Entrepreneurship has never been so popular in the UK, with more and more people taking the leap to start their own business. In fact, according to CfE’s Startup Tracker, more than half a million new companies have been founded across the country every year since 2013.
Importantly, for many of these startups the time will come when they require investment to take their venture to the next level. Whether it’s R&D, developing a proof of concept, building a marketing budget or hiring new staff, a vast number of early stage businesses need injections of capital to enable them to achieve their growth ambitions and effectively scale-up.
Thankfully, there has never been a broader range of options available to entrepreneurs looking to raise money – there are banks, VCs, angels, family offices, private equity houses, debt investment providers, and crowdfunding platforms, to name just some of the more prominent ones.
But with so many potential avenues to explore, how can startups give themselves the best chance to raise the right amount of capital from the most appropriate source or sources?
Explore all the options
There might be great opportunities for startups seeking finance at present, but navigating the world of business investment can be daunting. Indeed, a recent survey found that only 57% of UK SMEs feel they have a good understanding of the finance options available to them, while 47% fear that external finance could result in them losing control in the way their business is managed.
Furthermore, while the number of investment options is expanding, so too is the number of early stage companies competing for investors’ attention.
As such, it is vital that young businesses explore all the options available to them, spanning both debt and equity investment – not only will this help them understand the pros and cons associated with each type of investment, but it is also likely that for larger funding rounds a company will require input from more than one source.
This was certainly true for GoKart in its formative years; from its launch in 2014 until now the business has secured funding from multiple organisations and individuals.
Our app – which enables restaurants to order ingredients from suppliers faster, more easily and for less money – was selected for Just Eat’s first ever restaurant technology accelerator, which included some investment. But this was also supported by backing from a number of high-net-worths (HNWs), including a Lord from the House of Lords, the founder and CEO of London restaurant chain Tossed, and chairs of Barclays, Credit Suisse and Morgan Stanley and the founder and former CEO of the UK’s largest food procurement company PSL.
From these various different sources GoKart has raised more than £525,000 to date. And it is vital for startups embarking on their first funding round, whether it’s pre-seed, seed or Series A, to begin assessing the full scope of options available to them. They can then pursue the ones best suited to the size and scale of their desired funding round, making sure not to limit themselves to just one source of finance.
Do you need more than just money?
When deciding which funding options are best suited to the startup – is it a lump sum from a single VC firm or backing from hundreds of retail investors on a crowdfunding platform – an entrepreneur must have a strong understanding of exactly what they want to get out of the funding round.
Specifically, one must ask whether it is only the money that the business requires? There are many types of private investment, including VCs, angels and HNWs, which will offer the startup more than just capital; these investors will offer mentorship, guidance, experience and expertise. A startup can end up with not just significant investment but also long-term support from people who sit on the board or act as non-executive directors to help nurture the business.
GoKart has seen the benefit of this first-hand – the aforementioned HNWs and industry heavy weights who backed the business early on have delivered much more beyond an injection of capital. They have been responsively on hand to offer support and guidance, making valuable introductions, and ensuring the startup is positioned to succeed.
Only go after the amount you need
The news today is awash with early stage businesses closing huge rounds of investment – multi-million pound deals that purportedly suggest the UK could have its next unicorn. The result is that entrepreneurs can easily be lured into thinking that they too must validate their venture by securing as much investment as possible. But this approach is often ill advised.
Firstly, a startup’s founder or founders will want to retain as high a stake in the company as possible; seeking equity investment will naturally erode away at the percentage they own. Not only do they want to protect their stake for their long-term profits and on-going motivation, but also because it is always likely that the startup will need to raise again in the future and this must be factored into the long-term division of company equity.
Ultimately, a business should be very clear and precise in establishing what it needs to raise finance for and exactly how much capital is required for this next phase of growth.
GoKart is currently undergoing its next investment round at present and this diligent yet uncomplicated approach has been pivotal to our preparation. With a fantastic team and experienced team of investors and advisors already assembled, supported by the experience of having gone through the investment process before, the team now benefits from knowing the right places to look and the right funding target to set. It will be incredibly exciting to see how this investment can further fuel GoKart’s progression as one of the UK startups seeking to disrupt their respective industries.
About the Author
Anx Patel is the CEO and founder of GoKart, an app that enables restaurants to order ingredients from high quality suppliers easily, quickly and for less money.
