Forward webinar: Finding the right funding for your business.
Earlier this month, we hosted a webinar with Forward Advances, on finding the right funding for your business. We were joined by 100 founders who wanted to learn more about the wide variety of funding options available beyond traditional venture capital.
At Forward, we understand that the funding process can be daunting. We dug into the most pressing funding topics with our expert panel to get the answers early-stage founders need to move forward.
Read on to learn about:
- The different types of funding available for your business to achieve your growth objectives.
- How timing your funding decisions can positively - or negatively impact your raise.
- How finding the right funding provider can make a great difference to your growth.
- And get insights into the realities of revenue-based financing from our friends at Stripe and Stare.
Our panel included two successful founders who have built thriving businesses, with very different funding stories.
Nicola Piercy, managing director and co-founder of Stripe & Stare. They have raised over £2 million in funding, from angel investors, revenue-based finance and Business Growth Fund (BGF). Previously, she was MD at L’atelier des Chefs, the UK's largest cooking school chain.
Joining Nicola was Wesley Rashid, the CEO and co-founder of Accountancy Cloud, which offers online accounting services to startups. Adopting a digital-first approach, they support over 300 clients varying from seed stage to series B, and over the last 7 years have supported startups to notable acquisitions to the likes of Facebook and Coinbase.
From Forward Advances we had Hasam Silva, Forward Advances MD, who spoke alongside Luke Smith, partner, and investor here at Forward Partners.
There’s no silver bullet when it comes to funding.
Different markets and different growth stages require different funding. Don’t rush things.
Capital isn’t everything.
Think about what else investors bring to the table. Surround yourself with people you trust.
Getting funding too early might not be good in the long run.
You should only look at financing when you reach the point when you want to grow. Test the market, learn as much as you can about it and your business before you look at funding options.
What different types of funding are available to founders?
Let’s start with the basics: what are the different types of funding available?
In simple terms, equity funding is the exchange of shares (equity) for capital. This means investors directly become co-owners of the business.
A big advantage with equity funding is investors have a vested interest in the company’s growth. Alongside the capital, you get their knowledge and expertise, and they will do what they can to ensure your business is successful.
Equity funding is best placed for when you need capital for long-term investments, such as new hires and product development. The focus is on the long term, and investors don't expect an immediate return on their investment. They do, however, want to see a strong product and a business model that’s likely to scale.
While it can be a great way to raise capital, equity is a very selective type of funding. In fact, only a small percentage of companies actually receive venture capital. At Forward, we see approximately 4000 funding applications, which results in only 6 annual investments.
Whilst traditional bank loans are a common funding option for a lot of startups, they can be hard to secure. This is because there is a fair degree of risk when lending money to an early-stage startup.
A big advantage of traditional loans is that you don’t have to give up any equity in your business. The downside? They require consistent repayments, no matter your revenue.
Before applying, make sure you review your business plan and consider your business’ consistent expenses. For example, if your cash flow is low and you already have considerable monthly expenses, loan repayment can prove difficult.
Missing payments can cause considerable damage to both your business and personal credit score. Also, if you are just starting your business, you might not know which areas of your business you should invest in.
Revenue-based Financing (RBF).
Revenue-based financing (RBF) is an increasingly popular short-term funding solution for online businesses looking to accelerate growth. It is a versatile option for eCommerce and SaaS firms looking for a short-term cash injection to increase sales through digital marketing or inventory purchasing.
Revenue-based financing provides businesses with greater flexibility than traditional financing solutions, without loss of equity. Capital is repaid by a fixed percentage of your revenue performance. This means your repayments ebb and flow to match your business. When revenue is modest in your low season, less is repaid, and when sales are booming, more is repaid.
There are no personal guarantees involved; however, with the structure of an advance based on previous growth and sales, it is only suitable for businesses already generating revenue and looking to scale.
Banks and other traditional providers aren’t as flexible and the application process can be laborious with long turnaround times. In contrast, revenue-based financing is a much shorter process. Think days, not weeks.
