How to get appropriate finance for your business in the UK
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This is a presentation on the various sources of finance available to SME and Startup companines in the UK. The second part discusses the company business model, it's connection with the business plan and introduces the evidence based entrepreneurship concept.
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How to get appropriate finance for your business in the UK
- 1. How to attract the right finance for your business Viktor Todorov Founder, BizDonut.com
- 2. www.bizdonut.com Who am I? Viktor Todorov, MBA 5 Years in Large Corporates Supported over 50 SMEs and Startup companies Business Strategy Business Modelling Fundraising Process Modelling Solution Selling Expertise Problem Solving Business Coach Founder
- 3. www.bizdonut.com Agenda 1. Key questions to consider before seeking finance 2. Traditional sources of finance 3. Angel Investors and VC 3. Crowdfunding 4. Grants Coffee Break 6. What is a business model 7. 12 important things to consider when writing a business plan 8. Evidence based entrepreneurship 9. Business Model Canvas 10.BizDonut 11. Close
- 4. www.bizdonut.com High Growth vs Lifestyle Company A high growth business focuses on a marketplace with potential for rapid and robust growth over the coming years. The lifestyle business, on the other hand, is one that may or may not see significant growth, but exists to fund the “lifestyle” of its owner
- 5. www.bizdonut.com Key questions to consider before seeking finance How much are you looking to raise? How long do you want the finance for? Are you ready to offer security over a business or personal asset or guarantees? How would you repay an overdraft or loan? Are you prepared to bring in an outside investor and give up a steak? What do you need the money for?
- 6. www.bizdonut.com Funding types for different stages Break Even Seed/Startup Early Stage Personal: Savings, Credit Cards, Second Mortgage, Friends & Family Loans MicroLoans (Startup Loans £500 – £25,000) Grants CrowdFunding Internships Equity – Angel Investors Equity Capital Angel Capital Venture Capital Loans Bank Loans MicroLoans Grants CrowdFunding Internships Equity Capital Venture Capital Corporate Venture Loans Bank Loans Government Loans Mezzanine Funding Grow/Expansion Time Growth Later Stage/IPO Equity Capital Venture Capital Corporate Venture Buying out firms Investment Banks Loans Bank Loans
- 7. www.bizdonut.com Debt or Equity Equity – shares in a private or publicly quoted company Equity finance – used to finance research & development, marketing or an acquisition In return – investor wants dividends (out of company profits) and increase in value of shares Debt: Loans, Overdraft, Factoring and Invoice Discounting, Hire purchase, Mortgage In return – repayment of debt and interest
- 8. www.bizdonut.com Traditional Finance – Bank Loans The business’ risk profile matters Finance providers use variety of information to assess risk Banks look at how the accounts are run, facilities repaid The Business Plan needs to be logical with reasonable hypothesis If the business is a startup limited company, finance providers will look at the directors’ credit history
- 9. www.bizdonut.com Traditional Finance – Bank Loans If refused credit by a bank Get a written explanation for the decision Consider requesting an appeal Bank should offer suggested alternative sources/types of finance Review banks feedback and consider applying to another bank or sources of finance
- 10. www.bizdonut.com Newer Source of Traditional Finance
- 11. www.bizdonut.com Handelesbanken specialise in providing personalised and bespoke banking services to both corporate and individual customers. Decisions about your banking are made by your local branch. www.handelsbanken.co.uk Metro Bank offers business overdrafts, loans and credit cards. Longer opening hours than the high street banks. www.metrobankonline.co.uk/commercial Shawbrook Bank – all lending is done through independent brokers/strategic partners. www.shawbrook.co.uk Aldermore – lends to SMEs through asset finance, business mortgages and invoice finance. www.aldermore.co.uk Newer Source of Traditional Finance
- 12. www.bizdonut.com What is a Business Angel Angel Investors are individuals investing their personal money in the equity or debt of a Early or Growth Stage Company Often referred to as Smart Money, it is where an individual wishes to invest their time or experience as well money in a start-up company. Angel Investing is Active Investing not Passive The Angel could be a member of an angel network
- 13. www.bizdonut.com Business Angels – Useful Tips The traditional Business Plan is different from a funding business plan The investor is only interested in what he/she wants to know and not what you want to say. The Business Plan is not read all the way through from page 1 to 30. The detailed sales, marketing and operations plans are as important as the product Well explained exit strategy is very important but often left out. You need to be familiar with the implications of the EIS and the SEIS schemes.
