Raising funding can be a challenge for a significant number of small and medium-sized enterprises (SMEs), according to a report by the Department for Business, Enterprise & Regulatory Reform. Its findings show that while the majority of SMEs are satisfied with the availability of external finance (79 per cent of firms are able to obtain funding on their first attempt), that leaves up to 25,000 businesses a year, often start-ups and early-stage businesses, in financial need. For such companies it may be more difficult to access funds but it's not impossible.
Early stage ventures
If you're a "blue sky" business, with products that are still far away from market, it can be especially difficult to find investors.
For Anne Vincent, MD of Sebus, a start-up which develops and licenses environmentally-friendly chemicals, virtually the only source of finance was the SEEDA (South East England Development Agency) fund called PoCKeT, designed for early stage ventures. Vincent secured the maximum available, £30k, through Finance South East, which only has to be repaid if the business is successful.
Obtaining the funding was straightforward, requiring a presentation and filling out a form. What really helped the company was the backing it received from the Newbury Enterprise Hub, one of 20 hubs launched by SEEDA, to find and support SMEs with breakthrough technologies offering high growth potential.
In addition to providing mentoring, the Newbury Enterprise Hub also helped Sebus obtain a £48,000 SEEDA-funded research grant. Vincent first had to show that matching funds were available and she raised over £60,000 in equity through personal contacts.
Sebus is now seeking further investment through business angels. Vincent recently attended the Investment Readiness Programme offered by the Carbon Trust and London-based business angels E-Synergy, that equips SMEs with the business tools needed to bring their low carbon technologies to market. She hopes this will improve her company's chances as she now has a better idea of what angels are looking for.
loans and private investors
Women entrepreneurs and those from ethnic minorities are often reluctant to seek external funding. But accessing finance has not been a problem for Susan James, who has now completed two phases of funding, raising nearly £500,000 to set up and expand her fashion accessories business.
When setting up Art of Accessorising, James secured a maximum £100,000 start-up loan from NatWest under the Small Firms Loan Guarantee (SFLG) scheme. A condition of the loan was to match it with private equity funding which James did within six weeks through family and friends, personal savings, and her accountant (who wanted to invest in the business).
Earlier this year, James raised over £100,000 through additional private investors. She also decided to move her SFLG loan to Clydesdale Bank, and extended it by a further £100,000.
From the beginning, James's fundraising experience has been completely positive. "People have bought my confidence, persistence and unquestionable belief in what I can achieve," she says.
Venture capital
Is it difficult to raise finance if you're an early stage, high-tech SME? "Not if you're a good one," says Keith Powell, CEO of PolyTherics, a biotech company that has just raised £2.3m in private funding.
It took Powell nine months of "slogging around," to bring together Longbow Capital, Imperial Innovations, and the Capital Fund to finance his company's new product development.
Because the biotech industry has long development times and slow returns, it can be difficult to attract investment. Powell had to do a lot of research to identify those VCs with a serious interest in biotech and with substantial funds.
In Powell's experience, VCs want to see "a management team they believe in," even before looking at the business plan. A high-tech SME also needs to demonstrate extensive experience in its field, a good reputation with the due diligence experts, and a sound product.
It also helped that PolyTherics received start-up funding from Imperial College, which made it easier to secure a further £750,000 from its Innovations fund. Having definite funding gave the company credibility with other investors.
