Case study: Roof insulation producer ThermoSealed Batts has faced a problem common to most fast-growing start-up businesses – finding enough capital to support its rapid expansion.
Roof insulation producer ThermoSealed Batts has faced a problem common to most fast-growing start-up businesses – finding enough capital to support its rapid expansion.
The company was launched in 1999 by Brett Heady, best known as a former player with the West Coast Eagles football club.
Prior to the launch, Mr Heady spent nearly 18 months researching the product, which is a revolutionary type of roofing insulation likened to small, waterproof pillows.
Mr Heady had to build a brand new production facility and also faced the challenge of marketing a new product.
The rapid acceptance of ThermoSealed Batts indicates strong market support for the product, yet the rapid growth has created challenges for the business.
Mr Heady funded the business out of his personal savings for the first four years, and that meant selling some other assets.
“When you are doing that it’s quite a scary process,” he said.
Mr Heady said all of the indicators were trending in the right direction – sales were up, unit costs were coming down – but he reached a point where he needed extra capital.
By 2003, the company’s production facility in Balcatta had reached capacity and Mr Heady didn’t want to invest all of his own money in the next stage of expansion.
That’s when Questus Capital Group director David Somerville got involved as a business adviser and business partner.
Mr Heady said his new partner brought new skills to the company, which has greatly helped its subsequent growth.
For instance, Mr Somerville pushed the company to upgrade its financial control systems, so that it could produce more timely and sophisticated reports on its performance.
Crucially, he also organised a syndicate of private investors to take a 50 per cent shareholding in ThermoSealed Batts.
With that backing, the company was able to lease larger premises in Malaga and invest $1 million in an expanded production line.
Later in 2003 the company expanded again by building a smaller production facility in Bunbury.
“That’s been a very successful venture because the South West is just booming,” Mr Heady said.
The next big move was early this year, when the company expanded into Queensland.
That involved hiring more staff, leasing new premises, and building another production facility at a cost of about $750,000.
Mr Heady said the interstate expansion followed a concerted effort to secure the intellectual property rights to the company’s insulation batts.
The expansion was also underpinned by legislation in WA and Queensland (that took effect from July 1 2003) requiring all new homes to have roof insulation.
Historically, only 5 per cent of houses had insulation installed at the time of construction, with many people buying insulation from retailers at a later time.
Mr Heady said his company had focused on building links with home builders in advance of the legislative change.
Ahead of the Queensland move, Mr Heady had some discussions with venture capital funds but found that ThermoSealed Batts was not large enough to attract their interest.
“It was too big to fund it ourselves but not big enough for the true VC funds,” he said.
Instead, the company won backing from pooled develop-ment fund euromicrocaps, which invested $300,000 to take a 50 per cent shareholding in the Queensland business.
Euromicrocaps is focused on investing in small to medium sized Western Australian companies, including in Questus Capital Group.
“They offered a fantastic product, they moved quickly and I really like the people.”
Mr Somerville is a director of euromicrocaps and Mr Heady said the potential conflict of interest “has always been on the table”.
To address this concern, Mr Heady said he always sought independent advice from his long-time accountant, Brett Owen of Owen & Plaistowe.
“He looks at everything I do,” Mr Heady said.
Mr Owen said Mr Heady had become an astute business manager over the past decade and is “quite able to handle himself” in business discussions.
“When it gets to the detail he uses us more,” Mr Owen said.
“He doesn't try to deal with things that are outside his area of expertise.”
Another key adviser is Mike Yates, a partner in finance intermediary CrediFlex, who has arranged finance for the company’s fleet of about 20 trucks as well as some items of production equipment.
CrediFlex has a panel of about 20 lenders and Mr Yates said this meant he was able to shop around funding transactions to get the best product and the best price.
ThermoSealed uses hire purchase finance to fund its truck fleet, which enables the company to preserve working capital.
Its also means the owners of the business do not have to use freehold assets, such as property, to secure loans.