Fast forward Northern investment

What is FW Capital and what does your role entail?

FW Capital is a fund management business that has been operating in the North of England for about 10 years. We’re part of the Development Bank of Wales Group, which has over £1billion of funds under management, £200million of which are managed by FW Capital.

As a group, we specialise in SME investment in Wales and the North of England.

In the North of England, we have a number of funds under management, the largest being the Northern Powerhouse Investment Fund (NPIF), valued at £143million. This fund was set up in conjunction with the British Business Bank, and now also has a CBILS accreditation to help businesses struggling with cashflow due to the COVID-19 crisis.

I’m a Fund Director for FW Capital, heading up the team that operates across the North East and Yorkshire. I’m in charge of opportunities and portfolios that come through our regions and my day-to-day role includes sanctioning deals, leading my teams, engaging with stakeholders. I’m also involved in raising new funds.

Times are tough in all regions right now, but what have you found to be the biggest challenges in the North?

Generally, the landscape in the North is heavily weighted towards small and medium-sized businesses. Smaller businesses are more vulnerable at the moment because most of them do not have the level of additional reserves that are needed to ride this storm so cash flow in particular is a key challenge. You see a lot more manufacturing businesses here than you do in London but there are also some really interesting tech-clusters developing up here too.

Younger businesses that may be more in need of equity finance to gain traction in the market have been struggling as many investors may want to wait until the worst of the impact of the pandemic is over before they make longer-term investment decisions. Whilst there are a good number of investors in the North backing these businesses, it is nothing compared to the availability of finance in the South East so at the moment this is a particular challenge.

We’re looking for established businesses that can service debt, so whilst we want to back growing businesses we are not necessarily looking for businesses to be growing exponentially as you would with equity finance. We can support most sectors, so for those innovative tech companies that already have commercial revenues we can provide them with a loan to help them to achieve their ambitions. So far, we’ve invested in some really exciting and innovative businesses in particular around Manchester and Teesside, including businesses operating in sectors such as renewables, digital and life sciences.

The Coronavirus pandemic has, of course, caused disruptions in many sectors in the North, but some of the existing challenges in this region have partly mitigated the enormous fallout seen in these sectors’ Southern counterparts. For example, the low level of investment into the infrastructure of the transportation network has been a key challenge in the North. But interestingly, this has become a less pressing issue under the current circumstances, with many other parts of the country facing similar crises.

We’ve seen many businesses apply for CBILS and the Bounce Back Loan Scheme (BBLS) due to the uncertainty around the true impact of COVID-19 to businesses, and how long it would go on for. Because of uncertainty, BBLS in particular has been popular with Northern SMEs needing an injection of cash quickly so they can comfortably pay the bills and can get back to business as usual as quickly as possible, post-pandemic.

Mainstream banks have also been inundated with enquiries, so it’s been difficult for them to get cash out to businesses quickly, causing more working capital challenges. It’s great to see that that’s starting to come through now and more lenders like us have been accredited too giving businesses alternative sources of funding.

What other changes have you seen in the regional market as a result of the pandemic?

People are definitely protecting their local supply chains. For example, a hub has been put together in Teesside that’s encouraging businesses to trade locally to protect the local economy. Whilst this is great, my concern is that it may come across inward-looking.

We still want to encourage businesses to look further afield. Being geographically further away isn’t an issue at the moment as competitors are also having to switch to doing business virtually, so the playing field has become a lot more even.

The current situation has made businesses implement more agile and flexible working in order to maintain productivity with surprising results.

In light of COVID-19, what are the new risks to businesses, and to investors?

I think the main risk to businesses is still not knowing what’s going to happen and things are changing so quickly. How can you plan for something uncertain, or foresee the impact that the pandemic will have when we have no previous experience of dealing with something like this? Likewise, for an investor, how can you use the same assessment tools to back the winners as you would ordinarily when there’s still a lot of uncertainty in the market?

One of the main issues we’ve faced is not being able to carry out the due diligence we normally would. Before we invest, we typically visit businesses to get a true sense of the organisation and its culture. What we would normally cover in these visits are:

• full site tour;
• talk to workers to get their perspective and an insight into how the management team operates;
• speak to the finance department;
• see workers in their roles (e.g. making products);
• see the scale of the operations.

Three top tips for approaching investors:

Your sales pitch. It’s important to get it right before you do anything else. Investors often have a lot of plans on their desks, so it’s important to present a compelling investment opportunity both clearly and concisely. Make sure you get across what’s in it for the investor quickly. Remember, they may not be a specialist in what you do, so ensure you explain the proposition in simple terms.

Be prepared. Due diligence is vital. The more you do to prove your track record and have supporting evidence to justify your assumptions in your plan, the smoother and quicker the process will be.

Be honest, act with integrity. It’s much better to tell a potential investor something that might be considered to be an issue upfront, rather than the investor finding it out for themselves and risk derailing the process.

Can you tell us about a really compelling business pitch you have seen recently?

A business that we supported recently specialises in producing antibodies. They have recently been involved in the work going into finding testing and treatment for COVID-19. This, of course, wasn’t on the table at the time that we invested in the business last year, but it’s been great to be able to see how it’s positioned them to help fight the pandemic. We were supporting the business by putting in a third production line to increase capacity and support their growth, which of course has been hugely important right now.

We’ve also seen other opportunities with our portfolio of customers that you wouldn’t think would be able to directly support the efforts for the pandemic, but have re-purposed what they do to react to the change. These include; a gin company making sanitiser gel; a thermoplastics manufacturer that has created social distancing markings; and businesses supporting the infrastructure that has been put in place to cope with volumes of illnesses in hospitals.

What pitfalls should a business avoid when preparing an investor pitch?

1. Don’t make your pitch too technical or detailed. It’s not your business plan, but a pitch document that’s all about selling your business to someone that doesn’t understand it as well as you do.
2. As an investor, we’ve seen a lot of people coming in without an exit strategy. You need to have a clear plan to ensure the investor can get on board with the whole journey.
3. Include all key members of the team. We see many businesses leaving the pitch to one person, but the investor wants to see the team and support network. Those first few meetings with the potential investor are extremely important, so if you can’t answer particular questions they have, you may lose credibility early on. So, have the right people in those meetings to avoid this.

Where can businesses go for more information on seeking investment?

For individuals, my advice is to speak to professional advisers and other business leaders that you know to start with. Try to learn from their experiences and benefit from their connections.  Whilst there’s a lot of information and advice available on the internet, I’d recommend connecting with local enterprise partnerships and growth hubs for help, and of course visiting the Business Finance Guide website for more guidance on the types of finance available.

It’s all about the people. Speak to people you know first. See what you can gauge from them. Then look elsewhere.

Finally, has the pandemic brought new opportunities for regional businesses?

I do think there are different opportunities for regional businesses now. Lockdown, where travel has been restricted for everyone, has created more of a level playing field. Most businesses have had to shift to an online offering, meaning geographic location is less of an issue.

Historically, the North has always been hit harder and for longer than the South, but because Northern businesses are used to dealing with challenges, they can use their experience to effectively overcome hardships caused by COVID-19.

My main concern is around the longer-term issues that Brexit is going to cause the North in particular. We’ve had European-backed funds for many years to support business growth and deal with the levelling-up. Therefore, it’s absolutely vital that the Government ensures this continues after the final round of European funding, to ensure we can still support the more disadvantaged areas, helping them be a part of a vibrant UK economy.