From the first call to getting the money in the bank, at Forward Advances the aim is to do this in 3-5 days. You can check how much your business could be eligible for within 5 minutes by filling out an application online. From here, connect your sales and banking accounts for our underwriters to review your performance before generating an offer tailored to your business.
To qualify for our revenue-based financing, you need to have at least 6 months of sales data, £10k or more of monthly revenue and be incorporated in the UK. The amount offered is based on business performance, and there is a fixed fee agreed in advance rather than taking equity.
Timing is everything.
There are a number of funding options out there, so it's important to understand what they are and how they can help grow your business. Surround yourself with people you trust, and remember, you can use a mix of different funding products rather than just one. That way, you can pick the best option that suits your specific needs at that specific time.
Take Stripe & Stare. They started small in 2017 with a seed investor, so they could test the market and their business model. They didn’t raise capital again for one year. Later, when they needed a growth partner they partnered with Business Growth Fund before exploring the world of revenue-based financing with Forward Advances. During the panel, Nicola commented, “We needed to grow quickly, and the short-term support that revenue-based financing can give you is perfect for that.”
Accountancy Cloud, on the other hand, started in 2014 and didn’t receive any investment until 2020. They opted for a bootstrapping model for the first few years and then went into an accelerator program with Barclays and TechStars. By then, they had strong product-market-fit and revenue-generating, so these funding options made the most sense.
When they needed to invest in marketing they also looked at revenue-based financing. At the time, their only other option was applying for a bank loan. Wes found the revenue-based finance process far quicker than any bank loan, and it was also more transparent and seamless.
Whilst VC funding is great for investing in a growing team or expensive new product development, revenue-based financing can give you a short-term cash injection for ramping up marketing or inventory. But most importantly, you can blend the financing options to suit your needs. Ultimately, there’s no silver bullet when it comes to funding. It’s knowing what you need at a specific time and choosing the right partners to help make that happen.
Partner with investors who can help you grow.
Spend some time working out what growth you need from the investment. The growth may come from the investment alone, without the need to give up equity.
If you are at the very early stages of your founder journey, you may need a small injection of cash to build an MVP or test some initial marketing channels - this is when angel investors or friends and family could be most suitable.
In the e-Comm world, if you have good product-market fit, are revenue-generating and you need a short term injection of cash for something like inventory or marketing, Revenue Based Financing could be the most suitable choice for the stage you are at in your growth.
If you are looking for more significant investment to scale your team, develop your product or break into new markets, you may want the experience and knowledge of a VC fund which has supported businesses to achieve this before.
Your funding requirements can change over time, and you won’t necessarily follow the same path as other founders. Before deciding on which funding option to pursue, take the time to establish what you want from the investment. If you don’t have a clear idea of how you will use the cash, it’s likely that securing funding right now won’t help you reach the next step of growth. On this, Luke comments, “If you take a big load of equity finance, you're going to be pushed to deploy that money and start growing. And if you grow too early, when you don't have the right product, it might slow you down in the long run.”
When exploring VC funding, it’s important to think about the value add the firm could bring to your business. Think about whether they’ve backed companies similar to yours? Do they have expertise in growing businesses in your sector or field? Do they have people in their team who’ve scaled similar businesses in a past life? Take Forward as an example, we have our Studio team on hand to help founders tackle their most pressing growing pains. Securing VC investment can be so much more than an extra person on your board, there’s much to be gained, so take the time to decide which fund can offer you the support and expertise you need.
We would love to tell you that there is one golden rule when it comes to funding, but the truth is different companies need different things.
Funding is contextual, unique to your business and can take a lot of time and energy from a founder when opting for VC funding.
Start by establishing what you want to achieve with the funding. Speak to your peers, advisors and your network. Depending on which type of funding you opt for, do your research on the data and information the application process requires, as they vary across the different types of funding.
Picking the right partners is crucial. Particularly if you are giving them equity. For a lot of startups, capital isn’t everything. Equally important is how their partners can help their business grow.
Got big ideas and looking for funding?
If you’re an early-stage founder with a big idea, we’d love to hear from you. You can get in touch via our Offices Hours Programme here.
If you’re an e-Comm founder and exploring revenue-based financing, why not apply with Forward Advances to get started?
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