- 14. www.bizdonut.com Online sources of finance – CrowdFunding Accumulation of small investments in individual projects by large number of individuals (the “crowd”) via, or with help of Internet and social networks (De Buysere et al. 2012)
- 15. www.bizdonut.com The four forms of crowdfunding Type Form Benefits for funders Donation-based Donation Intangible benefits. Reward-based Donation or pre- purchase Rewards in addition to intangible benefits. Equity-based Investment Return on investment if company does well. Rewards sometimes also offered and intangible benefits may motivate too. Debt-based Loan Repayment of loan with interest. Alternatively intangible benefits if loan given interest-free.
- 16. www.bizdonut.com Donation Crowdfunding Contributors do not receive anything in return Generally small amounts given Used by individuals and for social fundraising initiatives
- 17. www.bizdonut.com Reward Crowdfunding Contributors receive rewards/perks for contributions Small to moderate amounts given For-profit and nonprofits can run campaigns (some platforms only serve one of the two)
- 18. www.bizdonut.com Millie Lingerie The Millie bra - designed by & for women after breast cancer
- 19. www.bizdonut.com Equity Crowdfunding Contributors become part-owners Generally 6-figure+ investment goals Not relevant to non-profits Generally heavily regulated in countries
- 20. www.bizdonut.com Equity Crowdfunding - £40 million funded so far… £250,000 largest single investment +90,000 members £1.9 million biggest deal £3,100 average investment 145+ Successfully funded deals £220,000 average deal Stage of Growth By Category
- 21. www.bizdonut.com How does it work?
- 22. www.bizdonut.com Peer-to-peer lending or online debt funding Offers easier, faster and cheaper access to financing Lending money directly to unrelated individuals or companies Doesn’t go through a bank or traditional financial institution Platforms help investors to fix an interest rate
- 23. www.bizdonut.com Average rate 8.6% and no early repayment penalties Unsecured loans £5k - £150k Suitable for a wide range of purposes Secured loans £100k - £1m All asset security agreement, or Charge on property Asset finance £20k - £1m Suitable for a wide range of hard assets
- 24. www.bizdonut.com What are the minimum criteria to apply? Limited companies, LLPs and selected non-Ltd firms Established companies: trading for 3+ years with at least 2 years of filed accounts Good credit history. Upward or stable financial trends Minimum turnover: £100,000 Directors: majority UK resident, good credit history
- 25. www.bizdonut.com Grants Fund comes with no obligations of pay-back or interest You maintain full control over the company Very competitive Application is time-consuming Usually dedicated to new, on-off projects Covers only part of costs, requiring match-funding Monitoring process requires sound admin systems in place To reduce the risk and increase the chances of success of new ideas and early stage businesses
- 26. www.bizdonut.com Sources of grant funding Level Funder Typical Project Recommended for Local Councils, Supporting agencies < £5k Recruit apprentices and graduates Equipment, including ICT Regional LEPs £10k to £500k National Innovate UK £25k to £10m Innovation-led projects Focus on 4 key sectors Europe* EU €50k to €5m High risk R&D projects Collaboration with Universities Social Big Lottery, Trusts and Foundation £500k to £1m Charities and Social Enterprises Focus on arts, heritage and community engagement
- 27. www.bizdonut.com What are the trends • More applicants for fewer ‘money pots’ Increasing competition • Schemes concentrated on fewer, key economic sectors Less coverage • Introduction of new finance modalities (e.g. loans, gov’s contracts) replacing some of Innovate UK’s grants ‘New’ grants • Expected initiatives to reduce impact of leaving EU (agricultural, structural and investment funds) After Brexit
- 28. www.bizdonut.com To have in mind A high quality + well written application is essential Explaining WHAT is as important as explaining HOW Demonstrate you know your market Demonstrate the team has the right skills-set Focus on impact beyond your company, i.e. jobs, jobs, jobs
- 29. www.bizdonut.com
- 30. www.bizdonut.com What is a Business Model? A business model describes how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction is part of the business strategy.
