Duedil Blog

If you’ve got brilliant business idea but have no clue on how to start raising finance for it, don’t panic! You’re in the right place.

Asking family and friends (& idiots)

The first stage to raising finance is through family and friends, as getting off the ground can be the hardest part. The thing with this is that it’s probably the easiest access to finance. If you go to an angel investor with just an idea they will obviously want way too much equity to fund it, and you end up working your ass off for peanuts. Families and friends are your biggest allies early on, even if it means asking for enough to make a MVP – minimum viable product. By building a MVP, at least you can prove to potential investors that this could work. Instead of just explaining a theory, build a website with example scenarios or create a prototype.

However, borrowing money for your business from your family and friends is a double edged sword. Whilst you may get the benefit of better terms and more money, the relationship may get strained if the investment doesn’t go to plan. If you go down this route it is essential that you make sure you obtain a written agreement because you never know what might happen; you have to protect yourself. You can download Business Loan Agreements templates online. The benefit of this method of borrowing is that it doesn’t stretch your credit to the limit on something that may fail! So that’s why this is probably the best option to start your business with.

The Bank

The simple truth is the bank will probably not lend you money and it can be quite a tedious process. You probably won’t have a track record proving to them that your start up is a good bet.

However, if you are unable to raise money through family and friends, your best option is to arrange a loan under your own name, this is highly risky because it could wreck your credit score. The trick to being able to get a hold of a lot of credit is to be a ‘bad’ borrower. Banks are here to make money, and they make money in the form of penalty fees. They don’t make much money from ‘Perfect’ borrowers, so repay late a few times and you’ll be able to borrow much more money. Be wary of this though, because your credit rating may suffer.

Before Angel Investors

If you can get neither family nor friends to invest or a loan from a bank, look for other ways to raise before going to Angel Investors. Be creative: crowdsource it, try fund raising websites, such as Funding Circle, Kickstarter, zopa, indiegogo and our personal recommendation goes to Funding Circle. To quote The Economist- “The bank said it would take eight to ten weeks to approve the £30,000 of funding needed… there was an alternative: a new financing platform called Funding Circle, which found the money within two weeks.”

Do everything you can to raise funds for a Minimum Viable Product before you go to Angel Investors.

Angel Investors

Once you have a MVP up and functional, take your product to an Angel Investor. Angel Investors are usually retired entrepreneurs with high net worths who invest in early stage start ups for either equity or convertible debt. This form of investment pertains mostly to high growth sectors, this is why web based start ups are so popular in this area. Obviously, businesses in high growth sectors will find it a bit easier to gain investment from an Angel Investor. Anything from £10,000 to several million (in rare edge cases) can be raised by start ups.

There are nearly 18,000 business angels out there in the UK. The British Business Angel Association registers most of the Angel organisations in the UK. Angel List is a social network for Angels and Start ups, this is a great way to connect and network with potential investors, view the start ups they’ve already invested in and find someone that’s right for you. Angels Den is a community of Business Angels with over 4,000 investors in UK, Europe and Asia. 10,000 entrepreneurs currently use the site, making this a fantastic resource. Upload your business plan, attend business funding clinics, attend pitching events, make your pitch and get invested.

When going for an Angel investment, you must be careful when negotiating issues such as responsibilities, growth targets, investment terms and financial forecasts, try to gain some advice from a legal advisor or a business mentor so you know what would be fair for you.

The main trick to getting Angel investment is to get yourself in front of as many Angels as possible, they will most likely tell you where you went wrong if it doesn’t work out, you can use this feedback for the next Angel.

Venture/Start up Conferences

Venture conferences or start up conferences are a great way of gaining investment for your business and at the same time get a whole bunch of publicity. There is usually a fee to enter your company into these conferences, but the feedback you can get from seasoned industry heads is invaluable.

Techcrunch Disrupt – The start up battlefield

Runs from September 12-14 every year in San Francisco, US and October 31 – November 1 in Beijing, China. Up for grabs is $50,000, but to be eligible the start up must be live for fewer than 3 months and less than 2 years old. Tickets are free if you get selected to participate.
http://disrupt.techcrunch.com/

LAUNCH conference

Runs from March 7-8 every year in San Fransisco, US. There are two types of competition at LAUNCH: LAUNCH 1.0 is for companies who’ve never had any press or publicity and are in Alpha or early Beta mode and LAUNCH 2.0 is for existing companies who are launching a completely new product.
http://conference.launch.is/

TechCrunch GeekNRolla

Runs March 30 (but changes every year) in London, UK. Tickets are £350-£450 for start up tables. Participating in GeekNRolla can be very beneficial, Duedil entered last year and we won! It was a fantastic experience and we came away with £50,000 investment from DFJ Esprit and a whole bunch of other goodies including £5000 worth of free legal advice! Very much recommended due to the fact that its so close to home.
http://www.geeknrolla.com

DEMO

Demo your company, and get yourself infront of potential investors. There are two events in the Year, DEMO fall and DEMO spring (April 17-19)
The Prices are: 8k for Bootstrapped companies, 12k for Angel funded and 18.5k for Funded A round +. Demo success stories: Salesforce.com, JAVA, Boingo, Palm, Symantec and e*trade.

