Richard TurnerIn the past few months we at Catalyst have become increasingly frustrated by the number of good businesses and business projects that have been unable to raise finance. The venture capital community and the banks have raised the bar on returns and risk aversion to the point where only blue chip projects and companies can get funding.

In our search for new funds we have developed a relationship with a Japanese based group that seeks to access Japanese savings from individuals and companies to provide long term loans to companies and development projects. These funds are provided as a type of Bond which typically carries an 11% interest rate payable quarterly in arrears. The capital is repayable after five years.
Security is a debenture against the company not assets so it is effectively a form of cash flow lending. This product offers a great source of funding for established companies wishing to invest in projects with a hurdle rate of interest of about 20%, and for early stage companies who have contract backed revenue sources such as energy and recycling companies. It can also be used for property development and finance companies.

The main benefit is that the funds can help your business to grow and we are pleased that we can offer an effective, alternative way of raising finance.

Please see the finance section for more information or if you would like to know more please give me a call at 01225 331498 or drop us a line at hello@catvp.com.


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 TurnerI attended an interesting two day workshop sponsored by SouthWest Screen at the end of May. Speakers included Luke Johnson and Will Hutton. There were a lot of interesting folk from the industry  and those charged with helping the industry develop.

The objective was to identify barriers to developing  growth businesses in the creative industries. We spent a bit of time agonising over the meaning of the term creative industries before agreeing that what we were really talking about is creative digital media companies.  In practice this covers amongst others computer games, internet apps, smart phone apps and broadcast media across multiple platforms.  The general view was that it was very difficult to attract investment.  Many companies seemed to either lack ambition, the management,  or the business model to attract investment.

We have formed a group to look at the key issues companies face. I would like the group to get a really detailed understanding amongst other areas of :

  • Which sectors attract investment and why?
  • Which business models attract investment and why?
  • What are the returns an investor is seeking and over what time frame?
  • What cultural issues need to be addressed?

My suspicion having looked at many businesses in this space is that investors think that many companies have a “binary” business model i.e. if it works then you make a lot of money and if it fails then you lose everything.

In addition the intellectual property embedded in these businesses does not have multiple routes to market so cannot benefit from a portfolio approach. Plus the return early stage investors expect i.e. 10 times money over five years either cannot be achieved or that the culture of the company is not focussed around achieving exit but rather fulfilling creative ambitions.



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.


Richard TurnerIt seems to come as a shock to many people that the venture capitalist is in it to make money and lots of money! Most funds have a target return of 35% per annum.  This though is from a portfolio, which contains companies with widely different levels of performance.  Overall the performance of investee companies tends towards the third, third, third rule: a third of all companies invested in either stand still or fail; a third are moderate successes growing at between 10-20% per annum; a third are extremely successful with growth rates in excess of 100% per annum. To ensure that the fund meets its overall return most VC’s therefore look for returns on investment in excess of 50% per annum and frequently over 100%.

I have published a briefing paper which you can download from our resources section if you are interested in a lengthier overview on Venture Capital funding.


Richard TurnerWhen looking for high-tech venture funding it is crucial to get over the credibility gap. Meeting people’s expectations in terms of the motivation, calibre and track record of the management team is key. How the team complement each other is also important. As a general guide here are our thoughts: -

A Chairman – As the public face and advocate of the business the chairman should have industry credibility and a demonstrable commercial awareness. Ideally he should have developed and sold a business in the space and have invested in the company.

CEO – The primary entrepreneur of the team – its entrepreneurial heart. the CEO should be technically literate and have the drive and ambition to keep the momentum of the company moving forward. He must be able to sell and execute substantial deals.

CTO – As the person to supervise the product development, testing, and future product evolution the CTO must have a proven track record in the field, be able to communicate with sales and marketing, and represent the product to customers.

These three team members are the foundation of the company. If these are strong other members of the team covering areas such as sales, marketing, and finance can always be added.

There may be a gap between how the team works operationally and how it looks on paper However what is important is the level of real commitment and whether the team can deliver.

If the right team is not in place you will have a hard time convincing a VC to invest – however good the proposal or business plan.


Richard TurnerWe have done over 50 deals of varying sizes. The key is to remember that you are selling a product (your company) the VC is selling money. They work hard to find good deals you are working hard to find the money. Both want to do deals. So some advice:

1. Fund raising is a strategic not tactical decision like all strategies it needs to planned and enough time allocated. We believe that it takes about a year from start to finish.

2. Take advice – its a minefield and you need all the help you can get. It also says that you are serious about doing a deal. VC’s also recognise that if they behave less than transparently word will get about what is a very small community.

3. Research your target market. Look at deals done not what they say. Make sure they have money to invest at the right deal size.

4. Create a competitive market always have at least three live options on the go at once. Never assume anything will actually happen.

5. Create an atmosphere of trust. If trust is not reciprocated then walk away. This is a marriage with little chance of a divorce

6. Listen to your advisers on deal terms. They should have done all the research on comparables etc.

These are my top tips – I’d be interested to hear yours, either from an investors’ point of view or from the other side of the table.


The argument for telemedicine is very compelling, particularly in the arena of geriatric medicine and post operative care. Most people are they grow older would like to be in their own home and evidence suggests that patience recover more quickly at home after an operation.

The technologies to allow this to happen are growing rapidly but how do you make money? Selling technology to the NHS is a very long haul. There are pressures in the NHS to increase efficiency and reduce costs which should create compelling pressures however we suspect only short term benefits are likely to be recognised. Long term gains will require substantial investment. Investment that is unlikely to be forthcoming. Our in-house analysis shows that it is likely to be the service providers.

These are companies that offer services to care homes, retirement villages, and individuals on a private basis and can pick and choose their technologies and offerings. These companies benefit from long term service contracts and a captive market. A stunning example is Cirrus Ltd. These are telecoms and systems integrators that have moved to become service providers and are taking advantage of this growing market. We expect to see this sector become a rapidly growing market.


Richard TurnerWhat am I worth? Valuing early stage technology companies is an art not a science and depends on the purpose of the valuation. The bigger you are the easier it is and any decent accountant can come up with a plausible range.  When you are small different rules apply. I once sold a software company in the US with a $1m turnover for $49 million – how did that happen? Well the purchaser thought it could plug the product into its range and generate an extra $250m revenues a year. It estimated that it would take two years to develop a  competitive product so total  foregone  revenues would be circa $500m. It paid 10% of that and got a bargain.    So what’s the answer? Well it all depends.  As I write this I realise that this is really far too complicated for a blog so I think a white paper is required. Watch this space.

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