Why growth capital holds the key to a thriving future

Entrepreneurs and business owners need funding and investment to help them fulfil their potential. But what types of refinancing options are available to them? Jeremy Middleton, CEO of investment firm Middleton Enterprises, and the co-founder of international property repairs group, HomeServe, makes the case for growth capital, based on the support and stability it offers to growing businesses.

Most entrepreneurs dream of scaling up their small business to become a big company. But even though they might have hit upon the right solution at the right time, it may still not be enough. Achieving this dream will often depend on finding the right financial model, and crucially investors that will support them and their company throughout its growth, providing them with the resources and confidence they need to turn a profitable business into a serious concern.

The rise and rise of HomeServe

Not every business gets off to a good start. Take the first company I backed, HomeServe, for example. It recently accepted an offer £4bn, in one of the year’s largest private takeovers but, like many businesses, it took a while to find its feet. My business partner at the time, and I, struggled to raise investment in the beginning. Banks wouldn’t lend to us, and VCs wouldn’t invest. We maxed out our credit cards and borrowed what we could from friends and family. Bills were piling up and, at one point, the bailiffs came knocking at the door.

While our fortunes eventually began to change, we knew we needed bigger backers if we were to make a success of the business. The solution lay in a pivot – from selling plumbing services to the small number of people who experienced plumbing emergencies to selling policies to provide repairs in the case of emergencies. Having established a recurring revenue model, the business went from strength to strength. Today, HomeServe is now an international business listed on the London Stock Exchange.

The best finance option for your business

The secret to HomeServe’s success was its potential. Our pivot meant we had found the right economic model to deliver the right product to the right market. This, coupled with a healthy dose of ambition and confidence made it hugely attractive to investors. 

The trick, if you are an ambitious entrepreneur and once you have a proven business model, is to find the right investors for your business. Banks may be the best option ‘if’ they will agree to fund you. It’s certainly the cheapest capital, although you will have the burden of debt. And most won’t do cash-flow lending, so they’ll want security that you may not have.

The alternative, of course, is venture capital, but it needs to be right for your business. The best investment partner for a fast-growing and ambitious SME, is one that will invest pure equity alongside the entrepreneur, but also shares the same ambitions and is driven by the desire to create a business you can be proud of, rather than one that sees you and your company in purely financial terms.

Introducing growth capital

Starting a business from scratch and then witnessing it flourish and grow is extremely rewarding. It creates jobs and opportunities. It’s an exciting process to be a part of. So, with that in mind I founded an investment firm built on a financial model that would help entrepreneurs take their businesses forward. Based on the lessons learned from HomeServe, and other businesses over the years, we provide ‘growth capital’ to established, profitable SMEs, supporting them as they scale, creating growth plans and strategies, and offering advice on other operational considerations. 

We back what we see as potentially great businesses, rather than trading the stock market. One of these, a property trading business called HBB Ltd, which recently hit £100m in sales. We also backed Conviction Group, a global network of business angels investing in B2B SaaS companies. To date, they have raised and invested over £100m into the sector.

More recently, we invested in OneGym, a low-cost chain of gyms across the North East, to help scale up its operations and expand across the region. OneGym had a proven track record and the economics were good. We knew from experience that gyms represent a great investment opportunity, as memberships generate a recurring revenue model. 

Importantly, we wanted to offer more than funding. We wanted to be part of OneGym’s growth journey. Rather than taking over and imposing conditions, we wanted to give its co-founders the flexibility, support and – notably – the time they needed to succeed. So, we are supporting them on their expansion plan, and helping them find the right locations for new gyms – considering factors such as regional demographics, and income levels. And I’m happy to say they’re now looking at opening several new sites over the next few years.

The right kind of investment partner 

It’s difficult for entrepreneurs to start without any money, and it’s hard to raise any when you don’t have a track record. It is, of course, essential, however.

While banks should always be your first port of call, you may often need to look to venture capital to fund your company’s growth. It’s important, then, that you look for the right kind of investor: one that sees your company’s potential, not just your balance sheet. You need an investor that will invest in your growth by wanting to grow with you, that understands your business and cares about its success, and that can offer you the support and guidance to enable that success, rather than taking over and selling out.

This is growth capital. And for those entrepreneurs who dream of scaling up their small business to become a big company, it’s a way of making that dream come true.