The objective of pipeline analysis is to permit effective sales monitoring and project cash flow and profitability of the business. Once the sales team develop a feel for the analysis then it is possible to establish future sales and hence cash slow with a considerable degree of certainty. A pipeline analysis is a working document which should be revised weekly. Devising a pipeline analysis has three elements:

  • Defining key stages. Key stages are very market dependent and definitions need to carefully judged. Once defined they must be strictly adhered to.
  • Assessing timing. As with key stages this depends upon an in depth knowledge of the target market and individual customers.
  • Preparing a projection. This is a mechanical exercise that can easily be prepared on a spread sheet.


Key Stages

A target client moves from 1-10 in the sales process.

1. General Interest This is an expression of interest resulting from press/ pr, contacts etc. This has a probability of 0% but is defined as a suspect to be followed up by the sales team. The suspects’ details should be captured in a suspect list and included in any on going marketing communications campaigns 0%
2. Establish Need After a meeting or a telephone conversation in which the customer requirements are identified. It is essential at this stage to identify the person in the organisation who has the authority to make the decision to place an order 10%
3. Money Allocated Client has identified funding within his budget or obtained budget approval 20%
4. Request for Quote Target asks for a quote 30%
5. Competitive Bid Judge according to knowledge of competitors but normally give probability according to number of serious tenders according to number of serious tenders
6. Non Competitive Bid 50%
7. Entered negotiation 60%
8. Offer accepted 70%
9. Contract Accepted 90%
10. Contract signed 100%

Assessing Timing

The average sales cycle for service products is on average 6 months from initial contact. This might be as long as 12 months for larger more expensive projects. Once a target enters the sales cycle each stage must be carefully monitored and timings to completion estimated.

Preparing a Projection

A typical spreadsheet is set out below. As noted above these are working documents and should the bible to the sales team and the basis of all reports to the board.

Sales and Pipeline Analysis

Notes Target Client Value Stage/ 


Jan Feb Mar Apr
1 Big Co 150,000 10/100% 150,000
2 American Co 100,000 3/30% 33,000
3 Small Co 25,000 7/70% 17,500
4 Medium Co 50,000 2/10% 5,000
5 Total 150,000 17,500 33,800


  1. Big Co might require significant additional services later in the year. JT is meeting with AH to discuss next month after installation.
  2. JT has good relationship with MD.
  3. etc

Download this article or have a look at our resources section for other articles and White Papers

Richard J Turner

Catalyst Venture Partners



Richard Turner

There are a number of options available when seeking venture capital finance and we make it our mission to find the solution that fits. One of the options for finance is our Investor Director Programme – set up to provide a framework for companies to raise the finance that they need as well as strengthening their management teams with the expertise and experience of the Investors themselves.

Catalyst provides Investor Directors (ID’s) to early stage companies. Currently the Catalyst database has over 3000 individuals with industry experience ranging from medical devices to the Oil industry.  These ID’s are highly qualified and willing to invest in fast growth early stage companies. Typically ID’s are successful business people who want to diversify their own investment portfolio and are seeking opportunities to work with early stage companies where they can use their expertise, have some influence on the strategy and operation of the company and generally make a difference.

The origins of the programme lie in Catalyst’s experience of building early stage companies. We recognised that the right Chairman/Non Executive Directors can have a transformative effect on early stage companies: they can open up opportunities, prevent obvious strategic and operational errors, and catalyse change. The programme can also provide considerable benefit to financial investors.


Benefits to the Company:

• Provides highly qualified and sector experienced individuals who are able to help steer and develop companies

• Can be a key enabler to realise the company/founder ambitions

• Provides a mentor and sounding board for the CEO

• Unlike with “Angel Investors” Candidates/Investor selection is under the control of the company

• ID’s are frequently well connected in the funding community and can facilitate further fund raising

• Will typically have the experience to prepare the business for eventual exit


Benefits to financial Investors:

• Provides comfort that highly experienced/knowledgeable individuals are willing to invest so supporting the due diligence process

• Adds to the Investor’s knowledge of the industry sector

• Supplements scarce investable funds

• Strengthens corporate governance

• Strengthens management

• Can be used in a turnaround situation to protect investment


Which companies qualify for the Programme?

