With more options, providers and platforms available than ever before, for funding business growth, BLM recently attended the Business Funding Show’s Annual Investment Conference.
The event looked at the challenges around early stage Investment and how best to navigate the initial years of crowdfunding and accelerators.
SHOULD INVESTMENT BE THE FIRST ITEM ON THE AGENDA FOR START-UP COMPANIES?
Harry Davies: “Investment for a start-up business is going to be vital but definitely shouldn’t be the first thing thought about. Before you approach any investors you’ve got to prove that you’re solving a problem, you’ve got to prove that the product market is there, and that what you provide is a problem which people will pay to have solved.
“If you don’t have that then you need to rethink the business model. You need a team that can deliver on the goals needed to be achieved.”
Rose Lewis: “If the first thing, as an entrepreneur, you think about is money, the chances are you’re not really passionate about the product and that’s what investors are wanting to see in you.
“I would say there’s a need to turn up to as many workshops that are put on as possible. Not turning up shows you’re not interested or arrogant and you think you know everything. Personally, we like open entrepreneurs who are willing to listen. We don’t always have the right answers either, but we want to know you’re open to new ideas and exploring different options for your business.”
HOW DO START-UPS GET INVESTMENT READY?
Dan Hardy: “Before investment you need to network. Entrepreneurs are very giving with their knowledge and their experience of gaining funding. There are so many events out there for networking opportunities, so whether you need office space or marketing advice, there’s going to be an event that you can use to gain contacts.
“People are protective about their business, but you need to get your idea out there and speak about it to gain an outside view and advice.”
Harry Davies: “Getting out there and speaking to people is important. But even more important is not to spend too much too early. There’s nothing worse than raising tons of money and then finding out that you’ve misspent.
“The more validation you can do at the early stage the better, it’s key to really enjoy the time building a company – it’s the most flexible you’re ever going to be in your journey.
Once things start progressing it can be quite hard to take a step back and look at things that might not be working too well. Plus taking the leap to re-direct. Quite often the gut instinct is to just fundraise again, give it another six months, and hope it changes, but that’s not the best way to do things.”
WHEN COMPANIES LEAVE AN ACCELERATOR PROGRAMME HOW MUCH MORE WELL EQUIPPED ARE THEY?
Rose Lewis: “When start-ups leave an accelerator, they are better equipped to face the challenges of growth and development – they have a bigger network, and continued support and advice. Programmes can also give them access to a number of investors, who can support them for life, forming a very powerful set of ambassadors for their product.”
WHAT ARE YOUR THOUGHTS ABOUT ENTREPRENEURS giving away EQUITY?
Jenny Tooth: “Taking on equity really is the great turning point in your business, in terms of being able to accelerate growth much more rapidly. Sometimes people worry about giving away too much equity too early.
“But there are massive benefits to this and the reason is because you actually get investment to help you do the things you really need to do. Such as hire more staff, expand customer base and then businesses can actually start to produce to scale.
“The biggest and most important thing to bear in mind is that all equity isn’t the same. What you will get from angels and angel investors will be different to what you get when you reach the next stage of funding. It’s all about having a strategic plan of how much equity is needed, what you want from equity and how much of the business is to be given away.”
Mark Brownridge: “Over the last few years we’ve seen the significant contribution that venture capital funding has made to SMEs – it’s given a big injection of capital that banks don’t necessarily like lending. Equity funding gives you money, but with EIS and VC money you also gain mentoring as well, which could be invaluable and open doors.”
Nigel Walker: “Risk is a key thing when you’re starting a business, so you need equity capital. I see too many companies that are under capitalised. They don’t have enough equity and they haven’t got the financial resources to take the sort of risks they need to. I would advise not to be equity adverse.”
WHAT HAVE BEEN THE KEY CHANGES YOU’VE SEEN with REGARD TO ALTERNATIVE FUNDING OPTIONS?
Jenny Tooth: “There have been some interesting trends which have emerged, not least the EIS, which has had a massive impact on the market because angels have been able to get 50% tax credit by backing early stage businesses. This encouraged angels to go in earlier into those businesses because they must be less than two years old.
“In parallel with that, crowdfunding platforms have been launched, which have seen a massive democratisation of investment for many people, with engagement increasing as people invested small funds of money into businesses. Since 2012 there has been a steady increase of people using the EIS and SEIS tax schemes, which means more and more money has come into the market.”
WHICH SECTORS ARE YOU SEEING MOST INVESTMENT IN?
Nigel Walker: “We’re seeing whole industries being transformed and new industries being created, through things like digital manufacturing and the concept of the factory of the future. Businesses in these sectors usually find it harder to attract equity investment because the time it take to come to market can be longer.”
Marilena Loannidou: “Innovation and technology is influencing sectors such as life sciences and artificial intelligence and we’re seeing increasing investment in these areas. If you’re fundraising, think about the whole journey because some companies in the UK fundraise in smaller chunks, but when companies in the US fundraise they go for larger chunks.
“This makes them focus on other aspects, meaning they can take their business to the next level quicker without having to organise more funding rounds. There is less availability of capital in the UK against the size of VC funds you see in the US.”