Tag Archives: funding

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Raising Money for Your Business Venture

Pound symbol fo raising money for your business blog August 2014

Start-up businesses are often cited as the key to a healthy economy. Indeed, many entrepreneurs work hard to break into new sectors of the market, honing their product, their management and their new company to perfection. Despite this, though, many start-ups – particularly in the tech industry – struggle to attract that much-needed early capital necessary to get their business successfully up and running. This is due to a number of reasons: the macro-economy being a major one, which can affect investment at every level from bank loans to government schemes.   If a company is looking to break particularly fresh new ground, initial investors may be hard to attract as they may be reluctant to take a risk.

Thankfully, there are variety of options for anyone looking to raise funds for a new business venture. Only you can tell which will be appropriate for your business, and by examining your options and the advantages and disadvantages of each option, you will gain a clearer idea of the next step your start-up company can take in securing early capital.

Seed money – friends and family
“Family and friends can be a good source of finance for your business, but it’s important to treat this type of funding as you would a formal finance deal.”

When you’re starting out, it is essential to secure some sort of early-stage capital or ‘seed money’ to get your start-up functioning as a business. This should be seen as a preliminary stage in a funding roadmap, and its function is really to make your business venture more attractive to other, wealthier investors.

One of the most common (and easiest) ways of getting early seed money is through ‘friends and family’ investment. This involves asking those personally close to you for funds. One advantage is that friends and family are often more accommodating and flexible than other investors: this could mean longer repayment schedules on loans than usual, or the investor not asking for security in exchange.

Although this might seem like an informal arrangement given your relationship to these investors, you must see them as exactly that: investors. This means you must formalise every step of friends and family investment, and treat these investors in a professional and business-like way. Failing to do so can harm not only your relationships with these people but your business as well.

Once you’ve secured some early stage capital and your business is up and running to the extent that it is attractive to other forms of investment, you can begin to look at attracting other forms of funding.

Angel investment
“A Business Angel investor uses his or her personal disposable finance and business or professional experience to invest in the growth of a small business, generally in start-up or early stage” (UK Business Angels Association).

Angel investment is perhaps one of the more well-known ways of securing early stage capital. It does, however, require much harder work than grants or friends/family. Angel investors are generally very experienced business people and are looking to see returns from their investment just as much as you are. This means your start-up venture has to demonstrate some true potential. However, once you have an angel investor on-board, his/her resources and experience can be invaluable.

Angel investors will expect ownership of a portion of the company, and will often provide you with invaluable advice and guidance through the start-up process and beyond. There are many different angel investor groups nationwide, such as the UK Business Angels Association and the Angel Investment Network. Make sure you do your research and try to best present your business in a way that ‘angels’ will find attractive.

Venture capital and private equity
Whereas a business angel is an individual investor using their own funds, venture capital comes from a common ‘fund’ using other investors’ money and is run by paid professionals. Venture capitalists raise this money by offering investors a place in the fund, which they can then see a return from once the fund is closed and the investments eventually sold. Because it can be seen as a ‘pooling’ of many different investors’ cash, the investment amount is likely to be much higher than that which you may receive from an ‘angel’.

However, venture capitalists will often demand a seat on your board of directors and some are more interested in already successful medium-sized businesses, rather than early-stage ventures.

Government schemes, bank loans and crowd funding
It can be tricky to attract venture capitalists or angel investors to your new venture, and, regardless, it’s important to try and attract funding from a variety of sources. There are hundreds of government schemes, including loans and grants, created specifically to help get new businesses up and running. These can be reliable, low-risk sources of investment. Such a scheme might also give your venture some additional early prestige, again strengthening your case with other future investors.

A relatively new form of capital funding known as reward-based crowd funding is particularly popular with tech start-ups. These can be easy and fast ways to gain perhaps all of the funds you need. It’s been popularised by sites such as Kickstarter, and there have been a number of success stories, such as the Cube 3D printer. However, attracting funds through this method often hinges on the creation of a specific product popular and innovative enough that consumers want to see it on the market. It may not be very effective if your company focuses on things like tech-based services rather than products.

Bank loans were traditionally seen as one of the first steps taken in securing growth capital. However, since the banking crisis, banks are less likely to loan new ventures substantial amounts of money, and they usually ask for considerable collateral or security in exchange for the loan. You should have a strong business plan to justify any investment in your business, whichever source you pursue and this includes a bank loan – a common reason for failing to secure bank financing is a weak business plan. Bank loans can be a secure source of investment and can be very useful to your business in the long-term, but acquiring a substantial bank loan could be harder for a start-up than seeking other forms of investment.

