Fishing For Finance
Netting A Deal
There are a range of potential financing options available for start-up companies. But the path to raising investment is neither guaranteed nor straightforward. Choosing the right finance for your needs is essential: whether it’s your own money, bank borrowing, family and friends or outside investment. But what do you do if there’s no obvious route to the finance you need?
The Enterprise Hub Network is a great source of advice, and can give you access to other sources of help and services. Oxfordshire Enterprise Hub Director John Lee considers three examples of how innovative thinking has helped Hub companies to raise finance in challenging circumstances.
Early stage companies often face difficulties in raising investment finance:
- They are often run only by the founder – i.e. have no management team to support what can be a time-consuming process.
- They may be pre-revenue with a new market-place.
- Conventional sources of finance are often nervous about “one man bands” however solid the intellectual property is or exceptional the founder.
However, these difficulties are by no means insurmountable. We have found that other methods of gaining equity partners are out there and a clear “no” from private investors belonging to an angel network is not definitive.
The following three examples should inspire you to review less conventional methods of raising finance.
Company A
Company A was a two-man operation turning over revenues of £60,000. They were looking at expanding the business, and as part of this they wanted to take on another employee and move into larger facilities. They also wanted to recruit some experienced non-executive Directors to their board.
The founder and entrepreneur had two exceptional characteristics; he could sell and had stickability.
The company presented at various angel investment networks’ events but without success. Although the intellectual property was only just emergent, what made Company A interesting was that their order book was steadily increasing, and this led to an unusual and effective means of raising finance. One of their trade suppliers had an order book worth about £40,000 from the company. The supplier knew the business well, believed in its future, and most importantly was willing to buy its order book back in return for equity.
Afterwards a second investor came forward from an early-stage company operating in a similar technology sector. Together, these two players made the proposition look far less risky to other investors, and Company A quickly raised £100,000.
The message here is to look for trade supplier interest and company investors in related sectors.
Company B
Company B is a traditional family business that decided it had a significant portfolio of intellectual assets that it was not well placed to exploit. One of the sons in the family wanted to earn his spurs and was keen to go it alone. The new company was technology-driven and operated in a competitive electrical lighting market. Small investors were hard to find, although the family helped with some very early seed corn investment.
The company decided to promote its potential through a series of PR events & trade press publications. This attracted the attention of an American lighting organisation, who sent a delegation to Company B. Development & licensing agreements were signed which underpinned the company’s financial needs for 12 months. The American organisation was itself taken over but the CEO made a significant personal investment, and trade investors in Europe have followed suit.
Publicise the solutions that your technology can achieve and people/companies unknown to you will back you if it helps create real commercial advantage.
Company C
Company C was a small business with a sole employee. Company C operated in the medical diagnostics sector backed by a SEEDA R&D grant matched by personal savings. It was pre-revenue and there were no immediate takers from the business angel investment community for the reasons listed above.
Contacts via the angel investment network led to Company C meeting a more mature spin-out company that operated in a non-competing but related area. This company needed consultancy input from Company C, which it didn’t have the time or resources to provide.
The pragmatic solution was for Company C to give up its consultancy fee in exchange for an equity investment. This approach has secured investment and provided a link to companies with related interests, which might result in a mechanism for a trade sale exit process.
Look at all avenues when looking for funding, sometimes you need to be more imaginative and negotiate a different approach.
Finding finance can be tricky, and often the more you need it the more difficult it can be to pin down. But don’t panic, investment is out there, and so is help and support. In the first instance talk to your local Enterprise Hub: they will be able to help you work out exactly what you need, and the best way to go about getting it.
Contact: Ally Charles
Email:
Published: 12th April 2008
