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So, you’ve done the hard part and you’ve got a fantastic start-up idea – a product or service that’s going to revolutionise the market. But before you can turn that vision into reality, you’ll likely need some funding.
In this article, James Thurkettle, Corporate Finance Director at Scrutton Bland shares his top 10 tips to help you navigate the exciting, but sometimes daunting, world of start-up finance:
1. Know your funding needs
You need to be able to clearly explain and demonstrate how much money you need, how it will be used, and tie it to a well-developed business plan and financial model. Think about how much you need to raise for the next 12–24 months and what you need to get you to the next big milestone.
Your initial seed financing should help you build your product and get it to market. Your Series A funds raised will mostly be dedicated to building a specialist team to help you grow the business. And Series B funds raised will then typically be used to help further scale that team and ramp up revenues to take the market.
You need to strike the balance between raising too much too early, and having enough funds raised to succeed in your vision. Raise what you need and what makes sense for your financial model. Remember that any amounts raised will need to be supported and underpinned by robust financials.
2. Prepare robust financials
For any investor to take your pitch seriously, they will expect a robust financial model to support your story telling. The numbers will need to drive valuations, fund requirements and an outlook on financial performance for a given period. Don’t be afraid to be ambitious about the project you’re so passionate about, but ultimately, it needs to be realistic and believable to get buy in.
Don’t be afraid to have the financials scrutinised by a third party or an adviser to ensure that no easy errors have been missed. It’s important to use this process and take time to rethink or refine the plan, if necessary. It’s always better to get any changes out of the way in advance of pitching to investors.
3. Consider tax incentives
It’s crucial to understand the available tax incentive schemes. For example, the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) both offer benefits to investors that can make your opportunity more appealing. SEIS investments tend to be more applicable to start-up ventures, as part of the qualifying criteria is that the business must be less than 2 years old at the time of issue.
Investors can claim SEIS income tax relief at 50% of the amount invested in the tax year in which the investment was made, up to a limit of £100,000 of investment (so, a maximum of £50,000 in relief). Investors can also take advantage of EIS income tax relief that can be claimed at a rate of 30% of the amount invested in the tax year in which the investment is made. So, up to £1,000,000 of investment and a maximum relief of £300,000. You can see quite quickly how understanding the tax incentives available is vital to maximising investment.
4. Research relevant investors
Not all investors are created equal and as such different investors will bring different strengths to the table and will take varying levels of involvement in the business. We recommended that you conduct research to identify those who align with your industry, business model, geographic location and stage of business. It’s also worth connecting with appropriate local angel networks and venture capital firms initially, to see what investment opportunities are available in your local area. It’s also useful to exploit any unique selling points that may be of value to investors, such as unique environmental or social aspects of your business.
With much of how we operate in our day to day lives revolving around the internet, it would be naïve of us not to highlight the options available when it comes to raising funds online, such as crowdfunding. Crowdfunding allows you to raise money online for a start-up venture, drawing on a large number of passive investors. This space is however highly competitive and as such it is often a struggle to stand out from the others in what is a saturated market.
5. Fail to prepare, prepare to fail
This one seems obvious however, the level of preparation required cannot be stressed enough. We’ve experienced many pitches, successful and unsuccessful, and the key difference nearly always boils down to preparation and detail.
Make sure you’ve appropriately rehearsed your pitch and that all your supporting information is available for due diligence. Investors are likely to dig deep, after all it’s their own money on the line, so ensure you have the level of detail required to fend off relentless questions.
6. Build the right team
Investors will scrutinise your team and want to ensure you have the right talent in place. Assemble a team with complementary skills and experience and be prepared to justify their involvement.
Investors will need to believe in the management team involved and it’s often personalities and enthusiastic people that investors get behind.
7. Perfect your pitch
You need to tell a story and take investors on a journey, but bear in mind that you might need to tailor your approach and communication style to match the needs of the investor.
Make sure investors understand what problem you are solving. Be clear in sharing your vision and keep your energy high because this will show just how passionate you are about your project. The main objective is to convey your business idea and the market opportunity available. Don’t be afraid to generate scarcity and the idea that the opportunity is fast developing. Like any other, investors experience FOMO (the fear of missing out) and maintaining a level of competitive tension can do wonders in accelerating decision making. Of course, this is more relevant when interest has been registered and the negotiations begin however, it can also be leveraged during the pitch.
It’s important not to take rejection personally, and to always ask for feedback on your pitch. This is, after all, a learning experience and a pitch will most likely be perfected over time.
8. Networking is key
Fundraising tends to be a volume game so sowing your seed with as many investors as possible is the target. You can also leverage your network of non-investors to aid in generating a buzz around your offering. This helps to create a market for your product and show real world use cases. Pursue every relevant lead.
9. Seek out grant funding
An option that is perhaps overlooked due to a perceived lack of transparency and information is grant funding. Grant funding can be of particular benefit for any start-up venture raising funds, as in most cases the funds received don’t need to be paid back.
The challenge with grants is that they are typically small one-off payments unlikely to meet the overall fund requirement needed to make the venture a success. They can however, be maximised as a steppingstone to achieving higher funding later in the venture’s journey.
10. Seek mentorship and guidance
Connect with advisors or start-up founders who have successfully fundraised and leverage their experience. Both can offer invaluable advice on how to achieve greater levels of funding and a better deal for you, ensuring you’re correctly rewarded for your hard work.
If you’re looking for guidance and advice to raise funds for a start-up venture, James and the Corporate Finance team at Scrutton Bland are on hand to walk you through the process. For a free no obligation meeting please get in touch by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
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