Exploring investment options was where we finished our last post, which you can read again here…
If you remember… We had a problem with the UK expansion of our affordable managed print service, which has been designed specifically for families, home business & small organisations (small business, charities & primary schools).
And we got some funded help from Professor Simon Bolton of Edge Hill University (Associate Dean & Director of their Productivity & Innovation Centre) and his team. Completing their highly acclaimed and global recognised The Sprint Innovation Programme.
Simon & his team are doing some great work. But now we are reaching the end of the programme. And we need to look at the next potential challenge, investment…
Do we have enough cash resources available in the business to support the expansion plan? If not do need to raise investment? And what options are available to us?
In readiness, we’ve taken a little bit of time out to have a look at some of the latest investment options. And here’s 10 of the best we’ve found. Some of them might even help you too:
Friends & family
A traditional route for a short-term loan or even long-term equity. It can be the easiest & quickest route. But is it fraught with danger? If the business runs into difficulty your love and relationships will be tested to the limit. And besides that, who wants to be quizzed on Christmas Day? About cash-flow and what you should be doing to create faster growth.
Start-up loans
If your a start up business or a sole trader or partnership that has recently (within 2 years) become a Limited company, there is a government backed scheme that lends up to £25,000, at 6% interest with no arrangement fee. They work with local delivery partners and set up mentoring arrangements. And you can apply for it here.
Banks
Banks can be an option if you can prove you are profitable, growing and have regular cash-flow. Banks are under a lot of pressure to demonstrate their support in funding for growth businesses. However, if you are a new business (under 2 – 3 years old) you are likely to need to provide a personal guarantee. And this is usually against an expensive asset, like your home.
Crowdfunding loans
Funding Circle is one example of new marketplaces that connect lenders with businesses to offer large unsecured loans. But interest rates depends on the assessment of risk and the reliability of cash-flow. If the risk is deemed high, they can also offer loans against your assets for security.
Your own cash
If you believe in your business and you have available cash resources, then you may want to dip into your savings. If you (at a later date) subsequently raise equity funding, your investor or investors will really value your commitment of initially risking your own cash.
Angel investors
An angel investor is an affluent individual who provides capital for a business start-up, a new product innovation or even for an established business who needs some specialist help. They usually provide funding in exchange for convertible debt or ownership equity.
In addition to this, an increasing number of angel investors now invest online through equity crowdfunding or organise themselves into angel groups or angel networks to share research and pool their investment capital. The UK Angel Investment Network is a good example of this, have a look at them here.
Equity crowdfunding
Equity crowdfunding is the process where people (the crowd) invest in an early stage company (a company that is not listed on a stock market) in exchange for shares.
Previously only wealthy individuals, venture capitalists and business angels, could invest in startups. Equity crowdfunding platforms have helped to open the door to a larger pool of potential investors.
One downside is businesses raising large amounts could easily end up with hundreds of shareholders, as the average single investment is usually round £100. Although for some businesses, it’s helpful to have lots of investor advocates spreading the word.
Be aware though, there is a significant amount of up front time required to create a compelling campaign. And for a campaign to be advertised on the equity crowdfunding platform, 20 – 30% of the funding needs to be already committed.
CrowdCube & Syndicate Room are 2 good examples of equity crowdfunding.
Product crowdfunding
Numerous products are launched into the market every day. However, prior to launch, each product needs to pass the product-market fit and more companies are testing the water via crowdfunding, an online model of raising funds and financing from individuals.
For a business with an innovative and tangible product that can get shipped around the world, sites such as Kickstarter or Indigogo are a fantastic way to finance the initial production run.
Investment funds
An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange-traded funds, money market funds and hedge funds.
Basically these are an option for investors that like the tax reliefs available from investing in start-ups, but haven’t got the time to consider their own deals. So they invest in a fund that will give them a diversified portfolio of investments. If a start-up can attract investment from a fund, it is a very efficient option. Fees are similar to those charged by angel networks, but for one conversation and one set of paperwork for the entire funding and subsequent shareholding.
Venture Capital
Venture capital is financing that investors provide to startup companies and small businesses that they believe have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions. However, it does not always take just a monetary form, it can be provided in the form of technical or managerial expertise.
Though it can be risky for the investors who put up the funds, the potential for above-average returns is an attractive payoff. For new companies or ventures that have a limited operating history (under two years), venture capital funding is increasingly becoming a popular. The main downside is that the investor usually gets equity in the company and a say in company decisions.
It’s been a and interesting & eye opening delve into the work of business financing, and we hope you have learned something from it too.
Crowdfunding has increased massively over the last few years, and although we have covered a few options here, there are many more available. And we think it’s an area that we need to understand more, before we decide how to fund our UK expansion.
…so, keep your eyes peeled for our next Crowdfunding post.