Tech City News partnered up with accountants Blick Rothenberg LLP and NatWest for the first in a series of events during London Technology Week: ‘Ensuring investment is a catalyst, not a catastrophe’.
When should I use the crowd?
Karen Kerrigan, legal and finance director at crowdfunding platform Seedrs, as well as the director of the UK Crowdfunding Association, representing more than 50 sharing economy companies, kicked off with an outline of this headline-hitting funding option.
The three broad areas, she explained, are debt crowdfunding, mainly reserved for more established businesses who are able to pay back a loan; equity, like Seedrs, where you give away a portion of your business; or rewards-based, which typically works well if the company offers “something that people will want to participate in”.
“Seedrs itself crowdfunded, on Seedrs, back in 2013, ending up with more than 900 shareholders,” Kerrigan said. To overcome the issues that this kind of funding option brings – votes for shareholders, to name one – Seedrs acts as a nominee for anyone who takes equity in a company using its platform.
Asked whether crowdfunding only works for B2C startups, Kerrigan explained that is has more to do with networks, attracting people who want to invest in or use the product, which even works for B2B offers. She highlighted an accountancy software platform for startups that raised the cash it needed by reaching out to exactly the people it was designed to help.
When should I go to a bank?
NatWest’s head of TMT Neil Bellamy emphasised that while some startups might want to “get backing, get big, then get bought,” it takes five to seven years even for fast-growth companies to reach the right point. “At NatWest, we had to understand that these types of companies are collecting ideas and people, rather than assets.
“How do you know when you need a bank?” he asked. Simple answer: “You have to have a product, and customers,” which clearly isn’t right for many early-stage startups.
For those who aren’t at the right stage for big banks, he suggested: “the cheapest form of equity is to get a contract.” Once you’ve got a big deal, you have money in the bank and you can show that your company is going places.
Can I go it alone?
Richard Corbett, founder and CEO of Eyetease, a five-year-old digital transport media company that has never received funding and now holds contracts in excess of $4m, offered people in the room a look into what it might take to go it alone.
Having took time to a market that was ripe for disruption, the taxi market pre-Uber, which wasn’t something he had any experience in, he suggested that often startups are too quick to seek out funding before truly identifying the opportunity.
“Have you really defined your product? What are the material benefits? Who are your target customers? Where do you make the money?” he asked.
“If you cannot describe your product in one sentence, try again… Business isn’t rocket science. It just takes strategic planning, passion, perseverance and attention to detail.”
Blick Rothenberg’s experts, with a track record with high-growth tech businesses, were on-hand to answer funding and financial management issues throughout the evening.