By Robin Knox, Founder and CEO, Boundary
Last year, The Telegraph reported that 660,000 new companies are registered in the UK every year – the equivalent to 70 new businesses being formed every hour. It also reported that around 60 per cent of these will go bust within three years, and 20 per cent within just 12 months.
There are countless factors that can cause a business to fail, from a flimsy business plan to poor target market research, but there’s one factor in particular that is very common: insufficient funds.
Underestimating the amount of capital needed to succeed is easily done, but can be deadly. Unrealistic operating costs and counting on overly optimistic sales revenue during the fledgling years sees many businesses sink before they’ve left the port.
Unless you have inherited a fortune, setting up a new business will require investment. For a newcomer, the options can be confusing. The following four top tips can help to secure investment for a successful future.
Know when to seek investment
Timing is key. Prior to launching my latest venture, Boundary, I was co-founder of Intelligent Point of Sale (IPOS), which we successfully exited in 2016.
Initially, we bootstrapped IPOS alongside a small business loan from The Prince’s Trust. Shortly afterwards, we took on an office in a business centre and, as soon as we increased our turnover by enough to fund it, we hired a new member of staff wherever we needed the support most.
We had around 16 members of staff and 500 customers before we thought the time was right to consider any external investment – an angel investment round of £500,000 in 2015.
With Boundary, things have been different. We’ve sought investment much earlier in the lifecycle of the business because our ambition is to build something 10+ times the size of IPOS and scale very quickly. My business partner, Paul, and myself have already put in £1million between us and that has taken us 75 per cent of the way to launch, plus we’ve got our first hardware orders, but we plan to deploy a further £2 million just to launch Boundary.
My advice to entrepreneurs is to always bootstrap things for as long as you can to minimise your dilution. The more you can prove to investors, the higher your valuation as a company will be. If you have the resources, it’s best to build your Minimum Viable Product, take it to market, secure some sales, and only then think about seeking investment.
Understand what type of investment to raise
When you are ready to secure investment, it is important to consider exactly what type of investment will suit your business best. There are many different financing options out there, which can be a little mind-boggling. Here’s a quick breakdown of the most popular:
- Grant – Non-repayable funds usually awarded by the likes of government departments, corporations, foundations or trusts
- Angel investment – Investment involved in purchasing shares of a company. Equity investment can be sought from friends and family (provided the right terms are in place) and angel syndicates. Start with the UKBAA member directory where you can find angel syndicates listed by the type of business sector they like to invest in. It really helps to create a prospect list of stage and sector-appropriate investors to avoid a shotgun approach which can be extremely inefficient
- Venture capital – Venture capitalists (VCs) get an ownership interest in return for the money invested. A VC’s model generally banks on their winners being billion-dollar exits.
- Debt – Much harder to secure with little financial track record but there are certain soft-loans available such as the digital development loan to help SMEs
It is crucial to do your homework and ensure that whatever financing option you choose is the one you feel best suits your business.
A compelling pitch deck goes a long way
Once you have decided to seek investment, you should then turn your attention to how to draw in potential investors. This is where a convincing pitch deck proves invaluable.
Your pitch deck is your opportunity to clearly communicate your bright idea, so a lot of thought should be put into it. Remember, first impressions matter, so make sure you are crystal clear on what you do from the get-go. And keep the most impactful information at the start of your pitch, while the attention of your investors is sharp.
You want your pitch deck to start with your company purpose. What problem have you come across? How can you offer a solution? Then you can focus on your market, competition, product, business model and financials.
A well designed slide deck is your chance to showcase the investment opportunity, tell your story, display the strengths of your team and showcase any traction to date.
Prove the scalability of your business
Finally, it is worth remembering that not every business is investable. If you want to successfully secure capital, you must be able to show that your business is scalable.
In order to prove that it is, you should keep several considerations in mind, including how you plan to refine your company’s growth trajectory, how you will deliver your product across borders, and how to acquire and support your customers in a repeatable, efficient way. It’s worth considering what your product will need to operate as it scales in terms of infrastructure as well as translation or legal compliance as it enters new markets.
In a broader sense you also might find yourself fielding questions on how you plan to articulate culture and values, how you will acquire talent for specialist jobs, and what short-term, mid-term and long-term goals you plan to set.
If you can successfully prove that your business is scalable, there’s a good chance investors will consider parting with their hard earned cash, helping you on your journey to business success.