50% of UK entrepreneurs reported that a lack of capital is the largest constraint on their growth – so the importance of gaining hold of investment is clear.
But securing the wrong type of funding is a drastic mistake that could set businesses back to square one. Even no funding is better than the wrong funding.
To get it right, you need to remember one thing: the investor-founder relationship is a partnership.
And like all partnerships, it relies on a solid foundation of shared interests, values and ambitions. Both you and your investor need to have the same goal for the business, otherwise you’ll run into conflict later down the line.
The key: shared ambition
This often happens with UK businesses who seek US investment: they struggle to align their aims, and the relationship ends up being a drain on resources instead of a boost.
Lots of UK companies look to Silicon Valley as the promised land of fundraising. But it’s important to recognise that this kind of investment isn’t right for every company. US venture capitalists typically focus on businesses with potential in the American market, and often want some sort of presence there already, usually at least one of the founders being based there.
Most will also be looking for the next unicorn, and these ambitions might not chime with your own vision for the business. You need to take your business where you want it to go – be that the FTSE 100, or steady profitability and consistent growth.
Read the small print
The other thing to consider is: what are your investors really asking for? Too many CEOs are excited by the valuation and fail to appreciate the broader business implications of the investment agreement. There may be conditions that set out penalties for the departure of a founder, or preference returns that act as real impediments for making the business grow.
It is essential that entrepreneurs understand the full implications of investment offers, not only for the future of their business, but for the founder’s long term ambitions. Businesses need this insight into the small print, since ultimately it helps them select the correct offer for them.
Choosing an alternative option
There are so many sources of funding available – if investment isn’t for you, it’s easy to find an alternative.
For companies involved in innovation, R&D Tax Credits can provide an excellent source of finance. And if the technology is really original it might even be possible to get a grant from the UK government. Funding Circle, venture debt and equity funding are also options to consider.
There will always be an option that aligns with your business and what you want to achieve. As long as you take the time to look for it, you will find your perfect match.