Banks versus venture capitalists

22 Mar 2010

When it comes to start-ups raising finance in the current climate, banks are mainly focused on security while venture capitalists are going to want to know more about the business itself, according to Maurice Mortell, chief executive of Data Electronics.

“If you’re trying to get bank finance, the bank will want to know about the assets it can get its hands on if there’s a problem. This can mean putting your own private assets up as security for business loans,” he says.

“Venture capitalists will be looking more closely at what the business is – the product or service, plans to develop and grow it, the markets you’re looking at and how much money you’ll need to get into those markets; is it going to be global or national. Essentially, they want to know if it’s a business that can fly and whether there a structure there to drive that.”

Pitching to venture capitalists

When making a pitch to venture capitalists, Mortell says there are a number of headings you must be really clear on and the information has to roll off your tongue. “Having a very clear business plan and strategy is absolutely paramount. You need to set out your growth figures; how that ties into profit and costs and where you see your markets. Outline what differentiates your product or service and talk about the background of the people involved in the business. You’ve got to sell yourself as well as your product or service, as people still warm to people.”

Mortell recalls that in the early days of Data Electronics most of the funding raised came through bank finance, ie, borrowing against assets. “As time has gone on and the business has grown, it has been much easier to go to individuals or invest in different ways. Initially, it was like a beauty contest, where we were trying to articulate what the business was and how the model worked; how we were going to get customers and hold on to them.

“Now we have a decent story behind us so going to the market two years ago was a relatively easy exercise and there were a number of people that wanted to work with us. Nowadays, it’s very difficult for any company with a well-proven track record and high growth to put in ordinary finance, so I can imagine how difficult it must be for businesses at the early stage of growth.”

By Sorcha Corcoran

Photo: Maurice Mortell, chief executive of Data Electronics

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