Venture Capital isn’t the only answer. But it’s one of very few answers if you want to take your business to a materially different level. Many other financial routes are closed off in the current climate and non financial adjustments, whilst potentially positive, will not have the same impact.
Recruitment attracts entrepreneurs. The UK is without doubt one of the global hubs for recruitment. There are more agencies in London than there are in the whole of the US, but that does make it difficult to stand out from the crowd.
Venture Capital vs Bank Loans
Taking a significant step forward with a business usually requires some sort of investment and in general there are 2 recognised financial routes. The first is a bank loan and the other is venture capital (or private equity).
If you pursue the bank loan route bear in mind, as a recruitment company is not an asset backed company (apart from its debtors which normally attract finance for working capital) it’s never been easy to borrow money against a recruitment companies future profits, given that the assets leave the office at 6pm every night and hopefully return the next day.
Traditional banking has never been more difficult than it is now. There are many reported cases in the last few years where companies have borrowed from a bank, have been able to repay the interest but have been in breach of the long list of banking covenants. These covenants are scrutinized intensely by super-keen analysts, who seem all too ready to press the alarm bell, sending in the bank’s friendly business support team. In turn, this often leads to them calling in the administrators… and the rest is history… in many cases.
Undoubtedly the dangers of obtaining bank loans have never been greater, peppered with high charges, conditions, key ratios and draconian penalties, if you can get past the hurdle of getting one in the first place.
The alternative method of raising finance is by attracting an investor such as a venture capitalist, whereby you sell a piece of your equity in return for long term investment. However, this is hardly a piece of cake either. Nevertheless, it’s generally regarded as the best credible alternative to a bank loan.
Benefits of Venture Capital Specialist;
Knowledge; If you choose a venture capitalist with experience, or preferable a focus, in your chosen market you will gain a partner with considerable insights and practical experience.
Advice & Mentoring; Their expertise will be extremely useful in terms of acquisition or strategic advice, management infrastructure, succession planning and of course exit. If you haven’t been part of an exit before, an experienced partner will be invaluable, both with practical advice, business preparation and contacts in the market. They’ll then not only add value in general but will unlock the value of the equity, a specific skill which many owners don’t yet have, because they haven’t needed to.
Understanding; The right VC partner will take the time to understand your business. …