Finding appropriate and available finance to grow your business is not exactly easy. And then it’s one thing to even secure it, quite another to use it effectively. Here’s how one bank is supporting growth companies with more than just money.
For Andy Hill, founder and executive director of I Like Music, the finance has proved to be just one part of the support that a large bank can provide to a small business.
Surrey-based I Like Music is a business at the intersection of music, technology and innovation. In physical terms, the I Like Music collection is 200,000 pieces of vinyl, tens of thousands of CDs – amounting to to some 17.5 tons. In digital terms, it’s a perfect collection of the highest quality uncompressed audio files, stored on servers.
“I have always loved the international aspect of music,” says Hill, who has been fascinated by the digitisation of music since first seeing its potential when working at IBM in the 1980s. “Music is a huge UK export. Look at the top ten selling albums of 2012; five of them are British. So a country with one per cent of the world’s population accounts for 50 per cent of the world’s top-selling albums. The business opportunity is so large.”
I Like Music’s original business is the provision of fully-licensed music to the broadcast and production industries.
In this area, the BBC is its biggest customer; every day, its staff search, listen and download music for use in radio and television programmes. When, on an episode of EastEnders, a piece of pop is playing in the background of The Queen Vic, that track was sourced from the I Like Music files. In all, says Hill, approximately 100 broadcasters are clients.
A related part of the business provides background music to venues – from the Wembley Stadium complex to Harrods and, through distributors, to casinos in Hong Kong and assorted venues across Singapore, Australia and the Middle East.
Then there are jukeboxes. Not many jukeboxes contain vinyl records nowadays. Rather, they store their music digitally – and it is I Like Music who supply the music.
Real growth from new markets
All this has given I Like Music a profitable and defensible niche in the B2B music market. But the real growth lies in the consumer markets. And that is where the need for finance – and more – came in.
“There is not a consumer in the world who wouldn’t want access to our digital collection,” says Hill. So the I Like Music brand and its digital library had to be developed for a number of consumer products. “We saw how we could develop the consumer business and that this would be the trigger for serious growth,” says Hill. But funds were needed in order to hire experienced people and to develop the new products.
The trouble was his bank wasn’t going to lend the money. “They were only interested in the security – and 17.5 tons of a music collection wasn’t sufficient.”
In the 1990s, Hill had done a deal with 3i, so he knew the ropes about venture capital. “But when I talked to the VC firms, their money was too expensive. The cost of money had increased because the banks weren’t lending.”
It looked as though Hill was going to have to wait, not innovate.
The funding breakthrough
At that point Santander Breakthrough came onto his radar via a chance conversation. Launched at the end of 2011, Breakthrough is a £200m growth capital fund for fast-growth businesses – with turnover between £500,000 to £25m – that don’t want to dilute their equity. “There are occasions when a company wants to expand and can’t afford the delay. Some windows of opportunity will only remain open for a short period of time,” says Stephen Dury, managing director of SME Markets & Business Development at Santander. The typical level of financial support required by such companies, he says, lies between £700,000 to £3m. A company doesn’t have to be a Santander customer to participate.
After a demanding due diligence process, the funds came through for I Like Music. It’s a mezzanine debt package with a single repayment at the end of the term. While its terms may be more expensive than a conventional bank loan, it releases one of the barriers to growth – the owners’ fear of their equity being diluted, notes Dury.
“The funding allows you to do stuff – but you have still got to do it,” says Hill. And it was the other parts of the programme that helped him.
The funding allowed I Like Music to take forward the development of the Virtual Jukebox, an innovative concept that is already being trialled in a number of pubs. The pub-goer doesn’t go to an actual jukebox to select and pay for music; s/he uses their smartphone to read a code printed on a beermat, which then shows the selection of music available in that pub. Payment is also made via the smartphone. The jukebox has been replaced by a paperback book-sized, smart internet-connected box.
Hill has identified four key markets outside the UK: Australia, USA, South Africa and Ireland. The combined total of potential venues for the virtual jukebox in these four markets is 2.2 million; compared to the 300,000 in the UK market.
The invaluable trade mission
Now, as part of the Breakthrough programme, Santander funds, researches and co-ordinates trade missions for small groups of growth companies. Hill went on such a trade mission to New York.
“As an entrepreneur organising a trip to an overseas market, you usually do everything yourself,” observes Hill. “You do all the flights, hotels, taxis and all the logistics. On this mission, I could focus on the objectives of the trip rather than be distracted by making the arrangements. I spent three days talking to potential distributors and focusing on the export opportunities.”
The funding, research and logistical support “takes the pressures and fears away from exploring new markets,” says Stephen Dury. It also makes a mission more effective. “It may only take one trip to achieve what otherwise might have taken three,” he adds. “Businesses have come back from these missions with actual contracts in their hand.”
The other eye-opener for Hill was his introduction to UKTI. “I had no concept at all that there was such a network of people around the world who are there to help a business such as ours,” he says.
In his discussions in New York, he was advised by UKTI to take a stand at a specialist industry exhibition in Nashville. “We did, and the result is that we are now in active discussions with four distributors to sell our Virtual Jukebox in the USA. Would we have ever got to this position so quickly without Santander and the UKTI? No. Now, every time we have an export question, my immediate response is to say ‘call UKTI.’”
In order to take I Like Music into the consumer market, I Like Music is currently exploring a number of concepts, all of which use music as a gift within a physical product. So a birthday card contains a QR code or a specific URL which then provides the recipient with all the tracks that were number one on their birthday. “It’s a physical gift, digitally executed,” says Hill. It doesn’t have to be a card; it could be a tee-shirt, or a set of headphones – lots of products can come with music.
New skills and professional talent
The successful diversification of I Like Music requires new skills and talent to be brought into the company.
At a senior management level, Hill can afford to bolster the business by recruiting experienced professionals such as Rob Salter, the former category director of music and entertainment at Tesco.
At a junior level, Hill was able to call upon Santander’s connections with universities to secure a high-quality intern. (This is not exclusive to companies on the Breakthrough programme but a wider initiative by Santander.)
“We needed a graphic designer and Santander helped us secure an intern from the Royal College of Art – and then paid for him during his time with us,” says Hill. “We are using some of his graphics on our birthday card product. It was a real win/win. He didn’t just make coffee. He got paid properly and added real value to our business. It would not have happened without Santander.”
It’s not just about recruitment. Taking I Like Music into the consumer market means learning more about disciplines such as branding. So Hill will be going to a masterclass on branding led by Saatchi & Saatchi – it’s one of the Masterclass series run by the Breakthrough programme.
We take businesses to visit companies such as Google, Saatchi & Saatchi and Lovefilm,” explains Dury. “So many businesses can be brilliant in a particular respect; the Masterclass series helps them to think differently.”
For Hill, the benefits of working with Santander clearly go beyond the funding – although that is not to understate the importance of the capital injection. It has been about the access – here’s an entrepreneur who has been able to meet and learn from a wide range of expert people in a facilitated and considered programme. You don’t doubt him when he says that I Like Music aims to triple in size in the next three years.
For Dury, the benefit to the bank of running the programme has been the insight and understanding that it provides. “It is more than just the numbers,” he says. “it’s been massively powerful for our relationship team,” he says. “It is having an impact on the breadth and quality of our conversation. And from better understanding flows a better relationship. And when a business has a strong relationship with a bank, that gives it confidence and momentum.”
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UKTI has helped businesses such as I Like Music with advice and support in many aspects of exporting. Find export opportunities, events and practical guidance on the Exporting is GREAT site.