The ID programme currently has a 100% success rate in providing ID’s because only qualifying companies are accepted.  To qualify companies must have:

• an addressable worldwide market in excess of $1billion per annum and/or an addressable UK market in excess of £100 million per annum

• a scalable business model

• a core management team with an entrepreneurial driver

• a defensible competitive advantage

• ambitions to achieve revenues in excess of £5 million per annum at the end of a four year plan

• proof of customer acceptance

• willingness to accept change


Getting an ID – The Process

We have a three step process:

Step 1 – We review the company’s business plan and work with them to ensure that they meet the qualifications and are communicating the message appropriately. With the management team we identify the ideal profile of individuals required. This may be a Chairman with a good industry contact list, sales and marketing specialist, technical/operational expert; or a financial director.

Step 2 – We solicit interest from members of the programme by circulating an anonymous profile of the company. Interested members are then contacted to ensure that they meet the profile and then an executive summary is sent to them to allow them to better gauge their interest. Selected individuals are then sent a copy of the business plan under an NDA. Meetings are then arranged with the company and offers are invited from both sides to establish an agreement in principle.

Step 3 – Having established a heads of agreement we then help to close the deal. This can involve a  range of tasks from providing guidance on suitable tax and legal advisers to appropriate service agreements.

If you would like to know more about the programme please contact us.

You can download this overview with additional case studies from our resources section.


Richard TurnerMicrosoft’s $8.5bn (£5bn) deal for the internet phone service Skype has once again thrown up discussion around the topic of valuation.

Valuation is not a precise science.  The founders or existing share holders want to maximise the value. An investor is typically much less optimistic about the companies prospects and more acutely aware of the risks, and therefore  wants to minimise the value.  This is a minefield that can damage a company and moral of the team even after it is successfully completed.  Years later founders can be resentful of deals that they thought underestimated the value and therefore robbed them of value.

So what is value? How can a loss making company with revenues of $9 million sell for $210 million; an idea on paper raise $10 million on a $20 million pre money valuation; whereas another company with revenues of £3 million making  £0.5million profit sells for £3million ?  Value depends upon an assessment of the future risks and potential and, in the case of a trade buyer, the strategic value and synergies that an acquisition can deliver.

Valuation Techniques

So how do these wildly different valuations come about? The answer depends upon why you are valuing a company and the techniques used. There are broadly speaking two types of approaches that are useful for valuing intellectual property based businesses: Discounted cash flow and market based approaches.

Discounted Cash Flow Approach: Conceptually all income/revenue based valuation techniques use discounting of the future as an underlying basis for coming to an assessment of the current value. The techniques vary but the assumption is that the business is worth some discounted sum of the future revenues or profit.  The key assumptions are what stream is being discounted and at what rate. In practice DCF approaches are very hard to use for early stage technology companies as the projected financials are often extremely speculative and the variables determining outcomes many and various. DCF works best when applied to companies with a proven business model and a reasonable history of performance.

Market Based Approaches: How can a loss making company be worth millions?  The answer lies in market value. Which is not so much a technique and more a hunch.  The buyers feel that it would give them a compelling edge in the market that would transform their strategy and/or there is a compelling proposition with an excellent team who have proved they could build a successful company.

A highly experienced American venture capital investor explained this approach as follows:
“we believe that we can exit for over $200 million  in five years time, we think that it will cost $15 million  investment to get to exit, our target rate of return is 10 times over the investment period, we think that to incentivise management requires them to have 25% therefore resolve that equation and you get a pre – investment valuation and that’s as scientific as it gets.”

Just in case you are wrestling with the answer it is $5 million.

For many early stage investors investment valuation is even less scientific. Many funds in the UK have a view that all technology businesses that they are willing to invest in are worth £1 million irrespective of the technology or the market.  This is not based on any assessment of exit value it is just a policy.  If pushed they will offer the management team a ratchet or options package determined by achieved exit valuations that effectively give the business a higher initial valuation.  In effect the approach is to say if you think its worth so much well lets see what’s achieved at exit and if it is much greater than our 10 times target you can get a bigger share of the upside.

Factors affecting Value

The biggest factor that affects valuation of technology companies is risk: market risk; technology risk; and management risk. An investor is looking at how to minimise these risks: does the technology meet a genuine unmet need or solve a real problem or is it a technology looking for a problem to solve; is the technology protectable and does it confer defensible competitive advantage or can it be easily re-engineered; is the management up to the challenge, can they work with investors, can they grow with the business.

