Only 0.05% of startups raise venture capital” (Entrepreneur). While our article Considerations for scale ups when raising funds provides tips on how to increase your chances of receiving venture capital, the question remains, how do early stage access funds for businesses growth? It’s an important question for not only those businesses that have not managed to find investors but also many companies that either don’t want the distraction and dilution of equity investment at all or don’t want to seek equity investment too early because the cost and/or dilution may be too much. So, what do other businesses do? Here are our top alternatives to equity investment:
- Prioritise cash: most businesses simply prioritise use of cash, accepting that the business will progress through different stages and accepting cash restrictions and limiting its operations or standards to focus on the most important result or outcome, which might just mean getting to the next stage or through another month. This also helps to avoid over-complicating the product, service or operations which can also disperse the intellectual and emotional capital within a business to focus on growth.
- Prioritise higher quality clients and avoid over serving customers with longer or lower paybacks. Focus on the right metrics that identify quality clients and make sure that acquisition costs are balanced.
- Clients: Without seeking preferential terms, many early stage businesses underestimate the extent to which they can accelerate invoicing and therefore cash collection. Many assume that invoices can only be raised once a service is delivered but quite simply, many industries would simply disappear if this was the case. Even when industries have accepted norms, many businesses have been successful because they have successfully challenged traditional working capital arrangements. Don’t be afraid to be open with clients about prioritising cash.
- Suppliers: Suppliers can offer advantageous payment terms and also may help fund a new product or service. For example, sale or return arrangement and payment terms can be stretched and a supplier may be happy to directly support a new entrant into their sector.
- Access grants available. There are some national schemes, for example Innovate UK although many sectors (such as the Creative sector see https://www.wearecreative.uk/) and regions (often through Local Enterprise Partnerships or Universities) have specific start up and scale up initiatives. For example, in the Bath/Bristol region at the time of writing there are approximately 20 grants available for local creative businesses, excluding accelerator and commercial programmes.
- Access tax reliefs: There are various ways to manage your tax affairs to optimise tax, whether that be through super tax deductions, VAT schemes or tax R&D claims that were created to support SMEs and scaling businesses and are promoted by HMRC.
- Debt: While demonstrating affordability can be difficult at the earliest stages, debt can come in the form of start up loans or lending backed by receivables or contracted revenue or other assets.
How we can help: We work with scale up and venture stage businesses providing financial management tax, corporate finance and scale up support (business development, HR, IT), applying our professional and commercial experience. We provide clear and practical solutions from advisers who are experienced entrepreneurs, board advisers and professionals. If you need help with your scale up tax planning or any other aspect of successfully scaling your business, do contact us for a free and confidential initial consultation.