More than 99% of companies registered in the UK are SME’s and represent 60% of all private sector employment in the UK. “Small and medium-sized enterprises are at the forefront of the industrial policy agenda owing to their role in creating jobs, stimulating innovation and promoting entrepreneurial skills,” says SpringerLink’s study on the Drivers of SME growth.
For a while now, organisations have realised the value of investing in external businesses – especially when those businesses offer new opportunities to reach new markets, adopt new technology, attract new customer-bases, cross over into new industries.
Countless articles document the benefits of developing corporate venture funding arms to their organisations as a way to innovate.
But what if the tables are turned? What if we look at this from the SME’s perspective? How do you evaluate whether corporate funding is the solution to the growth of your SME?
We look at why organisations are looking to invest and whether your business is ripe for corporate funding.
Do you have a business with high growth potential?
For any investor, private or otherwise, seeing a return on their investment is the fundamental reason why they are willing to part with their cash. And in the corporate venturing world, that is no different. If you run a business that demonstrates high growth, or a potential for high growth, you will almost certainly be ripe for the picking when it comes to investment opportunities.
Displaying a high growth potential means that your business’ future ability to generate larger profits, expand its workforce and increase production is tenable. But it also means that you face increased challenges that ebb and flow with an ever-evolving market. Your growth is achievable, but you need additional funding, or business expertise and backing, to enable you to get there. For many, that means partnering with a corporate venture fund that provides the brand equity, reputation and established infrastructure that you need.
Is your business one with large addressable target markets?
An addressable target market is a market which offers revenue opportunity for a particular product or service – and for many investors, particularly within the corporate venturing space, a new target market is worth its weight in gold, and is reason enough to form a partnership with a SME that is already productive and profitable in that market space. Understanding your market means that you know the behaviour of your potential customers, and subsequently, know why they need your products or services, understand the benefits that you offer to them, understand their buying patterns and your product / service’s growth potential within that market.
Organisations who are looking to tap into new, exciting markets see your knowledge and understanding of their desired market, as fundamental knowledge core to their own growth strategy. You already have a foot in the market, and you are probably surpassing your competitors. Partnering with you means that they have instant access to new opportunity without the need for exhaustive market research, development, client development and risk analysis. This is not a next step for them, it’s a leap into the known, through your business.
Is your SME one that may be synergistic with the business of the parent company of the venture arm?
Synergy: A word that makes most jargon-busters cringe. But stepping back to the true definition of the word: business synergy refers to the interaction or cooperation of two or more organisations, substances, or other agents to produce a combined effect greater than the sum of their separate effects. The addition of one part to another sometimes just makes sense. There’s a natural partnership that exists long before contracts have been signed, and it simply just makes sense!
Your vision is the same, your culture is the same. You believe in the same vision and you both share values that build your, and their, growth potential. And together, you form a stronger, more powerful market-ready business that will only get stronger.
Does your business offer a big financial upside?
A financial upside usually refers to an investment’s potential gains in value. Although investors try to analyse financial upside potential as far as possible, nobody can predict the future which means that most of the process is based on educated guesses, and estimations.
However, not to discredit the potential of a financial upside, it is traditionally one of the fundamental motives for making any investment – private or otherwise. The size of a financial upside, of course, varies with the investment, and with the risk associated with that investment. Typically, higher-risk investments generally have more upside; low-risk investments generally have less upside and are thus primarily concerned with preserving the value of the original investment.
For you to determine whether your business offers a big financial upside to an investor, you’d need to have a strong position in your market, have an established and successful business, exhibit strong client relationships, hold a regular revenue stream and enjoy a business that is profitable. The market and media have started to take note of your performance and you are being recognised for all the right reasons.
Does your SME offer something that may make sense for the corporate parent to acquire in the future?
Corporate venture funding may be the first step in a long-term growth strategy, but investment may not be where it ends. For many entrepreneurs, they may be looking for a successful and rewarding exit strategy. And for many, that could include merging, or being acquired by, another business. Corporate Venturing may be the first step towards a future acquisition if your exit strategy aligns itself towards that path, and if your product or service offering is one that sits favourably with the potential parent company.
If you’re ready to pursue funding – corporate venturing or otherwise, and your business already demonstrates growth and maturity, then we’d love to talk to you and help you find the right opportunity that will deliver exponential growth.