Venture Capital is not the only answer. But it’s one of the few answers if you want to take your business to a materially different level. Many other financial routes are closed in the current climate and non-financial adjustments, while potentially positive, will not have the same impact.
Recruitment attracts entrepreneurs. The UK is undoubtedly one of the world’s recruitment hubs. There are more agencies in London than in the entire United States, but that makes it hard to stand out from the crowd.
Venture Capital vs. Bank Loans
Taking a significant step with a business usually requires some type of investment and, in general, there are 2 recognized financial routes. The first is a bank loan and the other is venture capital (or private equity).
If you go the bank loan route, keep in mind that since a recruiting firm is not an asset-backed business (aside from its debtors, who typically attract financing for working capital), it has never been easy to borrow money. against a recruiting firm’s future profits, given that assets leave the office at 6 pm every night and hopefully return the next day.
Traditional banking has never been more difficult than it is now. There are many cases reported in recent years in which companies have borrowed from a bank, have been able to pay the interest, but have breached the long list of bank agreements. These deals are scrutinized intensely by overzealous analysts, who seem all too ready to hit the alarm bell and send in the bank’s friendly trade support team. In turn, this often leads them to call administrators… and the rest is history… in many cases.
To be sure, the perils of taking out bank loans have never been greater, peppered with high fees, conditions, key ratios and draconian penalties, if you can get over the hurdle of getting one in the first place.
The alternative method of obtaining financing is to attract an investor such as a venture capitalist, whereby you sell a portion of your capital in exchange for a long-term investment. However, this is also not a piece of cake. However, it is generally considered the best credible alternative to a bank loan.
Benefits of the Venture Capital Specialist;
Knowledge; If you choose a venture capitalist with experience, or preferably a focus, in your chosen market you will get a partner with considerable knowledge and practical experience.
Counseling and Tutoring; His experience will be extremely useful in terms of acquisition or strategic advice, management infrastructure, succession planning and, of course, exit. If you haven’t been part of an outlet before, an experienced partner will be invaluable, both with practical advice, business preparation and contacts in the market. So not only will they add value overall, but they will unlock equity value, a specific skill that many owners don’t have yet, because they haven’t needed it.
Comprehension; The right venture capital partner will take the time to understand your business. If they have experience in the recruiting industry, they will understand the cause and effect of specific recruiting issues such as seasonality, pay cycles, and churn. Therefore, they will make more informed decisions and understand that the assets of the business are people.
Additional Financing; If additional funding is required in the future, then a VC will provide important support either by increasing bank loans or by investing more themselves.
Contacts and Networks An investor, especially one well connected to the recruiting industry, should be able to use their wide range of contacts through their business networks, from public relations agencies to banks, from accountants to marketers. Everyone who can help take your business to a new level and beyond.
Summary
Attracting investment can exponentially accelerate the growth of your company. If chosen wisely, it can help support your plans and take some of the pressure off senior management.
Traditional bank loans are now difficult to obtain and are inflexible. I would also say that they are light on additional benefits. Venture capitalists can add real value from their experience and contacts, especially if they are seasoned industry professionals who have held executive management positions and have hands-on experience in adding value. Also, when a VC is investing their own money, they can be sure their commitment to wealth creation for all equity shareholders will be 100%.