Many early stage businesses struggle to raise much needed finance, but often it’s down to a lack of preparation and a lack of knowledge about where to go and how to access it. The Digital Jersey Hub has partnered with Envestors, a UK and Jersey business investment angel network, to provide information for digital start-ups.
What type of finance do you need?
This is the first question and it’s not always as straight forward as it seems. Start-up is where you have a great idea but need some funding to undertake research or create a prototype. Obviously this is the toughest point of your business to get funding and you will need a solid track-record and very well thought out proposition to be successful. Seed funding is where you’ve researched your market and established a working prototype or set of processes for your business, however you haven’t generated any sales yet and need money for marketing, salaries, product development etc. It is still very difficult to persuade anyone to lend to you at this stage and your most likely option is going to be raising finance from contacts, friends and family. Bank loans are an option but will probably have to be secured against your home. There are specialist investment funds and incubators as well as private investors, but they will need a very strong business plan, management team and it will help if you’ve put your own money into it too.
Early stage, once you’ve completed the product and generated some sales, and expansion, are likely to be the points in your business when you’ll be most successful in getting investment, but it is likely to be a longer and more challenging process than many people anticipate.
Where can you look for investment?
Private investors, investor groups (angel networks), investment funds, corporate venturing (where a large corporate invests in smaller strategic ventures), venture capital firms/trusts and for established businesses – the stock market. There is also the option of debt through the form of a bank loans etc.
What are investors looking for?
60% of business plans are rejected by private investors within 30 minutes of review. On average only 2% of applications will be successful.
From the Business:
From the Business Plan?
An engaging document – don’t make it boring – and explain why this is better than the hundreds of others they’ll be offered. Be passionate and professional.
And critically… Clear financials showing realistic three to five year monthly forecasts with a best case and worst case scenario.
Finally you need a ‘knock your socks off’ executive summary covering all the key issues. 250 word, one page and two page versions might be needed.
The most common reasons investors reject proposals?
In your Business Plan definitely don’t say:
“This is a wonderful and exciting opportunity” – Just give the facts.
“There is no competition” – then is there a sufficient market?
“Can you afford not to invest?” – yes you will find they can!
“The product will sell itself” – No they don’t you need good management and a marketing plan.
“Our target market is x million” – but on closer scrutiny – it’s not.
“Our conservative sales forecast triples every year” – 300% growth is not conservative.
Keep it simple, honest and free of hype.
To contact Envestors give Ed Daubeney a call: 01534 705532 or 07797 749 355 or email: firstname.lastname@example.org