Navigating the choppy waters of today’s business climate requires more than just business acumen—it demands in-depth understanding and strategic foresight. In this exclusive interview with Philippa Sturt, Corporate Law Partner at Oury Clark, The Executive Magazine explores the intricacies of fundraising, mergers, and acquisitions. Philippa dissects the economic factors impacting these activities, highlights common pitfalls, and provides essential advice to ensure successful financial manoeuvres. Whether you’re a seasoned executive or a budding entrepreneur, her insights are indispensable for anyone looking to thrive in these complex times.
What are the key factors affecting fundraising and more generally M&A activities in the current economic climate?
“The business world prefers stability. But the current economic turbulence with high inflation, volatile interest rates, and looming elections in the UK, is only adding to the uncertainty.
“Many companies are now focused on preserving cash so we can expect the number of M&A deals to rise as business leaders look to M&A as a way to grow with less risk during unsettled times.”
What are the potential pitfalls and risks that founders and business leaders should be aware of when either fundraising or considering an acquisition? What are the common mistakes and how can they be avoided?
“Being unclear about numbers really is the most common mistake. I’ve seen too many examples of impressive businesses fail due to poor financial management. This also has a knock-on effect on valuation – if you can’t value your business effectively, chances are someone might get it for a steal while you think you’re being paid a good price!
“Make sure to hire a dependable bookkeeper to keep track of your cash flow by reviewing your profit and loss regularly.”
Can you outline the typical due diligence process for a successful deal, and what are the deal breakers to watch out for?
“The basic due diligence process involves asking a series of questions and then interrogating the answers with professionals often performing financial, legal and commercial reports on the findings.
“The likes of unresolved legal issues or financial irregularities could all be potential deal breakers. However, unless the due diligence process throws up something that significantly affects the price e.g. a lack of pipeline, or it materially changes the deal e.g. a seller doesn’t actually own the shares they are purporting to sell, most things can be dealt with by a price negotiation or the buyer getting indemnity protection in the legal paperwork.
“No matter which side of the transaction you are on, transparency and the willingness to have tough conversations early on will increase the likelihood of a successful and mutually beneficial deal.”
What are the pros and cons of different types of investment? What are the different deal structures around each and their implications for founders?
“Normally the choice is between angel investment or institutional investment (venture capital, family offices, private equity), depending on your situation. Angel investment offers flexibility and mentorship, while venture capital (VC) provides larger funding amounts but may come with more strings attached.
“When dealing with VCs, be sceptical. If a deal sounds too good to be true, it probably is. VCs exist purely to invest in things, so you have negotiating power too. Generally, angels tend to be less focused on valuation and less demanding in terms of control rights. However, they can be demanding on a personal level and want much more face time/ interaction with founders. VCs will want more control over the business but tend to be more experienced and a little more hands off with their investee companies.”
How can founders use tax and funding frameworks to their best advantage in the UK?
“To attract investment in a tax-efficient manner, consider schemes like the Enterprise Investment Scheme (EIS) and the Venture Capital Trusts (VCTs). EIS allows individuals to invest up to a million pounds annually providing investors a 30% income tax break and exempting them from capital gains tax if they hold shares for three years.
“This can attract individual investors hoping for big returns without extra taxes. But it’s important for founders to follow EIS rules closely to keep investors happy. VCTs offer similar tax benefits but require careful attention to rules. For founders, understanding different deal structures is key. Using schemes like EIS, founders can get investment while cutting taxes for their investors, building good partnerships.”
How can investors and financial institutions work to create a more level playing field for women-led businesses?
“Quite frankly, investors need to give more money to female-led businesses. It really is that simple. Data from Female Foundry shows that only 11% of venture capital invested in European startups last year went to female founders. While it’s an improvement on 1% in 2022, we still have a long way to go.
“Ideally, investors need to recognise there is an element of unconscious bias in decision making and allow for it, even deliberately taking a bit of extra risk to invest in that women-led business you are just not completely sure about.”
Have you noticed any positive shifts or improvements in recent years regarding gender equity in the investment and funding landscape? What more can be done?
“Recent years have shown some promising shifts, but many women are still trapped in the dual responsibilities of entrepreneurship and family duties. To really empower women in business, we need better support systems in place.
“By making affordable childcare more accessible, we can give more women the opportunity to thrive in business. While we should absolutely celebrate the progress made, much work remains to create a more equitable environment for female entrepreneurs and corporate leaders.”
How crucial is it to assemble the right team of advisors when embarking on funding rounds, a sale or acquisition process?
“When you’re fundraising or going for a merger or acquisition, it’s not always easy. It can feel like a rollercoaster ride. Throughout my career I’ve seen all types of businesses through every step. If you want to learn from others’ journeys, you can listen to our podcast, ‘Business Without Bullshit‘. Or just reach out, I’m always happy to offer a free initial consultation to support.
“But let’s not forget about your management team, either. You want people with strong leadership skills and excellent communication abilities to navigate the choppy waters of growth and expansion. So, whatever your next business move is – surround yourself with the right people.”
How do you balance long-term strategic goals with short-term financial pressures?
“I’d always say it’s about making smart decisions about where to invest resources, from your talent and money to your time day to day as a founder or business leader. Don’t just react to what’s happening right now. Instead, any leader must always have one eye on the future.
“One way to do this is by sorting projects into tiers, focusing more on the ones that line up best with the big picture while still keeping an eye on your immediate needs. It’s all about making sure you’re putting our resources where they’ll have the most impact.”
Can you describe a challenging decision you faced during a fundraising or acquisition process and how you addressed it?
“Last year I advised a small, quite cool, FMCG startup that was taking its first significant investment from a small VC. The valuation was agreed, and the founder had a good working relationship with the VC, who were offering all sorts of added support and mentoring post deal.
“When the term sheet arrived, it included a provision that the VC would get a special class of share that would always entitle them to 15% of the startup, no matter how many future funding rounds or how much the startup raised overall. This would mean that all other shareholders in the startup would get diluted by future funding rounds even more than usual as they would be taking the hit for the 15% that would remain forever undiluted.
“The VC told the founder this was “perfectly normal” and that “all our other investee companies have been happy to sign up to this”. The founder had the choice between believing the VC with whom he had a good relationship and taking the deal or believing me when I told him this was a really unusual provision, would hamper his ability to raise further funding and was totally unreasonable (the VC was really not investing enough to warrant this).
“I was really proud of the founder who, despite having gone a long way down the investment road and reached near final agreement stage, decided to follow my advice, reject the offer and take a slightly less amount from a more reasonable VC.”