As well as execution risk there is commercial risk – will anyone want to buy the business when an investor wants to exit.

Maximising Value
Technology businesses seeking to maximise value need to focus as much on managing the downside as emphasising the upside. This requires building the right management team; understanding the market and the value proposition in detail; getting the pricing right; creating partnerships with other businesses which can help take the product to market and create synergies.
Go to our resources section to download this article in full with additional case studies




Richard TurnerVenture capital is the provision of finance to unquoted companies. The investor effectively becomes a partner in the business. This varies from friends and family putting in £50,000 to a multi-million pound buyout deal.

All sources of venture capital have their “sweet spot” both in terms of sector and stages of the development of a company thus it is important to appreciate what stage you are at:
Seed corn. This is the development of an idea into the foundation of a startup. A typical example is the inventor in his garage obtaining funding to create an early proto-type of a knowledge management software product.

Start-up. This is a company that may or may not be ready to start trading but has a clear business proposition and well defined markets i.e. developing a working prototype into a product that can be sold. It typically has a core management team and a well-defined market strategy e.g. sell our knowledge management product to consulting businesses.

Early Stage. This is a business that is making sales but has yet to make a profit. This business will have ironed out many of the teething problems: recruited a sales force; produced a second version of the product; have some reference
clients; have a grounded business plan that is achievable.

Expansion. This absorbs over 50% of all venture capital funding and is used to grow an established business providing funding for: additional working capital; funding for a new product or service; moving into new geographical markets; capital expenditure.

Other uses of venture capital are: acquisition; debt replacement; management buyouts; buyins; rescue capital, and replacement capital.

For an overview of the Investment Process you can download our briefing paper from our resources section if you are interested in a lengthier overview on Venture Capital funding.


Jeremy LawrenceIn the second part of our overview from Jeremy Lawrence we look at the the key issues to consider in choosing the best solution for your business.

(See Part 1 for an overview of the main choices in the market for Single Invoice Discounting and Factoring or download the full article from our resources section)

1) Cost
No one wants to pay more than they have to but beware the headline numbers – they can be misleading.  The traditional factoring and discounting model usually includes an arrangement fee, a service charge (payable whether or not you use your facility) and interest paid on the money advanced. The interest charge is based on a %age over a standard rate, typically bank base rate.  In addition, there can be severe penalty charges if you try to cancel the contract before it has reached its end. Also, don’t forget the administration coast – you will be required to provide monthly reports on the ledger and the performance of your business, regular reconciliations of trust accounts (special bank accounts set up to receive money) and frequent audit visits from your provider – you may find that your accountant cannot deal with all of this and requires additional help.

It is important to take all these costs into consideration. The only cost charged in a spot factoring deal is the “discount” taken by the provider – this is the difference between the face value of the invoice purchased and the amount the factoring company pays for it. The charge is a %age calculated daily from the day you get the money until the day the invoice is paid.

The costs of spot factoring rate can appear to be high because all the costs of the service are built into the headline rate. As there are no add-on costs and no internal administration time to pay for, the comparative cost may be quite low. The costs are also easier to control – spot factoring is only used when it is needed. The invoice can be sold when funds are required and paid off once they are not so the amount of time you actually pay for may be much less than with a traditional factor. In general terms, traditional factoring and discounting will be less expensive in situations where there is a permanent, long term need for working capital finance. A temporary or occasional need for funding will usually be less expensive if spot factoring is used.

2) Administration
The traditional invoice discounting model requires the greatest administrative effort as the provider has to be given ongoing information on the status of their security. There is also an obligation to submit to audit as required by the provider.

Similarly, traditional factoring takes considerable administrative effort in supporting the factoring company’s requirement for information about all elements of the debt book. Where the factoring company takes responsibility for the management of the ledger and debt collection, the administration burden may be reduced but there is of course, a financial cost for this service. With spot factoring, there is no administration burden other than the submission of the invoice for funding. The relationship with the customer remains very much in the control of the client and collection of the debt remains the client’s responsibility.

3) Control of customer relationships
One of the big concerns for many clients is the loss of control over the hard won relationship they have with their customers. The potential risks associated with someone from outside their own organisation being in contact with their customer may be too high to bear. If this is a critical consideration, confidential invoice discounting is the only option available where the customer will remain completely unaware of the existence of the discounter. The downside for this is that the costs and the administration burden are high.