And finally, keep an eye on print and online media aimed at businesses and entrepreneurs as they sometimes run competitions to win funds to support new ventures. While entering such competitions takes time and effort, they provide lots of benefits. For example, they compel you to think hard about your business idea which in turn can help you hone your proposition. If you are among the lucky winners, you will benefit not only from the prize money (which usually comes without strings), you will also gain media exposure allowing you to promote your business to a much wider audience, including prospective investors and customers.

Ultimately, raising capital takes far longer than you might initially think, and it’s important to think of it as a multiple stage, or even continuous, process. Getting advice from someone you trust with suitable experience would be a good investment.

Blog

Why Look at Grant Funding? Part 2

sam-cockerill

The question you might ask yourself before you put pen to paper is whether, given the preceding questions about the associated value and risk, now is genuinely the right time to go for this particular grant application.  You may come across a one-off grant opportunity dispensing ready cash from some un-spent pot and when it’s gone it’s gone, in which case, good luck!  However, most grants are distributed from public funds (which, though tight, are recurring) to achieve policy aims that generally (but not always) survive multiple grant funding rounds and mechanisms.

A number of grant schemes either have ‘open calls’ i.e. apply when you like, or are phased with a clear timetable of when each batch of new applications should be submitted for consideration.  If your project would be more valuable if it kicked off in 12 months’ time, for example to benefit from the results of current projects, fundraising activities or partner negotiations – then wait, and your application will be much stronger for it.

Tips to help you secure funding

  1. Target your application. Scour the internet for grant opportunities, get onto the right mailing lists.  When you find a grant opportunity that looks right, read the competition scope in detail, then re-read your plan.  Are they aligned?  Does the project you are considering get you to your intended destination, faster?  Or is it a bit of a stretch, tempting only because of the prospect of non-diluting funding?
  1. Invest the necessary time to do your application well, your competitor applicants will. If you have satisfied yourself that the application is worth doing, then you need to pull out all the stops to define the best possible project with the best possible partners, and describe it in the best possible light.  It will take time.
  1. Research and review your application thoroughly.  Find a business that has succeeded with this particular grant scheme in the past, and ask them for advice.  Speak to your partners about the application.  Ask your advisory board for input, and for proof reading. Don’t submit an application with sloppy typos or one that is inadvertently out of scope.
  1. Reflect on your past failures.  It is unlikely that every grant application you submit will succeed.  If you fail, you will normally get feedback from the process, sometimes in the form of anonymous reviewer comments.  Pour over this feedback, and check whether there are any areas you could improve next time.  Did the reviewer(s) understand your proposition?  Were they sceptical about your market or product assertions?  This type of feedback is your most valuable source of information you can have for those grant competitions where you are permitted to re-apply.
  1. Take your rejections for what they are:  a source of feedback and a reflection of the competitive nature of grant funding.  Use this feedback to sharpen your judgement about whether the next grant is worth going for.  Do not give up.

GOOD LUCK!

Other funding support is available through the ecoConnect Investor Directory, Grants Directory and Greenbackers Investment Pitch.

A number of grant schemes either have ‘open calls’ i.e. apply when you like, or are phased with a clear timetable of when each batch of new applications should be submitted for consideration.  If your project would be more valuable if it kicked off in 12 months’ time, for example to benefit from the results of current projects, fundraising activities or partner negotiations – then wait, and your application will be much stronger for it.

TIPS TO HELP YOU SECURE FUNDING

  1. Target your application:Scour the internet for grant opportunities, get onto the right mailing lists.  When you find a grant opportunity that looks right, read the competition scope in detail, then re-read your plan.  Are they aligned?  Does the project you are considering get you to your intended destination, faster?  Or is it a bit of a stretch, tempting only because of the prospect of non-diluting funding?
  2. Invest the necessary time to do your application well, your competitor applicants will:If you have satisfied yourself that the application is worth doing, then you need to pull out all the stops to define the best possible project with the best possible partners, and describe it in the best possible light.  It will take time.
  3. Research and review your application thoroughly:Find a business that has succeeded with this particular grant scheme in the past, and ask them for advice. Speak to your partners about the application.  Ask your advisory board for input, and for proof reading. Don’t submit an application with sloppy typos or one that is inadvertently out of scope.
  4. Reflect on your past failures:It is unlikely that every grant application you submit will succeed.  If you fail, you will normally get feedback from the process, sometimes in the form of anonymous reviewer comments.  Pore over this feedback, and check whether there are any areas you could improve next time. Did the reviewer(s) understand your proposition?  Were they sceptical about your market or product assertions?  This type of feedback is your most valuable source of information you can have for those grant competitions where you are permitted to re-apply.
  5. Persevere:Take your rejections for what they are:  a source of feedback and a reflection of the competitive nature of grant funding.  Use this feedback to sharpen your judgement about whether the next grant is worth going for.  Do not give up.

