Shaa's blog: how to get funded

You have a great idea, but it needs funding and you don't know where to where to secure it. Well, here are some starters for ten.

Banks

Banks have always been the staple provider of finance to small businesses, and they still are, but times are changing. With the options of 'friends and family', angel investors and, now, crowdfunding, entrepreneurs are learning there is more than one way to skin a cat.

In December last year research by Huddlebuy, the daily deals site for small businesses, found three quarters of young entrepreneurs have no option but to seek alternative funding.

It was recently revealed that the big five banks all missed their Project Merlin lending targets, but before we write off the banks and blame them for all our ills, let's take a realistic look at the situation. Many banks have missed their targets, but it is also true that fewer businesses have been applying for loans. It becomes a catch-22 situation. The media shouts about banks not lending, businesses decide to seek finance elsewhere, often without approaching their banks at all and it becomes a vicious circle.

Yes, it has become harder to raise finance, but not impossible and a bank is always a good place to start. As you probably know, at Smarta we work with Natwest and they have some great range of banking services and products for small businesses. Of course, if that doesn't work, you now have many more options available to you.

Crowdfunding

If you have a solid business plan, other finance avenues do exist.

The most innovative among these is crowdfunding. This idea of financing a business through individuals who network and pool their money together, usually via the internet, has its roots in charities.

In the late 90s, it found its way to the music industry as the British rock band Marillion found all the money it needed for a tour through crowdfunding. I might not listen to Marillion, but the idea was worth paying attention to.

In the last few years, Crowdcube and similar companies have been bringing crowd funding to entrepreneurs. You only need to take a quick look around their site to get a clear indication of how successful the idea is, with more than 10,000 registered investors waiting to put money into a new business. Obviously it's not as simple as putting an idea up and, hey presto, 24 hours later £1m arrives in your bank account. That was in 1999.

To get funding, you just have to create a pitch, help spread the word and then wait for others to appreciate your vision. Investors can be friends, family, connections or complete strangers, and this is a great way to combine funding from multiple sources.

Even if you are lucky enough to have people in your life who believe in you and can help fund your idea, they may not have enough capital to take all the strain. If this is the case, Crowdcube allows you to combine their investment with funding from others, creating the backing to start your business.

Angel investors and VCs

However, more traditional routes do still exist. Angel equity is a good idea if you're looking for funding in the hundreds of thousands, rather than then millions, of pounds and have a solid grounding to show your business will make money.

On the other hand, if you are asking for a high level investment and have a high risk start-up in mind, venture capital could well be the best decision, but be warned, most VCs do not participate in seed or very early stage funding.

Getting money out of venture capitalists isn't easy. You'll generally have to already have money from other sources to be considered by them, and even then it will take an impressive presentation to get them onside.

Make sure you know how much power you're willing to give up for investment before going into any meetings and don't be afraid to walk away if you feel you don't have a good match. It's better to keep looking for funding than to get involved with someone who doesn't share your vision.

If you are going to have active investors who want to sit on your board and get involved in your company think very carefully. Do not just take money, but ask yourself some questions. Do you like these people? Can you work with them? Do you trust them? Do you respect them? Can they bring more to the business than just money? If the answer is no to any of these, my advice would be to walk away. Sure, you don't need to like people to do business with them, but personally I see little point in spending so much time with people you don't like. Life is too short.

While it's always good to explore new ideas, don't be afraid to take the established route and take out a bank loan. There are numerous benefits involved, including maintaining control of your idea and your company - after all, a bank won't be taking equity.

Over time, some forms of funding open to entrepreneurs may become restricted, but new avenues are always opening. If you're looking to fund your start-up, investigate all the options available, from banks to crowdfunding and make sure you find the right fit for your business.

Funding is out there, but it's a scarce commodity and a lot of people are after it, so make sure you find a way to set yourself apart from the crowd.

For more on Shaa visit her website, www.shaa.com, and follow her on Twitter @shaawasmund.

Tune in to today's webchat on crowdfunding with Crowdcube co-founder Luke Lang.

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