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Raising finance without a bank loan

Raising finance without a bank loan

Raising finance without a bank loan

For many start-ups and small businesses, a bank loan is often the most obvious and traditional way to get the cash for your business.

But what if there was another way? If you’ve struggled to get a bank loan, or you’re confused by the different investment opportunities on the market, don’t fear, there are now more funding options and alternative finance routes than ever before for your small business.

To help you make the best decision for your company, our Plusnet Pioneers Steven Bartlett, co-founder of Social Chain, and Katie Massie-Taylor and Sarah Hesz, founders of Mush, share their alternative investment stories. In this article, they explain how they chose their different funding routes, including:

Venture capital

Funding provided by investors to startup companies and small businesses that have strong potential to grow. In return, the investors receive a stake in the business.

Seed stage

The earliest stage of funding where a relatively modest amount is raised to get the company off the ground. This usually funds startup activities such as market research, product development or other early-stage operations.

Crowdfunding

Where a company raises small amounts of money from a large group of people to finance a new business. This method usually uses the internet to bring investors together on specialist websites.

Angel investment

Angel investors are wealthy individuals who help start-ups take their first steps. In return, they receive a share of their business.

Raising finance without a bank loan - bridge the funding gap 7.jpg

How Social Chain secured its first funding

 

Steven has had an entrepreneurial edge from an early age. As a student, he convinced local coffee machine manufacturers to pay to have their machines fitted in his school, instead of the other way around.

So, it’s not surprising that when it came to sourcing funding for his social media marketing agency, Social Chain, he used the same approach:

“My first experience of raising money was going on LinkedIn and typing in the word ‘investor’. I emailed the first person that came up and asked him if he’d be interested in funding my business – it was as simple as that.

“I was only looking for about £5,000 - £10,000 for my startup, and within 48 hours of him receiving that email, we had a conversation. He said: ‘if you can get a team together and someone who can make a website, then I’ll be interested’.”

By his own admission, Steven’s experience of raising funding has been unusual. But his story shows how startups can make their own luck by taking advantage of connections, drumming up conversations and not being afraid to do something as simple as sending one email to secure a great opportunity.

Steven has outlined the importance of chance encounters, and how it’s always worth getting to know as many people as possible, as they may turn out to be an investor in your business down the line:

“I got through the audition stages for The Junior Apprentice when I was 14 years old. I pulled out of the show before it aired, but I did meet someone at the auditions who popped up a few years later, and his dad had become a billionaire. The guy that I met contacted me and told me that his dad wanted to meet me.

“When we met, I started telling him about myself and my story. I think I used the word ‘obsessed’ to describe my passion for business, he stopped me and said: ‘I wish other people had the fire for something like you’. From that moment on he was interested, and he invested!”

Not every startup founder is going to get the chance to pitch to a billionaire, but you never know when you could meet a potential investor.

How Mush secured funding from its loyal community

After securing initial investment, Mush founders, Katie and Sarah, found themselves struggling to find additional funding.

Katie explains: “We were too advanced for the earliest stage of funding (seed-stage), but we weren’t quite advanced enough for venture capital money. There is quite a gap between the seed VC investors, and the ones who are looking for businesses that have really taken off.”

Having already built a large following of mums through their marketing efforts, crowdfunding was a great solution for Mush.

“Crowdfunding is a wonderful way to bridge that gap between seed funding and VC funding. We knew we had a product that was very understandable, and we found that raising money through your followers is a wonderfully tactful approach if you’re trying to build up a rapport with your audience. Plus, it offers a great marketing campaign!

“Mums knew about us and we could actually get them to invest in us and be part of the journey.”

But, that’s not to say that there weren’t challenges in getting the public to invest in Mush.

Katie continues, “running a crowdfunding campaign is an exciting, full on experience. You have to be very prepared.

“The way we approached it was to have 40% of the round filled before we even went live. This involved privately confirming a set amount from investors before launching the campaign. This means you can actually show that a number of investors are already interested and then the crowd follows suit.”

Sarah agrees that a successful crowdfunding campaign takes work: “Be prepared to answer lots of questions from people. You could get lots of enquiries on your crowdfunding page and you won’t know if they’re going to invest £10, £10,000, or more.

“We had long conversations with potential investors on the website where they’d invest a small amount, and then we’d have complete strangers out of the blue investing £30,000 or £40,000. It can take you by surprise.”

However, their crowdfunding efforts were worth the hard work once the investors started to snowball, as Katie was happy to discover: “I’d hoped it would happen, it was surprising when it really did. People piled in because they thought that this was an investment that would definitely go ahead.

“We were 100% funded within two or three weeks of our campaign starting, and then we were able to raise one and a half times what we’d hoped.

So, how did they decide on a crowdfunding target? Sarah explains: “We based our crowdfunding target mostly around what we knew we had secured already.

“We knew what we had to raise, we had a minimum amount and we knew what we had secured. Then it was just working out how to manage the fund: you never want to be at 0%, you always want to have money coming in from other investment sources such as angel investment and venture capital funds – you want to show momentum. It’s about having a cocktail of different types of investment.”

According to Katie, Mush never stops thinking about how they are going to take their business to the next level with funding: “The way that we approach raising investment generally is that we always think what we’re going to need to be attractive to the next set of investors.

“Even now, we’ve just secured our third funding round and we’re thinking about what will make us attractive at our fourth round. It’s an exciting endless cycle.”

Every company will have a different experience when it comes to funding, so it’s all about finding the right method for you and your business.

Interviews were conducted as part of our Plusnet Pioneers programme, an exciting content series to help small businesses grow and reach their potential. We’ll be sharing more useful tips head over to our Plusnet Pioneers section.

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