Gary Turner, MD and co-founder of Xero, shares his top advice to help tech entrepreneurs raise funds for their businesses.
Fundraising continues to be one of the greatest challenges for small businesses. Analysis from the Office for National Statistics found that six in 10 businesses won’t see their fifth birthday, and research from Xero show that of those who failed, over half (65%) blamed financial issues such as poor access to capital as the reason why.
Small businesses provide a huge contribution to the British economy, so it’s a shame that they aren’t always getting a fair deal. The first port of call would usually be banks, but it can be extremely difficult to secure funding from them. However, there are other ways.
In the UK, we’ve worked with thousands of businesses first hand and have seen the interesting ways that they’ve financed themselves. Here are some of the ways that they are getting hold of that all-important cash:
Alternative funding options:
Today, there are lenders transforming the financing landscape for the better. By using new data sets and developing technology, there are many more options to help small businesses. Open Banking is a great catalyst for this transformation.
Alternative lenders such as MarketInvoice analyse your data to determine the risks involved, and work out what’s right for you, at the right time. All you need to do is authorise banks and other licensed firms to access transaction history.
As well as providers such as MarketInvoice, iwoca and Satago are other alternative lenders who pride themselves on fast and easy funding. They can offer invoice and business financing options at competitive rates.
For businesses run from a single laptop on a kitchen table for instance, a lack of hard assets can mean selling off company equity in the early stages. If you do this too soon, you could hamper your entrepreneurial spirit to strive forward.
Instead, consider revenue-based financing (RBF), which has grown in popularity in recent years. Investors inject cash into a business and in return, future gross revenues will have a percentage taken off and given back. The gross revenue will continue to have deductions made until the initial capital amount has been paid, plus the agreed interest. This flexibility is perfect for an organisation looking to bolster its operations and grow quickly and doesn’t require a high FICO score.
Startup loans scheme
Designed for 18-30 year olds, the Startup Loans Company (a government-owned organisation) offers young entrepreneurs money to start their businesses (seed capital) of around £2,500 each. Visit the website here and you’ll see that you can borrow up to £25k with a fixed interest rate of 6% per annum.
This is when you fund your business completely out of your own pocket. Of course, it’s not for everyone, but if you can manage it – it means you can cut back on as much expenditure as possible.
Successful bootstraps also fund themselves through money coming in, so it’s important to monetise your business as early on as possible.
Skill up for free
This isn’t an immediate way to get cash, but in the long run – the more skilled your workforce is, the better streamlined your output is. So, it will pay dividends in the years to come. As part of its commitment to equip businesses with the right skill sets, the government recently launched the Digital Business Academy, a free online learning platform for technology entrepreneurs.
What’s more, this initiative rewards users by providing free and discounted work space and mentoring programmes.