Venture capital

Money from investors come into a fund, this is then managed by fund managers who pick and choose different investments for the fund money. VCs tend to invest in high-risk and high-potential early stage start ups usually in the technology sector. If you’re reading this from the UK, you’ll be glad to hear that most Venture capital investments in Europe are invested in UK companies. Investments usually start from £4 million, with total invested in Europe amounting to billions of Euros. To obtain their funds you must demonstrate a good track record. Most of the major banks have Private equity arms that invest millions in early to mid stage start ups. VC firms include Barlcays Capital, Goldman Sachs, Bain Capital.

A great resource of information about angel investing and venture capital, Venture Hacks provides a wealth of information on raising funds.

This week in start ups is a great podcast hosted by Jason Calacanis (The angel investor Founder of Weblogs inc, Mahalo.com) and his guest panel of CEOs, VCs and Angels, reviewing start ups, talking to start ups, and giving out start up advice.

Business Incubators

These business hotbeds are dotted all around the UK, there are approximately 300 business incubators supporting over 12,000 high growth technology businesses. Business Incubators typically provide a wide range of support from:

a) small business units and leases on flexible terms
b) R&D facilities and links into university and academic resources
c) ongoing mentoring and business support from experienced personnel
d) technical assistance
e) training and development opportunities
f) access to funding opportunities
g) networking opportunities with other entrepreneurs
h) fee-based business support services such as receptionist services, secretarial support, accounting, video-conferencing and access to meeting rooms.

Info on Business Incubators can be found here: www.ukti.gov.uk/investintheuk/whytheuk/localisation/107013

Government Help

The Government offers financial support in the form of grants. However these grants are hard to win, because there is a lot of competition and specific and challenging criteria to meet. Grants are usually given to proposed ideas and not ideas that have already been started.

Grant eligibility

The government has set some criteria so that grant money is most effectively distributed:

Location

The government loves local businesses, so if you plan to stay in one place for a number of years and employ local workers then you have a good shot.

Size of business

If you’re reading this blog post, chances are your business is very small or not even started yet. The Government loves you too!

Your industry sector

The Government supports projects through a variety of innovation and technological advancement.

The purpose of the grant

Grants are usually given for the purposes such as purchasing machinery, improving offices, increasing employment or developing export markets.

Compatibility with Government objectives is necessary, but not sufficient to win grants.

To maximise your chances of success, it’s a great idea to speak to the people over at Business link. Find your nearest branch HERE.

The Technology Strategy Board Grant for Research and Development scheme

In order to be eligible for this grant, your small to medium sized company needs to be in the area of science, technology or engineering, with potential to be gaining massive returns.

There are currently three types of grant available, but you can only apply for one:

1. The proof of market grant

Up to £25,000 is given to be used on market research, competitor analysis, intellectual property issues other costs needed to bring the product or service into the market. The money is given on the condition that it is not over 60% of total funds invested and the project is no longer than 9 months.

2. The proof of concept grant

Up to £100,000 is given for feasibility studies, developing the prototype, testing the prototype, researching production methods, and protecting intellectual property. Again, it is given on the condition that the grant does not make up over 60% of total funds, and stipulates that the project hasn’t been active for longer than 18 months.

3. Development of the prototype

A grant of up to £250,000 is given for making the prototype, any testing needed, which includes market testing. However, the grant given must not account for more than 35% of the total project cost for medium sized businesses and 45% for small sized businesses. The project in question must not last longer than two years.

Find more info and apply for this grant HERE.

Dragons Den

Of course, if you think you can take public humiliation (not saying you necessarily will) and seeing mean dragons pick your business apart, then think about going on Dragons Den. This platform can be a springboard for your business and you might even gain a wealthy dragon in the process! This is a very risky strategy however because if you fail, EVERYONE will know (at least the millions who watch Dragons Den will know), making it hard for you to raise finance in the future. But then again, you could be the next Levi Roots!

Apply for Dragons Den HERE.

It’s tough out there and we wish you the best of luck! If you need any help or advice, just leave a comment and one of our experts will get back to you.

Damian Kimmelman

Damian is the founder & CEO of Duedil. His posts usually relate to funding & startups. Duedil is short for Due Diligence, which we believe is an integral part of making better business decisions. We provide our users with the type of information found at Companies House UK, so if you are looking to perform a Directors Search, find out more on Litigations, Financial Records, Stock Information, and more, you can find it all at Duedil, and best of all it’s free!