Member Article

The benefits of equity investments for growing North East businesses

The success of TV programme Dragons’ Den has highlighted the benefits of equity funding for growth but many North East entrepreneurs are reluctant to let go of part of their business despite the proven success of the approach.

Regional venture capital company Northstar Ventures, which is currently investing in high growth businesses through the £25m Finance for Business North East Accelerator and £15m Proof of Concept Funds, is concerned a lack of understanding may be causing this reluctance.

Raising capital by selling shares in an enterprise is a tried and tested method to either grow or start up an enterprise with strong potential. As a form of investment, it has major benefits: entrepreneurs are able to find the funding they need, while the investor has a vested interest in the company’s success.

Web-recruitment software company RecruitmentForce has used equity investment to successfully grow its business. The Newcastle-based firm has received £720,000 by way of equity from Northstar via three rounds of investment, in addition to funding from private investors.

Initial investments allowed the company, started by managing director Eldon Jobe and product director Carl Holst-Roness, to produce its cloud-based recruitment software and then supported RecruitmentForce as it ramped up sales. The business now licenses its products to clients across Europe, the US, Asia and Australasia as well as the UK.

Mr Jobe said: “We needed support building the company when we had nothing to sell and then when we were selling and were in a cash negative situation.

“Being invited to Northstar’s events means I have been introduced to people both in the North East and across the UK. My business network has grown massively and the people I can turn to and talk to, has grown.”

Prior to RecruitmentForce, Mr Jobe ran another business, so has experienced starting a business both with and without equity investment.

He said: “The only reason not to do it is if you’re happy growing at a modest and measured pace, and are happy that you have the skills already within the business to achieve this. From the outset, my business partner and I decided we would sell part of our company in order to bring in the funds and experience we needed to scale rapidly. We decided that we’d much rather be a part of a giant pie than have the whole of a small pie.

“I can see the merits of doing it one way and the other. I think I’ll be a lot more successful and make a lot more money this way.”

RecruitmentForce received an investment of £200,000 in its latest round of funding from the Finance for Business North East Accelerator Fund, the fund having already invested £200,000 alongside £25,000 from private investors earlier last year.

The injection of capital helped the business to expand its workforce from 2 to 12 within 6 months and expects to hire a further 18 staff by the end of the year. It has also allowed RecruitmentForce to move to larger premises, buy new equipment and boost its marketing efforts.

Rebecca Crawford, investment manager at Northstar, said: “RecruitmentForce is an excellent example of the advantages of using equity funding.

“By raising equity funding, the company was able to concentrate on developing its products and accelerate the growth of the business without the short term pressure of the need to service debt. The founders and investors’ interests are aligned in working towards making a decent capital gain on equity exit. RecruitmentForce has great potential for further growth and we expect the business to make a strong contribution to the regional economy over the coming years.”

The Accelerator and Proof of Concept Funds are backed by the European Regional Development Fund and the European Investment Bank.

This was posted in Bdaily's Members' News section by Northstar Ventures .