- 31. www.bizdonut.com Business Plan Why do you need a business plan? Raise Money Get partners Get interest in the idea/business
- 32. www.bizdonut.com Business Plan - 12 Key Questions What is the value proposition? Who is your customer?? What is the value proposition?? What is the market opportunity?? What is the product or service??
- 33. www.bizdonut.com Business Plan - 12 Key Questions What is the value proposition? How do you plan to make money?? What is your Strategy and Vision?? How much capital do you need?? How do you sell your product??
- 34. www.bizdonut.com Business Plan - 12 Key Questions What is the value proposition? Who is the management team?? What are the projected financials?? What is the valuation of your company?? Do you have evidence to support your projections??
- 37. www.bizdonut.com A better way …. “Evidence Based Entrepreneurship”
- 38. www.bizdonut.com Redefining a Start Up Alexander OsterwalderEric Ries Steve Blanc
- 39. www.bizdonut.com Redefining a Start Up “A start-up is a temporary organisation in search of a scalable, repeatable, profitable business model” – Steve Blank/Bob Dorf
- 41. www.bizdonut.com How to use it? Startup Existing Business Brainstorming tool Business Model Mock-up Presentation tool Progress tracking tool Brainstorming tool Gap Analysis Strategy tool New Project Launch Identify a problem Identify the unknowns
- 52. www.bizdonut.com What’s Beyond the Business Model
- 54. www.bizdonut.com We are trusted advisers to company owners ensuring their business journeys are more profitable, enjoyable and productive.
- 55. www.bizdonut.com Services 1 to 1 Coaching and Mentoring Workshops Consulting
- 56. www.bizdonut.com Services One-off Strategy session Business Surgery Action Plan BizBuddy
- 57. www.bizdonut.com Team Founder, Business Development, Process Management Sectors: Digital, Lifescience, Logistics, Service Industrial Manufacturing and Processes Sectors: Mechanical and Industrial Engineering Business Development, IP, Leadership Sectors: Lifescience, Pharma Grant Writing, Business Development, Research Sectors: Digital, Service, CleanTech Viktor Todorov Steve Walker Nick Pope Nathalia Prieto
- 58. www.bizdonut.com Team Sales Strategy and Business Development Sectors: Electronics, Cleantech, Digital Technology & Distribution Process Sectors: Food & Beverage Manufacturing & Processing Online Marketing and Media expert Sectors: Digital, Service, Social, Education Business Development, Sales and Marketing Sectors: Digital, Service, Wholesale Jasper Spencer Ruth Dolby Debbie Clarke Martin Holmes
- 59. www.bizdonut.com Useful Links SEIS SEIS is a tax break for investors that can greatly reduce the risk of investment. As a UK startup founder, you should know about it. R&D Tax Credits R&D Tax Credits are a very reliable scheme that enables HMRC to pay cash to companies that are doing innovative R&D. If you’re a “tech startup”, you probably (though not always) qualify. You can get up to 25% of your R&D spend refunded each year after you file your accounts. Innovation Grants Check out the grants offered for ground-breaking innovation under the Innovate UK and H2020 schemes. Patent Box The Patent Box is a new piece of legislation which can get solid tax breaks to profitable UK companies that own an EU patent covering some aspect of their product.
- 60. www.bizdonut.com Useful Links SBRIs Another TSB Grant Scheme, SBRIs are basically government contracts, 100%-funded. However, the theme is often very narrow, so if you’re lucky enough to find an SBRI in your area, this may be useful. Otherwise, not so much. Innovation Vouchers TSB’s Innovation Vouchers can help fund some of your subcontracted cost in qualifying projets. Other TSB Schemes Finally, TSB run a number of ad-hoc competitions. You can find a list of those here. Startup Loans Currently only available for entrepreneurs under 30 years old, these are actual loans at a 6% rate of interest. May be of interest to some founders. Regional Growth Funds With £3.2b allocated for the 2011-2020 period, Regional Growth Funds can also help fund a business.
- 61. ThankYou