If you're an up-and-coming entrepreneur, you're going to face the challenge of getting investment for your small business.
Startup funding can seem hard to come by, and indeed the funding landscape is not as favourable as it was a few years ago. However, this doesn’t mean that money isn’t available. Great ideas still get funded, but you need to think carefully about the kind of investment you’re going to take, and the terms on which you'll take it.
Here, we’ve spoken to entrepreneur and Simply Business customer David Voxlin, of UK retailer Craved, to understand his own startup funding journey. He also gives some tips on raising finance for your business.
Startup funding is one of the most important steps you will take as a new business owner. A well-funded business that takes investment on favourable terms will be in a much stronger position to fulfill its potential.
David Voxlin is a Simply Business customer and the founder of Craved, a retailer of British craft food and drink. Talking about his own funding journey, he explains: “I founded Craved bootstrapped and took the idea to market. Bootstrapped in this context means with own funds and without giving up any equity. Testing the business idea and getting to what is often called a minimal viable product (MVP), to test with real customers parting with their hard-earned money, is an important milestone that investors value, and will set you apart from entrepreneurs who only have an idea.”
If you’re looking for investment in your new business, it’s important you first lay the groundwork. You need to understand your business inside out, and you need to know exactly what you’re looking for.
Voxlin sets out five steps that every entrepreneur should follow when looking for their initial small business funding:
1. Understand what you need for your business, and know your pitch and facts inside out
2. Ask for introductions as far as possible - investors trust founders and other investors
3. Find the right investors that can contribute more than money - you should also be looking for time, expertise, and networks
4. Have a plan for the long term (particularly if you are giving away equity at a low valuation in the beginning)
5. Don't give up!
Many small business owners look at loans first (also called debt financing) to start their new ventures. But loans can be difficult to come by, especially for brand new businesses with no proven track record.
It may be that equity financing is a better route. Voxlin points out that there are tax relief schemes that can make your business a more attractive proposition to potential investors. He suggests the SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme), through which investors receive generous reliefs, letting them offset part of their investment against tax.
You might also investigate angel investment networks that specialise in startups in your industry. You could also try equity investment crowdfunding platforms like Crowdcube. However, be conscious that crowdfunding works better for certain types of business, particularly consumer-facing ones, and is an intense, roughly two-month process that requires a lot of engagement.
If you’re looking for investors, remember that you’re not just looking for cash – you’re also looking for individuals who can add value to your business. Voxlin explains: “First of all, you have to be really comfortable with your investors and trust them completely. These are people that you will almost certainly have a very long-term relationship with, and unlike employees, you don't have the option of letting them go.
“The best investors are also those that have expertise that you need to make the business a success. For a first-time entrepreneur, it's important to have people who have been business operators themselves and have grown businesses from scratch. Specific industry expertise and networks can be really helpful, as can functional expertise such as having a marketing expert on your team.
"You might be presented with a tempting investment that is within reach, but if it does not come with skills that the business needs, as well as a working relationship that you are excited about, it's a bit of a missed opportunity that will limit your chances of success, so consider each offer carefully.”
Even if you’re knocked back the first few times, you should have confidence in your business idea. Some of the world’s biggest companies struggled to secure funding in their early days, but if you’re sure of your product or service, you stand a good chance of finding the right investor.
Voxlin explains that part of the battle is building a product that’s ready to test. To achieve this, he used some public funding: “I started off with a government small business loan through Smarta,” he says. “These loans are a great way to get some very early funding for the business in the £5-20k range. This money helped me test the business at the early stages and get some initial traction before asking investors to fund the business further.”
Craved are currently running their own equity crowdfunding campaign on Crowdcube – click here to see an example of what to expect.
Let us know your experience of getting business funding in the comments below.
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