1. Raising Finance for Start-ups

2. Key Issues for Start-Up Finance
How much?
Enough / not too much
Headroom
When?
All at once
Drip feed / as needed
Staying afloat
Keeping control
Set-up
Working capital
Growth & development

3. Traditional Textbook Approach
Internal
Retained profits
Asset sales
External (equity)
Share capital
Venture capital / business angels
Stock market flotation
External (debt & other)
Bank overdraft
Bank loans
Hire purchase & leasing
Government grants
Trade creditors

4. A Reality Check for BUSS1
Venture capitalists rarely invest in start-ups
Start-ups rarely reach a stock market flotation
Start-ups rarely have spare assets to sell
Government grants are notoriously difficult to obtain

5. What the textbooks miss
Sweat equity
“Start-ups grab money where they can. It is fly-by-the-seat-of-their-pants finance”
Hamish Stevenson
Credit cards
Re-mortgaging
Redundancy
Borrowed & personal assets
Customer deposits

6. The Four F’s of Start-up Funding
Founder
Friends
Family
Fools

7. Why Founder Finance is so Important
Cheap
Maintains control
The more the founder puts in, the more others will invest
Little red tape or delay
Focuses the mind!

8. Founder Finance - Sweat Equity
Working for nothing, or very little
Links with opportunity cost
Entrepreneurs multi-task until the start-up achieves scale
18 hour days are cheaper than an overdraft

9. Founder Finance - Credit Cards
The most popular source of short-term finance for SMEs
30 days free credit for business-related expenses
Helps control over start-up costs

10. Founder Finance – Re-Mortgages
Raising new capital by re-mortgaging
Most popular form of secured loan finance for start-ups
Long-term finance
Impact of credit crunch...

11. Founder Finance - Redundancy
Redundancy packages often provide kick-start finance for a new business
Previous employers may also provide other support services (e.g. assets, training)
Other popular nest egg - inheritance

12. Business Angels
High net worth individuals who invest in high growth businesses
Investment range - £10,000 to £750,000
What they look for:
Expertise and track record of founders & management
Competitive edge or unique selling point
Growth potential of the market
Cultural fit & chemistry
Financial commitment of the entrepreneur

13. Finally, not forgetting...
Prince’s Trust
Small Firms LGS
Lender of last resort
Targeted at under 30’s
Offers more than the money
Other lenders may come on board once accepted
However, bigger profile than reality
Loan guarantee scheme
Popular support for SMEs
Great for start-ups that struggle to offer banks security for loans

14. Evaluation Points in BUSS1
Assessing a business start-up
Start-ups use more than one source of finance
Advantage of flexibility
Don’t underestimate sweat equity & personal assets
Cash flow forecasting & business plans
No excuses from banks or investors for poor plans or spreadsheets
Early danger of overtrading by a start-up
Choosing right legal structure
Implications for availability – e.g. equity