Money for nothing and your chicks for free! So sang Dire Straits rather memorably at Live Aid. And, in a way, this attitude (less, perhaps, the bit about available female company) is very much alive and well in many NI firms.
It may be something to do with our farming heritage, where the motto is to never sell any land or the farm. But many companies are really averse to giving away equity ie to selling shares in the business in return for investment.
Our long built-up culture of relying on government grants, along with the lending practices of banks until recent years, have both added to this attitude.
Many companies’ first thought when they need money is to borrow it. Actually, in the early stages, this is a pretty good idea. Often this is from close family and friends – known somewhat cruelly in the business as the ‘three Fs’ – friends, family and fools.
Many good businesses are initially started in this way. Indeed, research has shown that the average cost of starting and growing a business has fallen by a factor of ten to around £50,000 because of low cost pay-as-you-go facilities like the Internet and the Cloud. So the third F may not stand for fool after all.
But this reluctance to give away equity can move from being understandable to being a huge drag on a firm if it wishes to grow. Too often we hear the phrase ‘I don’t want to lose control’. Or, to put it much more bluntly, the business founder wants to be King instead of being rich.
So the question is: do you want to own 100% of a small business or, say, 20% of a much larger firm which is more attractive to a buyer? I know which I’d want.
There’s not that much wrong, I suppose, with building a small business which keeps you in reasonable style and which you might sell for say, a million, so you can concentrate on your golf.
But just think of the lost opportunity to build something really big which will create genuine impact for NI. And the loss of excitement and opportunity.
I will cover the equity options in more detail in later columns, but if debt is the right option then there are two government inspired loan schemes. The NI Growth Loan Fund has £50m to lend in chunks of £50k upwards. And the NI Small Business Loan Fund is a tenth smaller but offers loans from £1k to £50k.
The new kid on the block is crowd funding, which comes in both debt and equity flavours and is already operating in NI – although not a lot of people know that (as Michael Caine never actually said).
Fortunately for us, many NI companies do ‘get it’ and see the value of giving away a little in order to gain so much and grow. These are the ones who will get rich. It may not be ‘money for nothing’, but it works for me.
More information about Halo angels, or to contact Alan, click on www.haloni.com .
