Can’t get the funding for your public sector project despite its obvious appeal? Here are ten possible reasons why nobody wants to invest in your grand plan
After many disparate jobs, my father finally ended up owning a newsagent in South East London. I was literally a kid in a sweet shop for a while, although the appeal of stale Curly Wurlys soon pales. After a few rocky years, the business finally went bust and we sold it to nice Mr Ahmed and his extended family. Thirty-five years later, it is still trading and forms the cornerstone of a small empire of similar shops throughout South London.
This traumatic experience of watching the family business sink slowly beneath our feet has given me a lifelong morbid fascination as to why some businesses succeed while others fail. At every airport book shop there are hundreds of ‘how to succeed in business’ guides, but nobody is guaranteeing anything, and it always begs the question of why the authors are writing books instead of running big corporations.
The ‘Will this succeed?’ point also obsesses the banks as, if your ship sinks, their money tends to go down with it. In the course of a typical year, the average banker will see hundreds of potential opportunities and spotting the seaworthy ones is the key to him being a banker or an ex-banker now working as an independent management consultant.
None of this used to matter to the public sector because either they got their money from the bottomless well of the Public Works Loan Board, or the banks were super keen on them because they had the apparently unsinkable qualities of the Titanic. As recent events at South London Healthcare NHS Trust have shown, both of these comforting notions are no longer available and the public sector is facing the same struggle to get investment as everybody else.
This has no doubt come as a surprise to some project managers who have had their carefully prepared business cases sent back with a polite but nevertheless startling ‘No’. To try to avoid this happening to you, I have crawled through the last 15 years of trying and sometimes failing to get investment for my clients and have set out the ten most common reasons why funders won’t invest in your project.
1. You are too vague. Funders are inundated with opportunities, so have the attention span of a giddy toddler on a sugar rush. If your project has lots of moving parts, ifs and maybes, I am bored already and moving on to a more concrete proposition.
2. It doesn’t make any money. Making money out of lending you money is what the banks have been doing for 2,000 years. That’s what they do, so your project needs to obey the same rules of finance as every preceding project from the last two millennia. This sounds obvious, but you would be amazed how many projects come forward that fundamentally don’t make enough cash to repay the bank. Like a sweaty contestant on Dragons’ Den, you need to know exactly how much money your project makes, when and for whom.
3. It doesn’t actually work. Every year we see two or three perpetual-motion machines looking for investment. They are inevitably fronted by wide-eyed inventors with crazy hair and a lively dress sense who spend their lives hawking their moth-eaten PowerPoint presentation from bank to bank. Don’t fall into the same trap of thinking you can overcome the fundamental rules of physics. There are so many mainstream opportunities for investment that nobody will look at your one unless it has a copper-bottomed proven track record of actually working.
4. You live in the wrong place. European-based funders are not keen on ‘challenging’ locations. As a general rule, we don’t take on clients with projects in places where you can’t drink the tap water. This is less of an issue for the UK public sector although feel free to insert your own regional prejudice at this point.
5. There are lots of you. Projects with huge teams all trying to steer the ship never work. I once went to a northern council to discuss getting investment for a new leisure centre and all 32 of the elected members of the ruling political group plus all the chief officers came to the first meeting. This project has never happened.
6. You are Napoleonic. Don’t be. This is not the time to try to take over the world; these are difficult and austere times, so keep your ambitions muted. Don’t be asking for £100m for a start up – ask for £10m and make it happen. Again this sounds obvious, but you would be amazed how many wannabe Napoleons we see.
7. It’s gone on too long. Projects are like home-made cakes, very appealing for a very short time before they go stale. The investment community is quite a small number of people all working in roughly the same place. So if you have been hawking your project from pillar to post for the last two to three years, give up. Everybody has seen it by now and nobody wants to be the guy who said yes after the rest of the village had said no.
8. It’s too risky. This is not just ‘does it work?’ but also covers other risks involving planning, demand and construction. All of these have to be nailed down before you approach a funder.
9. You are too greedy. Giving our cake analogy a second outing, there are only so many slices of your project returns to go around. If you are giving yourself or your organisation a huge slice of the profits, there will be correspondingly less available for everybody else even though they are putting in most of the cash. This is less than appealing, so you will lose out to rival cake cutters with a better sense of proportionality.
10. It’s you. It’s just you. Sometimes there isn’t a reason. Sometimes you will have addressed all of the preceding points and still nobody wants to play ball. Maybe it’s just you or the person fronting the project on your behalf. Some people have an air of being ‘unbankable’. This is hard to define but is characterised by vagueness, shiftiness, especially around money, and/or a tendency to lapse into ranty polemics about bankers and bonuses. Unbankable people will never get money regardless of how hard they try. Don’t be this person.
So, in conclusion, although hundreds of billions of pounds are invested annually by the global investment community, there is probably an even bigger number of opportunities that never happen. The unfortunate events at the South London NHS Trust are big flashing signs that the public sector is no longer seen as a sure-thing investment proposition.
You will increasingly have to compete for the same funding as everybody else. Your rival isn’t the hospital or school up the road, it is the renewable energy project in France or the new-build factory in Poland. For those of you who are new to all of this, these ten tips will hopefully give you some idea of what not to do.
Michael Ware is corporate finance partner at BDO @michaelware13