Under the traditional factoring agreement, the customer always knows that his debt has been sold to the factoring company. Although the invoice will be received in his supplier’s name, it will provide the bank details of a third party (the factoring company) on the invoice and statements, reminders and even telephone calls will come from the factor – someone with whom he has no direct relationship. Debt factors sometimes use call centre staff with potentially no interest in the business and whose only concern is getting the invoice paid. The client cannot control the degree of pressure the debt factor may use.

Spot factoring falls somewhere in between these two. Although the customer is required to confirm the validity of the invoice and pay the spot factor direct, rather than his supplier, once this has been done, the spot factor will have no further contact with the customer.

4) Availability of facilities

Traditional factoring companies will consider both the status of the debtor and the potential client’sunderlying business before extending facilities. Where the business is very young or is going through difficulties it is likely that facilities will not be extended or will be severely limited. Although a spot factor will examine the underlying business and take account of its future prospects, the main concern is that the invoice being purchased will be paid. As a consequence, very young businesses can often be funded and distressed businesses can also be eligible provided that there is a realistic prospect of impending recovery.

5) How long do you need the funding

This may be a crucial question. If the need remains significant for the foreseeable future the obligations associated with a long term contract are easier to justify. Traditional factoring is probably for you.  However, maybe you should also look at other funding options altogether. If there is a long term need to fund working capital, it suggests one of two things – either your business is growing so fast (and your debtor book with it) that you never expect the profitability of your business to catch up with the need for cash to finance all this new business. Alternatively, if your business is not growing, you should perhaps be looking at the profitability of your business – the implication is that either you gross margins are too low or your overheads are too high. Where the business’s need for funds is spasmodic or occasional, then spot factoring may be attractive as you can dip in and out to meet the specific needs of your business on a day to day basis.

Supposing your cash flow shows that for most of the time funds will be available but that for just a few weeks or months in the year there will be a shortfall. Spot factoring will iron out these spikes in cash demand without the need for long term lending contracts or running costs which you simply don’t need to incur. Once the initial paperwork has been put in place and the facility approved (which typically takes under a week) then you can normally get the cash on an individual invoice in under two working days. It is this ability to pick and choose when you draw funds, together with the speed and flexibility of operating the relationship and the very light administrative burden which can be attractive to many businesses.


Every business is different and has different financing needs. There is no single solution that suits all these different situations.  In choosing the right working capital finance model for your business, there are many factors to takeinto account. If the decision seems too hard to make, it may be that your accountant or financial adviser needs to be brought in. But here are a few simple guidelines to think about:

1. If you need continuous long term financial support then one of the traditional models will probably suit you best – being in a long term contract reflects your long term need so the issue of termination will only arise if you are unhappy with the particular provider you have chosen

2. If you need help managing your ledger and are happy for your customer to know about your relationship with the finance provider then Invoice factoring will probably provide the product you need.

3. If it is important that you keep your customer relationships completely in your control, you need confidential invoice discounting – just be ready for the administration burden that goes with that

4. If you only have occasional need for funding or you are not too sure whether when you will need it in the longer term, spot factoring will give you the flexibility to dip in and out of the facility.

5. If you want to keep it simple and have complete discretion over when and whether you use the service, again spot factoring provides this. Using spot factoring can provide a stop gap while you decide which direction your business is moving in.

6. Finally, if traditional sources have turned you down for funding, it is worth speaking to a spot factoring company as there are often situations where they can help when others can’t.
For more information or to discuss your working capital finance needs, call Jeremy Lawrence at Catalyst IFG on 0845 528 0788.




Jeremy Lawrence

There’s a myth in the market that factoring is the financing of last resort and that any business which has to sink this deep is on the brink of failure!

At one time this may have been partly true as banks happily gave overdrafts to anyone who walked through the door with a half decent business idea and a bit of a financial plan. But nowadays, the reality is very different. Invoice discounting and factoring are the primary sources of working capital finance for many businesses in the UK and are often the only way a bank will even consider supporting its SME customers.

