Should you raise in today’s tricky climate?
Business owners have to juggle day-to-day operations, finances, marketing, managing a team, legal requirements, and much more. But the harsh reality is that, overnight, their efforts can all be made irrelevant.
With the UK heading for recession and a record cost of living crisis hitting every corner of our society, the business community is rightly apprehensive. Without any breathing room, early-stage businesses especially are in a vulnerable position and several owners are therefore looking to raise capital to continue operating in this troubling time. But Angel Investors funding these growth rounds aren’t immune to the conditions either.
So, is now the right time to raise?
The not-for-profit national trade association for angel and early-stage investment, UKBAA, recently surveyed 171 angel investors on the climate of angel investing.
According to their findings, two-thirds of respondents intend to invest as much as the previous tax year, with 18% planning to invest more. But with the cost-of-living crisis and recession at our door, it’s understandable that this is negatively influencing a third of respondents, with several planning to make no further investments this year.
In this tricky financial climate, it is important to not lose hope. Crowdfunding started during a recession and the number of success stories is astounding. Some of the most iconic businesses created during a recession include Airbnb, FedEx, Groupon, Microsoft, WhatsApp, Electronic Arts, IBM, HP and of course, Disney.
Before you decide to raise funds, it is crucial to ensure that you have made as much progress as you can so that you are presenting the strongest possible proposition in the best possible way.
This includes S/EIS (Seed/Enterprise Investment Scheme). Some 88% of Angels regard EIS as a very important factor when deciding to become an investor and even though 22% of investments in the last tax year were made without using S/EIS schemes, it is all part of presenting the best possible proposition.
SeedLegals is a fantastic partner to consider when filing your application for S/EIS. It’s important to plan in advance, and they can help streamline the process, which can take up to eight weeks in total (the initial Advanced Assurance usually takes three weeks to receive and is enough to start with).
Virgin Startup also surveyed investors to examine what they look for in a company. They can provide valuable insights to help improve your chances of success.
According to their findings, 96% of investors deemed a strong management team to be very important. Investment opportunities with seemingly weak management teams resulted in rejection from 97% of investors.
Another clear disconnect between investors and management teams is communication – or the lack thereof. Some 84% of investors said that poor communication was a reason for turning down an investment.
In addition, two-thirds of investors rated market demand as another important factor. It is absolutely crucial to understand your market and customers. Your knowledge and expertise in the field should be apparent and backing up your insight with credible sources will only support you.
With today’s issues considered, your financial model should reflect the turbulent times ahead and this extends to your valuation – both should mirror the added risk that comes from hesitant consumers. Factoring this into your financial model and any questions around it is key to further demonstrating that you understand the market – and the impact on your bottom line – to show that you can spot future issues and opportunities before they happen.
This is where the old saying comes into play: people invest in people. It is important to sell yourself, your team, and your strong market insights in order to get an investor’s attention.
In tricky climates, the margin for error is vanishing and given the high stakes, it has never been more important that we put our experience and expertise to good use.
Having been close to the action for the last few months, we’ve gained a lot of insight. Here are some of the top takeaways:
- With fewer liquid investors and liquidity in flux, it’s more important than ever to line up more investors in order to spread the risk of investors pulling out (make sure you get that investment signed and paid as soon as possible).
- To line up those investors, you should attend as many networking events as you can and position your fundraising campaign as public and as far-reaching as possible.
- Investors have always invested in people, but to win investment in these times you will need to raise your personal profile – and those of your team members – even more.
- Make sure you are set up to take on investment as and when it comes in, so you aren’t delayed.
From the Federation of Small Businesses – based on figures obtained from the Department for Business, Innovation & Skills – SMEs account for 99.9% of the business population, 60% of those employed and around 50% of turnover in the UK private sector. Our thriving UK startup and SME ecosystem is exceptional – we’re proud to be at the heart of it, and we intend to do what we must to protect it through this difficult time.
This isn’t just true in the UK. The World Economic Forum regards startups as crucial for bringing about societal change, and for driving economic recovery and responsible growth. “The value that startups [globally] create is nearly on par with the GDP of a G7 economy,” it says.
With small businesses making up the backbone of the economy and Angel Investors propelling SME growth, the bright future of early-stage businesses is yet to grow dim.