say the pause was quite short-lived and since we’ve seen an incredibly buoyant market in the last 12 months. Since the pandemic, we’ve seen increased activity across all sectors, but particularly across med-tech and e-commerce as the way we live and the purchases we make has changed.”
What sectors do you provide funding for and what is the scale for investment?
“We are sector agnostic. I personally focus on investment ranging from £250k-£2m for both seeded and pre-seeded businesses, start-ups and SME businesses who are going to market with new products and services,” said Will. “We also have Venture Capital Trust funding for Series A and Series B investment and private equity funding.”
Could you summarise your role in a Series B investment Hannah?
“Our role in a series B transaction is to ensure the exchange is done as smoothly and as quickly as possible,” Hannah explained. “We have the opportunity to speak to businesses early in the process to ensure they have good policies and procedures in place, this means the transaction is as well organised as possible which sets up a good working relationship between a business and new investor.”
What opportunities do you see in the future?
“We’re all aware that certain government support is due to expire this year, none of us have a crystal ball, but, in our view, opportunity will continue for well-structured businesses who have solid business plans and strong management teams driving the businesses forward,” said Hannah.
“With changes brought by the pandemic and Brexit, we need to think about how we use them to leverage new positions within the international market,” Will added.” As both a business and investor, we need to think about what these changes are, how they impact us and how they can be used to our advantage.”
Why should founders/decision-makers attend this upcoming session?
“Attending this session will help founders gain the knowledge and tools to start thinking about how they can compete with the international market,” said Will. “I would really like to see more British technology businesses thinking bigger. I see some, but I’m excited to see more and what the next generation of leaders looks like.”
“By attending, companies can learn the key steps and questions to begin considering for growth and their long-term strategic objectives. For example, they must ask, what funding do I think I will need? What support will I need? Then they must make sure they have clear policies and procedures in place,” explained Hannah. “It is a competitive market out there, so learning how to narrow down what you want from a partner will ensure you have the opportunity to get a good fit for your business which will allow you to move to the next stage.” Investor Ready: Series B, Wednesday 08 September, 9:30 – 10:30