Andrew Finn, from Wax Digital, explores how to use investment to help your business expand.
A report by the University of Cambridge Judge Business School revealed that the UK has 81 per cent of Europe’s online alternative finance market share. In fact, last year alone it was reported that 7,000 start-up loans were given to UK entrepreneurs.
Despite recent political events causing some financial insecurity, many ambitious entrepreneurs are still pressing ahead with new business ventures, and are turning to a range of different finance providers to help fund them. For small business owners or start-ups, deciding how best to fund a new business can be a tough choice, but finding a finance provider or investment partner that supports your plans and growth strategy could mean the difference between success or failure further down the line.
The bank might be the most obvious port of call for new business owners and as long as you’re able to guarantee payback for the loan, as required in most cases, it could be the best solution for your borrowing needs. But what happens if you have little by way of assets to secure a loan, and are therefore considered high risk? If the banks won’t work with you, venture capital could be an alternative route: venture capital firms specialise in building higher risk financial portfolios and will work with start-ups and small businesses for a share of the equity.
Private or government investment is another route to gaining finance which can be used to support new business initiatives. At Wax Digital for example, we are software developers who specialise in eProcurement technology and we wanted to fund a project to develop functionality, and enable compliant online purchasing via third party websites such as Amazon. We funded this using a grant from Innovate UK, a government initiative that supports the development of innovative technologies and products, and this functionality is now used by many of our clients. Provided a business meets ongoing auditing and monitoring requirements, even small grants can help fund new projects which will ultimately benefit your business and customers.
Looking to the longer term, our business strategy was to accelerate growth and expand internationally and we opted for private equity investment to do this. This relationship has given us the funds we need to invest overseas and work with large multinational organisations, where contract awards often take several months, are usually complex and ultimately expensive to participate in.
Working closely with our investors means that we now have access to new board members who bring a wealth of invaluable experience, skills and new contacts to the table. Sometimes a business doesn’t have to work too hard to find an investor, it just might come looking for you. If your business is of interest to a potential investor, they could see your growth potential and target you directly. But whether it’s you or the investors that are the proactive party, you need to have your business plan and figures at the ready. If you’re targeting investors, you’re essentially putting yourself on the market, and you need to be able to successfully put your business case forward. If an investor approaches you and puts down a sizeable price for shares in the business, getting corporate and professional advice is imperative. An advisor will look at your revenue and forecasts before predicting how your business would fare from the buyout. They account for intangible factors of the business that are hard to establish, such as customer retention, to see whether working with that investor is a worthwhile move.
Even in uncertain economic times, the alternative finance sector remains buoyant at the moment which is good news for SMEs. Entrepreneurs may want to consider different types of investment as their business evolves, and finding investors to help secure some quick wins might be what you need to grow while in your early stages, but looking to the future, will they be able to support your ambitious growth plans? The right finance option could be a game changer for your business, so don’t take a gamble on your business’s future: take advice and find the investment partner that’s right for you.
Andy Finn has led Wax Digital through several investment opportunities including venture capital and private equity.