Why securing the right investment is key for startup success
Written by Anx Patel, CEO and founder of GoKart
The UK is awash with entrepreneurial talent – it’s both inspiring and encouraging to see exciting, innovative startups emerging across the country with the promise of disrupting old, tired and outdated processes.
To put it into context, between 2012 and 2017 there were approximately 3.5 million new companies launched in the UK. GoKart was one of them: in late 2013 our technology business was formed, offering an app that makes it easier, faster and cheap for independent restaurants to order ingredients from selected high-quality suppliers.
However, like a sizeable portion of the 3.5 million new startups to have been formed in the past five years, GoKart has required external help along the way. Specifically, early stage businesses often need investment if they are to not just survive but thrive.
Thankfully, in the UK entrepreneurs have many places to turn when looking to secure finance for their fledgling company. Yet despite all these options – or perhaps because of the plethora of choices now available – the task of raising investment can be daunting for a startup.
So how does a management team decide which type of investment is right for their business? And how do they calculate the amount of money they need?
Finding the right type of investment
As stated above, there is a huge range of options for UK companies seeking investment. These fall into two main categories: debt and equity.
Debt investment comes in the form of loans, which are repaid with interest over time. Such finance is typically suited to more mature businesses with a healthy turnover that enables them to repay the upfront investment made by the individual, group or company with a relatively low risk.
Meanwhile, equity investment involves selling a stake in the startup to investors – and these investors come in many shapes and sizes, from retail investors on crowdfunding platforms to more seasoned investors such as angels, VCs and high-net-worths (HNWs), not to mention family offices and private equity companies.
While debt investment enables an entrepreneur to raise finance without watering down the proportion of the business they own, it is usually not possible for early stage companies with limited income to obtain such loans. What’s more, it’s important that entrepreneurs consider the added benefits that come with equity finance; namely, the mentorship and advice that investors can offer once they own a stake in the business.
To date, GoKart has raised more than £500,000 through equity finance. Yet, as important as this money has been during our formative years, the various people who made the investments have also added a great deal of extra value.
To elaborate further: in November 2016, GoKart entered Just Eat’s inaugural foodtech accelerator programme, which included early investment into the business and means we still benefit from guidance from senior personnel at Just Eat. Further to this, GoKart has also received backing from several HNWs, including a Lord from the House of Lords; chairs from Barclays, Credit Suisse and Morgan Stanley; the founder and CEO of London restaurant chain Tossed; and the founder and former CEO of the UK’s largest food procurement company PSL.
Again, these individuals offer fantastic support, guidance and networking opportunities that enable our business to grow. Indeed, in the case of PSL’s former CEO Ivan Shenkman – a true heavyweight within the food industry – the invaluable role he now plays as GoKart’s chairman is helping to enhance the business far beyond the investment he made into our startup.
Entrepreneurs must assess what they need beyond the investment itself to assess the right type of finance for them. This will also help steer them towards the appropriate sources to approach.
How much should you raise?
This has become an increasingly pertinent question over recent years; amidst a seemingly never-ending stream of news stories about multi-million pound funding rounds for UK startups, it can be easy for entrepreneurs to assume they must secure massive investments for their business to be taken seriously. But such an approach can often be foolhardy.
A startup should only ever look to raise as much as it needs – it sounds simple, but it isn’t always the case. Ultimately, entrepreneurs must have a clear roadmap of where the business is looking to go over the next six, 12 or 18 months and then establish how much external investment is required to enable the startup to reach its goals.
This will prevent a company giving away too much equity at an early stage, when its valuation is lower. Alternatively, for those who pursue debt investment, it will prevent the business securing a loan that is any larger than it needs.
More money can always be raised in the future, so it’s wise for entrepreneurs to focus on achievable short- and medium-term objectives and seek investment for these alone, rather than getting as much money as they can at any one time.
Indeed, as outlined above, GoKart itself has secured investments in several different ‘blocks’ throughout its first four years; and the business is now seeking further investment specifically to support our growth in 2018 and 2019.
Cut through the noise
As UK startups continue to flourish and new communities develop at pace, so too does the attention paid to private investment in growing companies. And while navigating the options available to entrepreneurs raising finance can be difficult, it’s vital that they cut through the noise and focus on the roadmap for their business.
It is unnecessary to worry about how much other companies are raising. Instead, a startup must concentrate on its own requirements – not just financial sums but the additional support that investment can bring. What’s more, it must have a clear plan in place for how much it needs to raise and what this money will be spent on. This measured, considered approach will improve a business’ chance of not just getting the right investment, but also using it wisely.
Anx Patel is the CEO and founder of GoKart, an app that enables restaurants to order ingredients from high quality suppliers easily, quickly and for less money. GoKart offers restaurants savings of up to 20% when ordering supplies through its app, allowing independent restaurants and growing chains to enjoy the same discounts offered to larger chains.