CHAPTER 10
Raising funds
When you bought this book, you will have realised from the cover that the main thrust is to show how you can start a business on a budget. I know it is possible, as I have done it and seen thousands more do the same.
When I was approached to write this book, I wanted to do so as I am a big believer in:
- starting a business while ‘working 5 to 9’, i.e. holding onto the day job/studies/childcare and building the business at nights and weekends
- starting a business on a budget – by accessing as much as you can for free and embracing technology
- making sales as fast as you can – to build cashflow and confidence
- growing the business through income as opposed to borrowings.
The reason I believe in these principles is because, if you follow them, you do not have to hand over equity in the business or get into a debt situation too soon. It is the most low-risk route to starting and growing a business and has never been so plausible as it is today.
But what I do accept is there may come a time in the company’s development when you need to find the funds to take the business onto its next stage of development. If that time comes, here are the places to look. Again, we return to the three main pillars of start-up support in Britain:
- government
- big business
- peers.
Government
In 2012, the Government introduced the StartUp Loans programme. Two years on and over 20,000 start-ups have been supported to the tune of over £100 million. You can make an application to be considered for a personal loan and be matched with a mentor.
Our StartUp Loan programme is designed to give you the opportunity to discover whether you have a business in you; to help you to create a business plan; and then give you a loan to get started. You will get continuing support from your mentor, and your future will be in your own hands. The limits of your business will be up to you.
Lord Young of Graffham, Founder, StartUp Loans
There is a holding StartUp Loans Company, with money distributed via StartUp Loan distribution partners. My personal favourite is Virgin StartUp, as they take time to consider loan applications, match you with entrepreneurs experienced in your field, and facilitate introductions to other parts of the Virgin empire into which you can sell.
One loan beneficiary, Yucoco Chocolate, is now selling its chocolate product on Virgin Trains and another, Lexie Sport, in a collaboration with Virgin Active. This is the kind of value-add from a loan that you are after.
Big business
Look to big businesses to lend or invest as growth plans are realised. This comes in a number of guises: banks, accelerators and leasing.
Banks
The banks are worth approaching with a business plan and request. As is the trade body, the Business Banking Association, which has created Better Business Finance (www.betterbusinessfinance.co.uk/finance) as an online database of finance providers, including angels, regional funds and government schemes. Simply search by your geographic location, industry and the amount of finance required.
Accelerators
As outlined in the ‘Space to collaborate’ section in Chapter 8, these are spaces and support provided by large companies to incubate and accelerate start-ups. With many of them, finance comes as part of the package.
Leasing
Increasingly on offer from large businesses is the option of leasing products as opposed to buying outright and therefore a favourable financial deal for you.
In July 2014, Toshiba announced a new finance initiative to help small businesses better cope with IT spending. On announcement, the company said:
By taking part in finance offerings, small businesses can now have access to the latest technology solutions available, but in a more affordable way. Products are usually available for a 24- or 36-month lease period, giving customers increased control over their IT spend.
Look out for leasing deals to manage cashflow while continuing to invest in capital.
Peers
Crowdfunding is on the rise and fast becoming one of the most popular forms of funding for small businesses as, not only do you raise the funds that you are after, but you also raise your profile in the process. There are three main types of crowdfunding:
- Reward – this is where people fund your business in exchange for rewards.
- Equity – this is where the crowd invests in your business in exchange for equity, i.e. a percentage of the business.
- Loan – this is where you raise a loan and repay with interest.
Turn to crowdfunding websites, such as these, to get started with a project:
Source: Shutterstock.com, © Lightspring
- Crowdfunder: www.crowdfunder.co.uk
- Kickstarter: www.kickstarter.com
- Crowdcube: www.crowdcube.com
- Indiegogo: www.indiegogo.com
- Seedrs: www.seedrs.com.
Angels
Raising investment from angel investors means accessing capital as well as, hopefully, useful industry contacts who will influence the growth of the business. There are plenty of funds and investors eager to part with their money and back good ideas and, what is more, the Government has made it financially attractive for angels to invest through something called the Enterprise Investment Scheme (EIS). This scheme offers up to 30 per cent tax relief to investors, and the Seed Enterprise Investment Scheme (SEIS) offers individual income tax relief of 50 per cent and exemption from capital gains tax (CGT) on any proceeds of sale of a SEIS investment. To be a qualifying company for either EIS or SEIS, visit the HMRC website to ensure you meet the criteria and complete an application. The approval process can take up to three weeks, so it is advisable to do this before approaching investors.
EIS: www.hmrc.gov.uk/eis
SEIS: www.hmrc.gov.uk/seedeis
Before considering funding, take all the steps outlined to get your start-up launched, well-known and making sales on a bootstrap of a budget. It will stand you in good stead.
Total cost of raising funds:
| Total: | £0.00 |
Total costs incurred to date:
| Coming up with an idea | £0.00 |
| Carrying out market research | £0.00 |
| Writing a business plan | £0.00 |
| Taking care of company admin | £20.00 |
| Technology set-up | £2.50 |
| Making sales | £4.50 |
| Branding on a budget | £13.29 |
| Finding space | £20.00 |
| Hiring people | £0.00 |
| Raising funds | £0.00 |
| Total: | £60.29 |