Banks now realise that the debtor book is usually a company’s best and most easily realised asset, should anything go wrong. For some considerable time now, they have taken the view that they can lend more with less risk by taking control over their customer’s debtors in one way or another. So now that debt factoring has become acceptable – even the norm, rather than the exception – it has become crucial that businesses looking at working capital finance should shop around for the factoring arrangement which best suits their particular situation. Factoring is a sophisticated product these days with many different options available. As with all mature markets, choices have grown and that, the obvious solution is not always the best.

So what are the main choices?

Traditional factoring: Here, the factoring company takes ownership of all your debtors – the debtor book. Although the factor will take control of the whole ledger, certain debtors may be reserved (i.e.excluded so far as lending is concerned) usually because they are too old or the sale contract is not considered strong enough or because of a bad experience the factor has had somewhere else.
The factoring company will then make an amount available to the business based on a %age of the unreserved debtors. The percentage is typically from 70% up to 90% depending on the view that is taken of the strength of the ledger and the underlying business. The factoring agreement usually allows the factor to vary this percentage at short notice.

Invoice factoring companies often take over the complete administration as well as ownership of the ledger, including debt collection and credit insurance in which case the client company sacrifices control of its relationship with its customer once the sale has been made.
Factoring contracts are usually for a minimum period of two or three years with penalties for earlier termination

Invoice Discounting: The traditional discount model is very similar to factoring except that the invoice discounter provides a loan to the client – the debtor book acts as security. The amounts available will typically be similar to the debt factoring arrangement.

Generally, in an invoice discounting contract, the client retains control of the ledger and the debtorwill often not even be aware of the arrangement (confidential invoice discounting). The administrative burden on the client is often quite high as the discount company requires detailed monthly reports on the state of the ledger and will usually audit the returns for accuracy. Audits canbe frequent and errors can result in penalties.

Spot Factoring: Spot factoring differs from traditional factoring  in that the provider buys single invoices, rather than the whole debtor book. Each transaction stands alone so there is no long term contract and no standing charges. The client has complete discretion as to when he uses the facility. As with traditional factoring, the debtor is always aware of the transaction but there are no reporting requirements so management of the facility is very simple. The Spot factor may take a charge over the rest of the ledger but all aspects of its management (including collections) stay withthe client and the charge is only of relevance for as long as the particular invoice remains unpaid.  Spot factoring can be thought of as a “pay-as-you-go” option, used as and when it is needed and with no costs when it is not. Agreements are quick and simple to put in place and there is minimal administration at any point in the transaction.

See Part 2 to discover the key issues to consider in choosing the best solution for your business? Or you can download the full article from our resources section.



Typically, the stages involved in a Management Buyout and the likely sequence of events are;

agree on members of the management buy-out team, and the choice of managing director;
select and appoint financial advisers to the management team;
assess whether the opportunity is suitable for a buy-out;
obtain approval or accept the invitation to pursue a management buyout, if the opportunity is suitable;
determine or evaluate the vendor’s asking price;
write the business plan;
meet three or four carefully selected equity investors;
obtain written offers of financial backing from each investor;
appoint legal advisers to the management;
select the preferred lead investor;
negotiate the best possible equity deal for the management;
negotiate the purchase of the business, with a cost indemnity and a period of exclusivity;
carry out due diligence using investigating accountants;
obtain debt finance and syndicate equity investment if necessary;
prepare and negotiate legal documents;
and achieve legal completion.

Read about the importance of the Business Plan in an MBO in our blog next week or download the white paper from our Resources section


This is an extract from a Catalyst White Paper which you can download in our Resources section

Three factors are essential if a management buy-out is to be achieved: an effective management team (explored in part 1), a strong business and a suitable exit opportunity.

A Strong Business

Most management buy-outs involve high levels of debt, especially during the early years.  Accordingly, a positive cash flow is required.  A business will be less attractive to financial backers if the cash generated is absorbed by additional working capital, uncontrolled growth or a high level of capital expenditure.

As a general rule, the following characteristics help a buy-out;

a consistent track record of turnover and profit growth or demonstrable scope for improvement;

a strong competitive position within a growing, stable industry;

a spread of products and services;

strong asset backing or demonstrable cash generation.

As a result, most businesses lend themselves to a buy-out if they possess the above features.  There is a common misconception that ‘people’ or ‘creative’ businesses are more difficult to buy out.  This is not true provided that the business shares most of these features.