GOOD LUCK!

Other funding support is available through the ecoConnect Investor Directory, Grants Directory, and Greenbackers Investment Pitch

Click here to read part 1

Blog

Why Look at Grant Funding? Part 1

sam-cockerill

This blog was first published on Ecoconnect, a cleantech networking and funding forum. It has been republished with the permission of Fellow, Sam Cockerill, to share his experience of applying for grant funding for business development.
On the one hand, any additional sources of funds are welcome, especially for pre-revenue tech businesses in the UK which may find it tough to get that first external funding round in place. Some technology start-ups, often in the US, can get to market with angel and/or venture capital funding alone. In the UK, there is a chronic shortage of such investors willing or able to back pre-revenue businesses with the kind of funding required to develop market-ready products. Grant funding can help to meet this funding shortfall and can also improve the odds of securing external investor funding.

On the other hand, getting your business off the ground requires that you push hard on several fronts at once: Researching your market and potential customer needs, developing your product or service, establishing a credible route to market, getting your team and partner relationships in place, securing external funding, reporting on your progress to investors, winning your first sales and handling a multitude of administration tasks. Your time is precious, and taking on any new activity will create more work.

Questions to ask yourself before committing time
To date around a third of total funding for my start-up business, Libertine FPE, has come from grant sources although not all of our grant applications have succeeded. Before I consider working on a prospective grant application, I ponder three questions: What is the value to my business? What are my odds? Is this the right time?

What is the value to my business? More specifically, how will this grant funding help me achieve more revenue, sooner, and with less risk?
Competitive grant schemes are typically awarded to undertake specific project proposals. A grant competition scope document may provide tight criteria defining what types of projects are eligible and how projects will be assessed in the application process. If a viable project defined in this way is a significant departure from your core business plan it’s probably going to pull resource away from your most important priorities and may require incremental fundraising to cover any matching requirements – clearly a non-starter. If this project is directly aligned with what you are already planning to do, grant funding can make a meaningful contribution to the total funding requirements of your business and accelerate your time to market by months or (possibly) years. If this improvement is only marginal, consider whether the application effort is worthwhile. This is the first and most important test of whether a particular grant competition could be worth going for.

What are my odds?
Unless you have time on your hands, smaller grants may not provide the scale of game-changing support necessary to justify the application time and effort. However, larger grant schemes are fiercely competitive, and if the odds of success are too low you will probably be wasting your time.

The key here is in the grant competition scope details that are typically provided in guidance documents and briefings, and which set out the competition scope and selection criteria that will be applied in the assessment of applications. These may include the nature of the technology (For example the market application, technology readiness level, intellectual property status), the nature of the business and/or consortium (size, age, location, SIC code, inclusion of research or academic partners) and the potential benefits (for example CO2 impact, value creation, wider economic and social benefits).

The competition scope criteria are typically qualitative tests, in other words your project either fits or it doesn’t, but the scope document may also provide some guidance as to the types of projects that are most likely to succeed. The assessment criteria are typically more subjective and your application might consist of a set of responses to discrete questions which are assessed and scored individually. A successful application must be within the competition scope, and must score sufficiently highly relative to other in-scope applications.

If the scope is very broad and the assessment criteria generic, the field of applicants will be huge and it will be harder to differentiate your application based on its fit with the scope and assessment criteria. If you happen to find a grant competition that fits directly with your technology, market application and business model, the odds are likely to be better – however, there is a twist.

Most grant assessment criteria include evidence of ‘additionality’, i.e. evidence that if you get the grant you will take a different course of action that is in addition to your plans without grant support. This requirement may appear to conflict with the imperative that your grant funded project is directly aligned with your core business plan. If your business plan is to develop and launch widget A in market X, a project to develop widgets B and C for markets Y and Z clearly passes the ‘additionality’ test but there may be good reasons why these new products/markets did not feature highly in your original plan, grant funding or not.

If your additionality argument is ‘no-one else will fund us’, you immediately undermine the business case set out elsewhere in your application. Perhaps the most legitimate form of ‘additionality’ in my view is the acceleration of your technology development and market entry plan. Rather than progressing with small steps through several cycles of product development, market proof and fundraising as you climb towards your first revenues, a good grant funded project will let you bound up the same staircase, ideally providing you with some robust technology or market proof, cementing one or more partner relationships, and setting you up for success your next funding round. The destination may be the same, but the grant funded project should get you there much quicker.

