F-WORDS are handy when setting up in business: freebies, friends, family and
finance.
Rory Burke, who wrote Entrepreneurs Toolkit, says that borrowing and
begging should be at the top of any entrepreneur’s to-do list.
After cadging all the equipment, office space and goodwill you can, it is time
to tap friends and family for a spot of cash. But don’t make the mistake of
thinking that remortgaging granny will be enough. “You are always going to
have to put your hand in your own pocket to show financial commitment,”
Burke says.
After raiding their parents’ pockets, most budding entrepreneurs seek a bank
loan or grant. However, you’ll need assets to secure a bank loan; most
banks won’t lend 100 per cent of the money needed, says Ian Netherton, the
finance project manager at Business Link Kent. But there is a small firms
loan guarantee scheme which allows banks to lend 75 per cent of the funds to
those without personal equity.
Contrary to popular belief there is no automatic grant available for new
businesses. Entrepreneurs have to scout around for grants relevant to their
business or region.
The National Endowment for Science, Technology and the Arts (Nesta) is the
largest single source of seed financing for UK start-up ventures. Its chief
executive, Jonathan Kestenbaum, says there are four attributes that need to
be included in a business plan to secure investment: the unique proposition
of the product; an evaluation of the customers; consideration of the team
who will make the venture succeed; and the financial model. “Entrepreneurs
invariably underestimate how much money they’ll need because they don’t
appreciate how difficult it is to penetrate the market. This is because they
tend to over-focus on the product and under-focus on the market.”
When large amounts of cash are needed, business angels and venture capitalists
are invaluable. The former are often successful entrepreneurs looking to
invest up to £250,000, while the latter are prepared to invest
£500,000-plus. Investors buy in to the business on the promise of a return
when the business makes a profit.
To secure money entrepreneurs need to be able to pitch their ideas coherently
to excite investors. Fiona Reid, the director of Entrepreneurship Saïd at
Saïd Business School, at the University of Oxford, says: “Fundraising does
have an element of performance to it.”
She advises against accepting the first offer of money, however loud the
applause. “Choosing the right investor is a real art. They need to be people
you can get on with. Ideally someone who can play a role motivating and
mentoring,” she says.
Don’t take too much cash either. Reid says that investors will expect to see
an appropriate return on their investment which could push the venture
beyond its capabilities. And running before you can walk will land you flat
on your face.
FUNNY FINANCE
MONEY, money, money . . . if your ideas for a business are ambitious then
you’ll need some dosh to set you on the road to success and even more money.
You could start the journey by reading Rory Burke’s books, Entrepreneurs
Toolkit and Small Business Entrepreneur, full details at www.burkepublishing.com;
then find details of local Business Link services at www.businesslinkgov.uk.
Business Link experts can advise on all aspects of setting up in business,
including finance. For more finance inspiration you could log on to www.nesta.org.uk.
Finally, you could attend VentureFest. Here you’ll be able to meet fellow
entrepreneurs and financiers. Register at www.venturefest.com.