Suitable Exit Opportunity

As most buy-outs depend upon both equity and debt finance, the repayment of both needs to be considered at the outset. The leading debt provider will usually expect both interest and capital to be paid back out of cash flow over a specified period, often 5-7 years.  Debt providers will not want to rely on an exit for the repayment of the loan.
Providers of equity capital, however, will require an exit for the bulk of the profit they expect to make from backing the transaction.  In most cases, they want to realise their investment within 3-5 years of the buy-out.
Investors tend to maximise the annual compound rate of return by an early exit.

The probable exit opportunities are:

a sale of the company to a trade buyer;

a flotation of the business on the London Stock Market, the Alternative Investment Market (AIM) or Easdaq;

and  the management team may buy out the shareholding of the institutional investor, or even a manager wishing to leave or retire, if the business has generated sufficient profit and has adequate cash or borrowing resources.

In a substantial majority of cases, however, the most likely exit will be a sale to a trade buyer.

For an attractive exit, it is important that the business:

has achieved satisfactory sales and profit performance for the preceding 2 or 3 years, compared with other companies in the market sector;

is capable of sales and profit growth during the medium term;

is not unduly dependent upon either one or a few customers;

and has a management team committed to the development of the business.

Consequently, a management team will have to demonstrate how they will achieve continued sales and profit growth throughout the foreseeable future in order to get financial backing.  Attempts by a management team to mount a management buy-out simply to retain their jobs would not receive backing unless the prospects for a successful exit are demonstrated. As a potential purchaser will generally require the management to continue after the acquisition, the management team should not assume that they will exit at the same time as the institutions.

The casting vote regarding exit is a matter for negotiation. There are likely to be detailed discussions as to the circumstances in which either management team or investors can sell their shares and the rights and obligations of other shareholders in such circumstances.  Investors will not want to coerce a successful management team into an exit.

It is quite common for a participating or accelerating dividend to come into operation after, say, 2 or 3 years, giving the equity investors a right to a proportion of profits.  This form of finance is expensive and is intended to focus the management team on the advantages of an exit. In addition, a majority of the equity investors’ investment may be in the form of loan notes or preference shares repayable or redeemable to a fixed timetable, sometimes at a premium.

See Part 3 next week for an overview of the stages of the buyout process. Or you can download the white paper from our resources section.


This is an extract from a Catalyst White Paper which you can download in our Resources section

PART ONE: What is a Management Buyout?

A management buy-out is the purchase of a business by its existing management, usually with the help of financial backers. Over recent years, several hundred buy-outs have been completed annually. The bulk of the funding will come from financial institutions in the form of equity and debt.

Different types of financial instruments have tended to obscure the difference between the two. Debt is usually provided by specialised acquisition finance units of UK clearing banks or investment banks, while equity is provided by venture capital or private equity houses. The opportunity for a management buy-out may arise in a number of ways:�

a group may decide to sell a business because it has become non-core;

a company may find itself in difficulties and need to sell all or part ofthe business;

the owner of a private company may wish to retire; and

a receiver or administrator may sell a business as a going concern.

Three factors are essential if a management buy-out is to be achieved: an effective management team, a strong business and a suitable exit opportunity.

Each is examined in detail:

The quality of the management team is the most important element of asuccessful buy-out. Financial institutions need to be convinced that themanagement team has all-round strength and can manage the business independently. Tax, treasury and research and development may have been handled at group level and the management team may need strengthening in these or other respects.

The management team will need to demonstrate a high level of commitment to the buy-out and to the subsequent successful growth of the business.The equity investors will expect each member of the management team to invest personally. The amounts involved are intended to be significant commitments by the individuals concerned and will vary according to the circumstances but are likely to be the equivalent of at least six months’ gross salary.

Provided the personal risk is acceptable, the equity investor will welcome a larger investment by the management team. Opportunities for other managers and staff to invest smaller sums can be provided. It is quite commonplace for the leader of the management team to have the opportunity to invest more than other key team members.In most cases, the leader of the buy-out team will be the present chief executive. It will be his or her job to ensure that the management team is not overly distracted during the buy-out. It is often appropriate to delegate the day-to-day involvement in the transaction to one or two individuals, and for them to provide regular updates for the team.

See Part 2 next week for examination of a strong business and a suitable exit opportunity. Or you can download the white paper from our resources section.