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Funding seminar helps start-ups to find their way through the money maze

2 December 2011


Finding capital is one of the biggest challenges for anyone starting up or trying to grow a business. In times of economic deprivation, it’s even harder than usual. To address the issue, HELO (Higher Education London Outreach) and SMILE (Selected Mentors and Interims for London Enterprises), both delivered by UCL Advances, organised a Funding Seminar to debate the benefits, shortcomings and efficacies of different forms of financing for SMEs.

On 21 November, around 50 entrepreneurs gathered at UCL to listen to John Spindler, CEO of Capital Enterprise, who has been advising small businesses for 14 years. He has started four businesses of his own, including Camden-based audio equipment designers and manufacturers Ferguson Hill.

Participants represented a variety of sectors – from healthcare to education to software. At least half were looking for financing. Many had been rejected. All were there to learn from the experts and each other.

John began by looking at sources of funding. “SMEs need to look for different sources of finance at different stages in development,” he says. “Matching the right mix of sources to the right stage is the key to successful fundraising.” So, for example, at set-up, personal sources (ie. your time and money) as well as what John terms ‘friends, family and fools’ play a big role. At the R&D stage, government grants, tax incentives and perhaps corporate sponsorship will come to the fore. At scale-up or growth stage, private investors and seed funds are the most likely sources of money.

John says there is a big ‘disconnect’ between when the entrepreneur wants funding, and when the investor wants to provide it. “It’s usually much further down the line from set-up. Here’s a clue: only 1% of business plans presented to venture capitalists get funding.” Entrepreneurs should examine carefully whether they have a business model for growth.

“Once you’ve created a business model, you have to prove it can work. Only then can you write a business plan, hire lawyers and other advisors and meet investors. After that you need to prove it can work some more!” he laughs. “Six months down the line, you should pitch to investors and negotiate terms and conditions.”

A clear message was that entrepreneurs should think carefully about asking for investment too soon - ‘better late or even never’ is John’s motto. “Many businesses spend a hundred-plus hours preparing a pitch. They need to ask themselves: Would that time be better spent working on the business?”

For those not put off the idea of pitching to investors – and most in the room weren’t – John gave the lowdown on equity finance. Business angels are investors who provide funding in return for shares in a start-up. They often have a business background and many have been entrepreneurs themselves. Angels usually invest in consortiums, with the average investment being around £40,000 per angel and £250,000 per consortium.

A key feature of angel investing is their hands-on involvement in supporting investee businesses. Establishing a relationship is vital; many angels say the main reason they invest is because they believe in the entrepreneur. And unlike venture capitalists who are few and far between in the UK, there are a lot of angels with money to spend. The situation is likely to become even more favourable as the Chancellor is set to announce an increase in the investment amount that is tax-deductible through the Enterprise Investment Scheme.

John recommends that would-be investees research investors as much as their marketplace. Tim Barnes, Director of UCL Advances and Enterprise Operations, who started his first company at the age of 14, warned against “finance-based time wasters” who charge for pitches. He added: “Be prepared to have a hundred conversations before you find the right investor.”

John concluded his talk with a checklist of things that entrepreneurs can do to benefit from the support that Capital Enterprise and UCL Advances offer, from signing up to a business bootcamp through checking out the 100 offers of support for London businesses. He also advised getting a mentor through SMILE and/or further business support from student-led consultancy teams through HELO.

He says: “To start or build a high-growth business you are going to need partners, supporters, contacts, know-how, talent and resources, including money. Our job at Capital Enterprise is to see if we can find one or more of those for you, so why not give us a try in the first instance.”