James Cowper
Early Stage Business Funding - Does it Really Exist?
For some entrepreneurs finding the right level and type of funding can be a bit like finding the Holy Grail. Steve Clarke, partner at Thames Valley chartered accountants, James & Cowper, assesses the main options.
Friends and family
Very often businesses get off the ground through informal investment or lending by people close to the entrepreneur. Decisions can sometimes be emotional rather than commercial and money can be a great divider of friendships and families. Proceed with caution.
Bank borrowing
Unless you have business or personal security to offer the bank, this will be a limited option. Unsecured lending will rarely exceed £10,000 for start-ups. The Small Firm's Loan Guarantee Scheme (SFLGS) was set up to provide banks with a guarantee that the majority of their debt would be repaid in the event of failure.
The bank must first convince itself and then the BERR that there is a good chance of commercial success. The rules are being revised but currently an early stage business may be able to get as much as £100,000.
Whilst all of the banks offer SFLGS, attitudes to it can vary considerably from manager to manager even within the same bank! Always speak to your usual banker first but be prepared to shop around if necessary.
Other forms of borrowing
Banks, other specialist lenders and suppliers may also be able to offer funding against sales invoices or specific assets. This can work well with machinery that holds its value over a long period or leasing IT equipment from suppliers.
Early Growth Funds
This is part of a BERR backed scheme to provide lending up to £100,000, aimed at filling the gap between debt and equity. To reflect the risk, returns are higher than other forms of borrowing. In the South East the 'Accelerator Fund' is managed by Finance South East Ltd www.financesoutheast.co.uk
Grants
It is often wrongly thought that there are no grants available for businesses in this part of the country. They are limited to specific industries but can be very valuable indeed as part of an overall funding package - particularly for technology businesses. A grant search facility is available at http://www.businesslink.gov.uk/grants
Business angels and seed capital VCs
These are more appropriate for amounts between £200,000 to £1 million. The business will need to demonstrate real growth potential. Angel investors may want a close involvement with the business. They may be able to bring real benefits from their skills and experience (often gained in a similar industry). In return they will negotiate a suitable share of ownership in the business and will usually seek an exit within three to five years.
Wellcome Trust's Technology Transfer awards
Technology Transfer has already committed over £100 million to translational projects across 50 institutions and in excess of 30 companies. The types of project we support span computational chemistry to drug discovery, vaccine formulation and human proof-of-principle studies for medical devices, diagnostics and candidate pharmaceutical compositions. Therapeutic areas include cancer, the central nervous system, infectious diseases, inflammation, metabolism, tissue and wound healing.
More information: http://www.wellcome.ac.uk/Funding/Technology-transfer/index.htm
For more information contact Steve Clarke on 01865 200500 or sclarke@jamescowper.co.uk