Expectations

I was lucky enough to attend a recent Connect Midlands "Amber" workshop on obtaining funds. There was an excellent presentation by a fund manager. "If you're after venture funding because you need cash in the next few months," he informed the audience, "you're f*cked."

The simple truth is that raising start-up or even growth finance based on equity is generally not a rapid process. The industry is full of stories about chance encounters, outlines on napkins, and snap decisions. If it was a regular occurrence, the stories wouldn't be interesting. The seed fund whose manager was so frank actually has a reputation for being one of the speedier ones - four months or so might be possible, but even they are usually more in the six months bracket.

But why is this such a surprise? All such deals require a number of viewpoints to be reconciled. The chief of these is "What is the company worth?" The people seeking investment have a clear view on this, and base it on a rosy vision of the future, secure in their belief that with the team in place, and the funds available, it will not fail. The investors have no such bedrock on which to base the future foundation. All they are aware of is the risk, and the process that must be gone through is a thorough explanation of the level of that risk, and what can be done to mitigate against it. Can the expertise on the team be strengthened? Are there partners we can find?

After all, if you had a few hundred thousand pounds to invest, wouldn't you want to conduct appropriate due diligence on where you were going to put it?

So why is it a surprise that after the election it took a few days to sort out the terms and conditions under which two previously opposing political parties would set aside their differences and agree to govern. I am reasonably sanguine about a coalition government; ten of the sixteen countries graded "AAA" for credit have such a thing. There is no correlation between good governance and "strong" (or as some would have it, dictatorial) governance in economic terms, and there are enough counter examples whichever side you try to argue. What does worry me is that it happened so quickly. I would have preferred the deal to have taken a little longer to thrash out, and perhaps a little more stress testing to take place behind close doors, since I suspect we will soon see some in public.

And what of the new government itself? Am I happy? Well, the proposed changes to capital gains tax are a worry to anyone who needs to raise finance for business growth - we have been promised that there will be measures in place to protect entrepreneurs, but we'll have to wait to see how effective they are, and whether they recognise it isn't just the man in a shed who sometimes needs to raise money to fund expansion based on a bright idea; established SMEs sometimes need it for their own growth. The other announced policies are the usual mix of the good, the bad and the ugly. Scrapping of HIPS will destroy an entire industry as quickly as the previous government built it. Bearing in mind the dire straits we are in, I have a suspicion that what happens now will affect our children more than us, and lay down an economic structure that will persist, for good or bad, for more than a generation.

In other words, the answer to "Am I happy about the new government?" is the same as the answer Chairman Mao gave to the question "Was the French Revolution a good thing?"

It's too early to tell.

Unlike Mao, I will tell you who may be able to answer the question for you. My daughter. Except she hasn't yet learnt to talk.