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Retailers look to equity capital to fund growth

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Following a £3.5m investment in Moda in Pelle here are some of the new funding routes available to small and mid-sized retailers.

What attracted us to Moda in Pelle as an investment opportunity was the strength and capabilities of its management team, as well as a clear business strategy and in-depth understanding of their customers.

Retail businesses are subject to cyclical trends and market dynamics: October’s CBI figures showed the strongest quarterly average sales increase in more than three years but in November growth slowed against a backdrop of smaller price rises.

What matters to a potential investor is the robustness of a retailer to trade through downturns, and demonstrate that it can adapt to market conditions and identify new sales opportunities.

Over the past 40 years, Moda in Pelle has built a loyal customer base and, from a single shop in Leeds, grown to over 60 stores and concessions across the UK. Its management team saw the potential for further growth by accelerating the roll-out of stores, enhancing the in-store experience and developing the company’s website and other e-commerce channels.

The business needed additional funding to achieve all this. In October this year, it became the 70th company BGF has invested in since we were established in 2011, and our 11th investment in a retailer.

BGF is a new type of investor, established to fill the funding gap for small and mid-sized firms that are profitable, but no longer taking on as much bank debt – either through choice or as a result of reduced bank lending. Importantly, we are long-term, minority partners to our investee companies.

Debt remains an important source of finance to many businesses: equity and debt often go hand in hand, with debt used for day-to-day financial management and equity used to fund growth.

But equally, more and more businesses are turning to growth capital because it offers value beyond borrowing in the form of high-level support and advice. One of the things we hear over and over again from entrepreneurs is the importance of access to senior, experienced business people who they can bounce ideas off. As a case in point, after being introduced by BGF, Moda in Pelle’s management team appointed former chief executive of Space NK Judith Pilkington as non-executive chairman to provide insight and guidance as the business moves through its next stage of growth.

Our investments in the retail sector show that growth ambitions are firmly back on the table for many small and mid-sized companies. Finding the right partner to support growth is critical to achieving it, and the fact that companies are continuing to explore their options for funding outside of bank debt is good news for retailers, the sector and the UK economy.

Richard Taylor, Investment Director at Business Growth Fund 

Published on Thursday 11 December by Guest Piece

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