imagesWhen you don’t fit your bank’s expectations… but still need new funds

The owners of two well located, prosperous shops in the south of England were experiencing difficulties in funding planned expansion. Unfortunately their idea for developing their existing retail business was seen by local banks as a new start rather than just an extension and diversification of their current operations.

The shops supplied specialised sports goods – particularly for skiing and general outdoor pursuits. Stock was sourced mainly in the Far East, and the owners thought their own direct contacts would result in improved purchase-costs, if they could order in larger quantities – hence the need to open more shops, serving a wider market.

At the same time they wanted to start a new business, leading and equipping bespoke adventure/activity holidays in odd parts of Africa, India and China initially.

Four other retail sites had been located and sketchy business planning was presented to various banks, who all commented favourably but would not offer support as the overall opportunity was considered to be a new start – quite different from operating two ‘simple’ shops.

Accepting that most conventional financiers would take that view, our advice was to capitalise on the value of the existing retail expertise which had already been firmly established. This experience, in conjunction with the proposed retail expansion and the travel opportunity (with its potential for further kit sales), made the business an ideal candidate for respectable venture capital funding.

And if sales were going to top £2m from six operating sites plus those from the travel firm, direct stock purchases would become feasible. Indeed the owners should start to look at supplying others as well, undercutting the present avaricious wholesaler!

The directors were enthusiastic and had venture capital contacts of their own, which were temptingly within reach. But on closer examination, the funding was only available in exchange for yielding 75% of the business and effectively working for the investor!

We were able to guide them towards a more helpful group of angels. The upshot being that the owners retained 60% of an expanding wholesale and retail activity goods business, and a specialised travel company.

The new capital came with the added benefit of a non-executive Finance Director, stock supply is now by sea, paid before despatch by a commercial banker through circulating, bespoke trade finance.

The present mission of the originators is to expand further to perhaps twelve retail outlets – with the support of the same Venture Capitalist – and then sell what will be a significant business while still in their early fifties, perhaps running a few ‘safaris’ when they feel the inclination.