Partner Article

Alternative funding for entrepreneurs

Keith Mabbutt is founder of graduate recruitment website CVSeeMe.com. Here he shares his advice on alternative funding for Entrepreneurs.

There is a lot of talk at the moment about the Government’s Start-Up Loans initiative. Created by Lord Young of Graffham, the Enterprise Advisor to David Cameron, and chaired by James Caan, the scheme offers young entrepreneurs loans of, on average, £2,500 to help them start their own businesses. Originally aimed at 18-to-24-year-olds, it has now recently expanded its offering to those aged up to 30. Catering for the wider audience, the funding available will also now rise by £30m, from £82m to £112m.

But what other routes are there available for young entrepreneurs to secure start up funding outside of a small loan?

Raising finance can be one of the hardest aspects of starting a business, so consider some of these perhaps less traditional routes:

Equity finance

With this option, a capital sum (cash) is put into your business with the provider taking an equity share of your venture. They do so for the prospective return on investment this stake will provide them when (if) the value of your business increases, over what is normally a 3-5 year period. Most of us know about Angel Investors, which are individuals who provide money for small start-ups usually in exchange for ownership equity, i.e. an ‘equity investment.’ In general, the deal normally represents high-risk, high-reward propositions. But with Angels, you don’t just get the cash. These are individuals who can bring fantastic experience and expertise to your business too. And they won’t cost you a monthly fee either, like a more traditional bank loan or credit card company will. (I went down this route when I launched CVSeeMe.com. I contacted my lawyer, presented my idea, and asked him if he knew anyone who would be interested. He ended up investing in the business himself – and then introduced me to four angel investors, all who happened to come on board. I was able to secure $250,000 and launched the site). If you don’t have a lawyer or an accountant you can speak to, consider the ever increasing ‘angel networks’ or ‘angel groups.’ Angel’s Den suggests it has a network of over 4,000 Angels and can help you find angel investment “quickly and painlessly.” Or you could try LinkedIn. A quick group search using the term ‘Angel Investor’ gave me 195 results, with the top two groups having over 50,000 members combined.

Recommendation: Before getting in touch with Angel Investors, it’s crucial you’re on the money when it comes to your pitch and presentation. In the current economy, 99% of entrepreneurs pitching for funding don’t succeed–which is one of the main reasons why last year I backed an exciting new start-up, Profectus Capital. Profectus is a specific training and mentoring company that helps entrepreneurs become investor ready before providing access to a network of Angel Investors to help raise the start-up cash required.

Are you looking for less than £150,000?

If so, check out the ‘Seed Enterprise Investment Scheme’ (SEIS). Introduced in April 2012, SEIS is one of the most generous tax schemes available to UK taxpayers, and no other major country offers such significant reliefs to investors in start-ups. As a start-up, your company is restricted to the amount of money it may raise (no more than £150,000) but it can make your business look even more attractive to Angel Investors. Take a look through the SEIS Window to find out more and get your business registered for the scheme.

Equity Crowd Funding

You may have come across the term ‘crowd funding,’ which is the collective effort of individuals who network and pool their money, funding a company by selling small amounts of equity to many investors. Three such sites are Kickstarter, Crowdcube andFunding Circle. Kickstarter, for instance, allows entrepreneurs to pitch ideas to the public who, if they like the product, can pledge money to get the project started. And pretty much any idea can be pitched–just check through the some of the listings. Specifically though, a site very much worth checking out is the online business investment platform, Seedrs. Seedrs is the UK’s first FSA-regulated online platform for investing in start-ups, and similarly to Profectus Capital, it concentrates fully on those entrepreneurs looking to secure up to £150,000 in equity capital for the purposes of the SEIS scheme. And it’s worth noting that just before Christmas 2012, Seedrs had its best month since it launched in the summer last year, with four new start-up businesses gaining the investment they were seeking, with one raising £50,000 from over 60 investors in less than 15 hours.

Micro-Financing

But what if you need less than £10,000? According to a recent study, 40% of new businesses in the UK last year needed less than £10,000 in start-up funding. Naturally, one enticing option is to tap up friends and family. Or, you could try a short-term, small loan. Companies like Wonga For Business offer such loans of up to £15,000, but you do need to pay careful attention to the interest rates. In Wonga’s case, they charge relatively high interest rates at around 26% AER. Or, if you’ve served in the UK Armed Forces, you can take part in the ‘Be the Boss’ scheme which helps veterans thinking of starting a small business in the UK. The British Legion offers funding of up to £7,500, and you can also apply for additional funding to grow the business once you’ve been trading successfully for six months. Funds are a mixture of grants and loans and can go up to a maximum of £30,000 per person.

Awards

Finally, how about entering a competition? For the second time, Lloyds TSB (yes, a bank) is running its Enterprise Awards, setting out to find the very best entrepreneurial talent emerging out of our universities. These Awards are for all businesses run by university students or by those who have graduated in the last five years. And there’s a whopping £50,000 cash prize to the overall Best Enterprise. But be quick as the closing date is 31 January 2013.

Keith Mabbutt is a successful serial entrepreneur. He founded one of the UK’s leading graduate recruitment consultancies before selling the business to a multi-million pound recruitment group. He is also the founder of the multi-award winning recruitment website CVSeeMe.com, endorsed by ex Dragons’ Den star and recruitment expert, James Caan. He is a panel expert for the Guardian newspaper online, is an advisor to youth employment and young enterprise for a Government foundation, and the founder of The National Student Entrepreneur of the Year Award.

This was posted in Bdaily's Members' News section by Great Business .