By Andrew Weaver, CEO of LawyerFair
Every small, start-up and early stage business is hungry for cash. Often I see that what divides the success stories from the less-so is how, where and when they raise it. It can be a complex part of your business journey to navigate. Here’s the tried and tested low-down:
There are a myriad of different grants and funding opportunities for individuals, businesses involved in the R&D and pre-commercialisation of products and projects. The challenge is how to see through the fog and understand the correct funding option and how best to apply for it.
In this area of fundraising it often pays to bring on board a specialist however, make sure it’s someone with a track record of success who is not going to burn your time and enthusiasm.
Launch capital is traditionally achieved via the the scrimping, scraping and begging of the founders (and some of their close friends and family).
It’s also important to show future investors that you were willing to put ‘skin in the game’ with the launch and, by investing your own time and money at this very early stage, driving some initial traction and value into your business before needing to reach out for investors.
With every penny being super-crucial (and very personal) you want to avoid over-engineering the launch platform or product. At this stage it’s vital to base everything around the lean start up methodology i.e. maximum learning, at minimum cost.
More on Lean Start Up: http://theleanstartup.com
Seed funding / business angels / crowd funding
There has never been a better or easier time to raise seed finance. Even the government is giving you a massive helping hand with the SEIS scheme, tax relief encouragement for people to invest in early stage companies.
Once you’re up and running - ideally with market traction, feedback and learning - then seed funding is potentially the next step to raising sufficient funds to help you break through to the next level.
Timing is crucial here. You want to be going to the seed round as late as you can and asking for as little as you need. Otherwise, the valuation and/or how much equity you have to give away will be impacted. Raising money is a time consuming affair which often falls to the founders or a very small team. Without enough traction or market validation, you may be wasting valuable time and market credibility going to early too market.
When you do, there are many options available for raising a seed fund of £50,000 - £200,000. These range from SEIS funds through to crowd funding and match funding and business angels and angel investment networks. Pitching events offer great opportunities too.
Also an emerging channel in recent years - particularly since the credit crisis of 2008 - is alternative finance with providers who don’t look, sound or act like your traditional high street banks.
Companies like Fleximize provide a rapid response services for smaller business and SMEs, with with flexible lending terms from £1,000 upwards.
I’m not covering VC or Series A funding in this article however, for the ambitious start-up it’s a target you may be aspiring towards so the key is to understand as much about this as possible.
What is important with any Series A raise is that funding decisions you made earlier in the business life cycle, could have a dramatic impact on what is possible further down the funding chain. The classic mistake is to over-value your business at the seed round, and find yourself with little headroom when you arrive at Series A.
In my experience, if you have a great project, a strong team and sufficient traction, there are funds out there for your business.