In my next post, I will discuss the timing of your application and provide top five tips for making a grant funding application.

Grant funding can play an important role in getting a clean technology business started but the application processes are often complex and time consuming. With increasing competition for available UK grants the odds of success may be low. For a cleantech entrepreneur, the decision to commit scarce time and effort to apply for grant funding can be finely balanced.
On the one hand, any additional sources of funds are welcome, especially for pre-revenue tech businesses in the UK which may find it tough to get that first external funding round in place. Some technology start-ups, often in the US, can get to market with angel and/or venture capital funding alone. In the UK, there is a chronic shortage of such investors willing or able to back pre-revenue businesses with the kind of funding required to develop market-ready products. Grant funding can help to meet this funding shortfall and can also improve the odds of securing external investor funding.

On the other hand, getting your business off the ground requires that you push hard on several fronts at once: Researching your market and potential customer needs, developing your product or service, establishing a credible route to market, getting your team and partner relationships in place, securing external funding, reporting on your progress to investors, winning your first sales and handling a multitude of administration tasks. Your time is precious, and taking on any new activity will create more work.

Questions to ask yourself before committing time: To date around a third of total funding for my start-up business, Libertine FPE, has come from grant sources although not all of our grant applications have succeeded. Before I consider working on a prospective grant application, I ponder three questions: What is the value to my business? What are my odds? Is this the right time?

What is the value to my business? More specifically, how will this grant funding help me achieve more revenue, sooner, and with less risk? Competitive grant schemes are typically awarded to undertake specific project proposals. A grant competition scope document may provide tight criteria defining what types of projects are eligible and how projects will be assessed in the application process.

If a viable project defined in this way is a significant departure from your core business plan it’s probably going to pull resource away from your most important priorities and may require incremental fundraising to cover any matching requirements – clearly a non-starter. If this project is directly aligned with what you are already planning to do, grant funding can make a meaningful contribution to the total funding requirements of your business and accelerate your time to market by months or (possibly) years. If this improvement is only marginal, consider whether the application effort is worthwhile. This is the first and most important test of whether a particular grant competition could be worth going for.

What are my odds? Unless you have time on your hands, smaller grants may not provide the scale of game-changing support necessary to justify the application time and effort. However, larger grant schemes are fiercely competitive, and if the odds of success are too low you will probably be wasting your time.

The key here is in the grant competition scope details that are typically provided in guidance documents and briefings, and which set out the competition scope and selection criteria that will be applied in the assessment of applications. These may include the nature of the technology (For example the market application, technology readiness level, intellectual property status), the nature of the business and/or consortium (size, age, location, SIC code, inclusion of research or academic partners) and the potential benefits (for example CO2 impact, value creation, wider economic and social benefits).

The competition scope criteria are typically qualitative tests, in other words your project either fits or it doesn’t, but the scope document may also provide some guidance as to the types of projects that are most likely to succeed. The assessment criteria are typically more subjective and your application might consist of a set of responses to discrete questions which are assessed and scored individually. A successful application must be within the competition scope, and must score sufficiently highly relative to other in-scope applications.

If the scope is very broad and the assessment criteria generic, the field of applicants will be huge and it will be harder to differentiate your application based on its fit with the scope and assessment criteria. If you happen to find a grant competition that fits directly with your technology, market application and business model, the odds are likely to be better – however, there is a twist.

Most grant assessment criteria include evidence of ‘additionality’, i.e. evidence that if you get the grant you will take a different course of action that is in addition to your plans without grant support. This requirement may appear to conflict with the imperative that your grant funded project is directly aligned with your core business plan. If your business plan is to develop and launch widget A in market X, a project to develop widgets B and C for markets Y and Z clearly passes the ‘additionality’ test but there may be good reasons why these new products/markets did not feature highly in your original plan, grant funding or not.

If your additionality argument is ‘no-one else will fund us’, you immediately undermine the business case set out elsewhere in your application. Perhaps the most legitimate form of ‘additionality’ in my view is the acceleration of your technology development and market entry plan. Rather than progressing with small steps through several cycles of product development, market proof and fundraising as you climb towards your first revenues, a good grant funded project will let you bound up the same staircase, ideally providing you with some robust technology or market proof, cementing one or more partner relationships, and setting you up for success your next funding round. The destination may be the same, but the grant funded project should get you there much quicker.

Click here to read part 2.