Raising finance carefully is more vital than ever post-Brexit
There’s no getting away from it: Brexit has been a shock to the system. Most entrepreneurs – particularly founders of fast-growing firms – wanted the result to go the other way, but they’re optimistic by nature, brushed themselves down and are getting on with business.
There’s still plenty of waiting to come, though, with government and entrepreneurs watching one part of the economy particularly closely: access to finance.
Of course, banks are no longer the only show in town. Besides friends and family and traditional equity sources, there’s crowdfunding, as well as plenty of innovation in invoice financing and leasing and asset finance. London is host to some amazing fintech firms remodeling how businesses finance their growth, including some on this year’s Leap 100. SyndicateRoom uses an investor-led equity crowdfunding model, which makes it possible for the crowd to invest alongside angel investors on the same economic terms, while Asset Match is an online marketplace for buying and selling shares in private companies, making markets where previously there were none.
But not all entrepreneurs raise finance as efficiently or effectively as possible. Some still don’t use the Enterprise Investment Scheme’s tax reliefs for investors, while others make a multitude of errors as a result of not employing a proficient finance director. Investors will want regular, detailed updates, so it pays at an early stage to find a finance director familiar with working in a scaling company.
If raising equity finance, it is important that entrepreneurs consider carefully what they are looking for. Time and again, our entrepreneurial clients seem to get the most value out of investors who have knowledge, experience and success in their particular industry. Entrepreneurs and investors should be of the same mind as to how hands-on an investor is likely to be.
When approaching venture capitalists, entrepreneurs must know their numbers. Preparation is vital. As Rytis Vitkauskas explained at our Leap 100 breakfast, you can pre-empt 90 per cent of the questions a venture capitalist will ask you prior to the meeting.
But entrepreneurs must also be patient – more than a dozen intensive meetings with prospective VCs isn’t unusual. This makes sense; after all, investors will become part of your team – you should spend a lot of time together. You will need to know that the chemistry works.
Confidentiality agreements come up regularly in discussions with business owners. Although they have their place, entrepreneurs should be worried about relying on them too much. It will be hard, costly and time-consuming to prove that an investor stole your idea. Be wary – if you’re doing a deal with a competitor, ensure that you don’t give away too much proprietary information at an early stage, and ultimately you need to make a call on how much you can trust the people you’re doing business with.
You might expect a lawyer to say this, but it’s genuinely worth investing in good advice: both lawyers and accountants. Bad advice is costlier in the long run. The Winklevoss brothers’ Facebook debacle is all the evidence founders should need to be convinced that these things matter.
Whatever the outcome of the exit negotiations, Britain’s entrepreneurs will remain at the forefront of innovation. Making sure money keeps flowing to where it can be the most productive will help them reach their full potential.
This article first appeared in City A.M. on Tuesday 112 July 2016. You can view the full City AM article here.