Early-stage funding for an environmentally friendly business

Company background: Hypermotive

Adam Huckstep and his co-founder Jeremy Bowman were independently working in the UK automotive fuel cell sector when they saw an opportunity in the high-growth, electric vehicle market. Seizing the opportunity, they set up Hypermotive, an automotive engineering company, two years ago.

Hypermotive focuses on enabling low and zero-carbon technologies to be integrated into both on and off-road vehicles through the delivery of:

• complex electrical and electronics systems engineering;
• electrical and electronic hardware and software design;
• manufacturing of high voltage electrical systems and wiring harnesses.

Challenging early years in business

Co-founders Adam and Jeremy secured their first sales contract before they officially set up the company and before contracting their first employees.

From a funding perspective this was a smart tactic as it meant the business owners knew they would have a guaranteed minimum amount of incoming revenue during that critical start-up phase, allowing them to commit to a certain level of expenditure.

To meet the scope of their first contract they took on their first employees – eight highly experienced engineers – in early November 2016.

“The first two years of business were challenging for Hypermotive,” explains Adam. “Being a fast-growing start-up with under two years of trading history, it seemed impossible for us to prove the company’s potential value to the financial institutions. We were rejected for debt funding by banks, even for a simple overdraft.”

Whilst navigating those challenging first couple of years, the management team kept a very close eye on its accounts: monitoring and managing cash flow, creditors, and debtors on a daily basis.

They made sure that month-on-month the company completed the client work as anticipated and got paid for the work by the client in order to meet its commitment to its supply chain and staff.

That’s how they ensured that the business remained viable from the off, and Adam attributes this careful financial management to their business’ continued success and growth.

The Business Finance Guide helped to explain their finance options

From quite modest beginnings, the business started to grow quickly as new business opportunities developed. But the company often had a lot of upfront expenditure on new projects – especially within their manufacturing services – and the management team anticipated potential cash flow challenges as the manufacturing programmes became larger.

Like many businesses, the company often needed to purchase materials upfront well before being paid by the client, so Adam wanted to mitigate against any potential cashflow risks.

After around 12 months of trading, Adam acknowledged that to sustain the company’s growth it would be prudent to take on external finance to support this cashflow.

Adam and his management team turned to the Business Finance Guide to understand the different debt and equity funding routes, and the different finance options suited to their needs at that point in time.

“Having picked up a copy of the Business Finance Guide at one of the first Midlands Engine events at the MTC in Coventry, I have found it an invaluable guide which explains the types of funding available to small businesses, and how small businesses can access that funding in a very straightforward manner.” 

Investment from the Midlands Engine Investment Fund

It was through using the Business Finance Guide that Hypermotive identified that debt finance in the form of a loan would be best suited to their business and discovered the Midlands Engine Investment Fund (MEIF).

Through the MEIF, they were able to take on the loan funding that they needed to take their business to the next stage in its journey.

When looking to raise finance Adam’s advice is to take the time to really investigate the right funding option, and the right people to talk to, to benefit your business.

He explains that you need to take your time when exploring finance options, so make sure you plan ahead so you don’t feel pressured to make hasty decisions.

“It takes time to find out who are the right people to talk to that can actually help your business – and who are the people that are worth speaking to. Even if they’re not able to help you now, often they can help you further down the line,” explains Adam.

“You will have a lot of initial conversations that don’t result in anything further – and you realise why your business doesn’t match their lending requirements. However, it’s worth having all those conversations so that you can work out which funding provider is right for your requirements and your business at your current stage of maturity.”

£100,000 loan funding

Hypermotive put in a loan application to First Enterprise Loans, which is an MEIF-appointed Fund Manager. Adam reflects that the whole application process was straightforward, and his senior management team actually quite enjoyed it.

They were asked to submit their business plan and management accounts before being asked typical questions about what the loan would be used for and what the expected return-on-investment was.

Hypermotive was then asked to pitch their business plan to a panel of investment fund managers, but rather than be overawed by the situation, it was something they enjoyed.

“The interview stage was a little like Dragon’s Den and it might sound a little perverse but as a management team we really enjoyed that part of the process. If it’s not enjoyable talking to someone about your own business, you’re probably in the wrong business,” says Adam.

“I think we’re lucky that a lot of people are quite receptive to sensitivities about the environment, so growing a business that’s helping to accelerate electric vehicle uptake meant we got a great reception from the panel.”

And Hypermotive was successful, with the company awarded a £100,000 loan through First Enterprise Loans, providing the working capital to take on those larger manufacturing programmes which require outlay on materials long before any invoices are paid.

One of the unanticipated benefits of taking on the finance was the validation of the company’s business plans, which was a real confidence boost for the whole team.

That confidence boost has helped propel the business further to take on additional manufacturing staff and engage with larger companies in the industry, allowing Hypermotive to take on higher value programmes.

Building a responsible business

Speaking with Adam it’s clear that on top of the engineering principles that the company’s built around, its co-founders and the whole team are really passionate about building a responsible business too.

“It’s important for us to do what we can to try to start decarbonising our planet, especially for our future generations”, he says.

The company is trying to drive down carbon emissions and the use of fossil fuels by helping to accelerate the development of low and zero carbon vehicle technologies.

While there are government mandates and incentives in place to encourage more environmentally-friendly business, Adam suggests that the pull for these technologies is increasingly becoming consumer-driven.

“Most of our customers are either automotive manufacturers or niche vehicle companies working on the next generation of zero or low-carbon vehicles, or they’re technology developers bringing new technology into applications to accelerate the uptake of electric vehicles,” says Adam.

“The growth in the demand for electric vehicles is increasingly consumer-driven. People want to be able to drive around without leaving a negative footprint on their environment.”

“It’s an industry that’s really gathering pace and at Hypermotive we have the skills, experience, tools and facilities to support this exciting industry.” 

As a responsible business, Hypermotive also demonstrates the importance of working in the community, which it’s found to benefit both the business and the community alike.

As a specialist engineering company, Hypermotive is keen to champion engineering as a career and stimulate interest in science, technology, engineering and mathematics (STEM) subjects as a career in its local area.

A number of Hypermotive’s employees are involved in visiting local schools, colleges and universities to talk about STEM topics with students, and they say that many of the students get quite animated about the idea of using engineering to bring low carbon technology to the fore.

They also support aspiring students in their community by offering placement opportunities.

Overall the business has found it benefits from these placements as much as the students it supports because it’s inspired a new cohort of potential people into their industry.

Being responsible in business can attract top investors

Adam explains that acting responsibly makes business sense for Hypermotive. They’re in a developing market with a lot of business growth potential, and they’ve received strong interest from the investor community due to their responsible nature.

Adam suggests that as well as a consumer demand for more eco-friendly products and services, there has been a recent shift in interest from investors who are increasingly looking for opportunities with strong environmental credentials.

Most investors like to balance their portfolios with investments that are ethical and environmentally-friendly and Hypermotive receives its fair share of interest from the investment community on that basis.