Podcast interview (Aug 2019) on finding investment for growing UK businesses. Ronald James interviews Peter, who describes bootstrapping his company (starting with £2,000 from his father), a roughly 10-year growth phase to about £5m turnover, then seeking external capital after banks declined. They raised ~£1m from private equity with ~8% interest and ceded about 30% equity; discussion covers trade-offs between bank debt and private equity, founder motivation, and when founders may take money off the table.
In terms of, like, how you got started, did you look for any investment initially, Peter, or was this just a bootstrap? Like, how did you get started?
And then we bootstrapped it. I had £2,000 for my dad, which I was meant to pay back and that got us going, you know, the customers and that all got us going. And then it was only we had a long period of about 10 years. So while I finished uni and then five or six years when the company really grew kind of 1 million, 2 million, 3 million, 5 million turnover. And at that point we sat down, we were like, well, this company's getting a bit out of control. We're rushing around really crazily because A, do with some grownups in the structure because we kind of afford five people. Then B, we needed some more capital, working capital and some more equipment, some more servers. So that's when we set out to initially look for bank funding. But we couldn't get that. So we went down the road of private equity venture capital, and the first time around we raised a million pounds of growth money to help us grow the company.
Wow, that's interesting. I was actually. I met with a private equity company yesterday and they came to the office and it's something we've never considered as a business. Obviously, I've fully bootstrapped our business. Ronald James from the start, but I think once you get to a certain point, you do need sometimes a bit more higher leverage to take yourself to the next level. And 10x that. So what, what was the transition like? So you got to a million pound revenue, which is your first mark, and then you got to 2 and 3 million.
Eventually just over 5 and making enough profits. I think the first thing about private equity is that actually it's both a share, they take a share of the company, but they also give you a loan. It's a loan. So you have to pay the interest to be able to generate enough profits to meet the interest payments. So bank debt would have been preferable. And this was at the time when George Osman, I think, was guaranteeing that the banks would be able to lend loads of money. But our bank didn't see it like that. So we ended up with. We have a higher risk profile, I guess, than they're comfortable with, so being a kind of SaaS held company. So we ended up with private equity money, like I said. So we had a million pounds, it was 8% originally interest a year. And then also they took a 30% share of the company as part of their reward because someone like that, who's investing a million pounds is looking to get two and a half to three million pounds back in four to five years. So they need a combination of debt and equity to make that work for them. Unless you're a proper tech startup in California. But most companies in the uk, we can't grow that fast. The market's not that big. It has to be properly available to grow that quickly.
That's interesting because I suppose on some private equity deals, some business owners do that to try and de risk themselves from the business because they've fully leveraged in it. Personal guarantees put all of the money in and sometimes when a PE house comes on board, you get to take some money out as a business owner. So you've sort of shared the risk with the, with the private equity company. Was that something that you did? Was that the second time around you managed to do that then Peter?
A bit. The second time around? Yeah, I think so. That's first time around. I want to maintain majority ownership and wanted the money to grow the company. To be fair, it probably wasn't big enough to justify taking money off the table like they say. Second time around it was a bit bigger, but I think that's nerve wracking for private equity. Remember, primary equity money is either from institutions like pension funds or it's largely at this level from high net worth people that have made a load of money and are now reinvesting it through a sort of more formal managed structure. So they don't really want you to take your money, they need you highly motivated. Running the company as I am sort of today, in order to deliver the next level of return, that's kind of really key part of the business model. So a bit of money is fine because no one wants the founders and executives at the door, but not too much, I guess.
