How do Start Up Companies Go About Raising Money These Days?

The short answer is; with great difficulty.

We are in the fortunate position of being able to poll the savviest entrepreneurs in the country, with over 30 new businesses joining Angels Den every day.

The majority of these have used Friends and Family money, but this will only get you so far….unless Mummy and Daddy can sell a spare castle!

For most, these initial funds may be enough to prove the concept and get sales of the ground, but there is a sense of almost cruelty about this form of fund raising.

It is sufficient for a short while, it gives you a taste of success but then… like the £5-10k Government grants that take months to find and more months to apply for – allow you to run your business on a shoe string for just a few more months.

I suggest such small scale grants are not just another way of keeping people off the unemployment register.

So, you’ve got a brilliant business – you need funding so… first stop The Banks?

That’s what we did when we started and I was shocked by the experience.

I am an accountant and ex-Investment Banker, yet I was blown away with the requests and pointless questions we had to go through to get a SECURED overdraft. The teenage “manager” actually laughed when I suggested not securing the loan on our property.

We ask applicants if they have received an unsecured bank loan in the past year.

We have yet to find ONE person who has, out of >5000 businesses.

What are the banks doing?

The number of loans granted by the Small Firms Loan Guarantee scheme has decreased by one-third from last year, I am confident that 2008 will not change this trend.

Go ask, The Banks when you next see them at a Start Up or Business exhibition, what EXACTLY they will do to support you, without having to pay a £1000 “admin fee” and securing any monies against your house.

The answer will surprise few readers!

Being a dull Scottish Accountant, I would personally never advise anyone to involve their home in the business financing.

I feel that any decision you make in the business should be unencumbered by the emotions of whether you or your family will have somewhere to live.

Where else can you go?

Most Business Owners have put their own money in.

Over 17% reported using a credit card to fund the business.

There are flaws in this, but I do see why people take this easy option, given that there are so few other options available.

You don’t have to ask anyone, you can spend it on what you want and the one down side is that is expensive.

Equity Funding is not the answer for every business, however if you have an experienced team, a good business idea which is capable of being scaled up and heart and commitment then someone will want to talk to you about taking a slice of your company, in return for not just money but also contacts and experience.

We find that nothing concentrates the mind of a director more, than putting his own money in!

One of the reasons we set up www.AngelsDen.co.uk, is that we knew so many rich people who could not find a deal to invest in and we all know 100 people looking for that money.

The vast bulk of the Angels we meet are normal people, who happen to have made money from previous business ventures and who want to help other people whilst making themselves a pretty penny. They want applicants to give them the right answers, as they need to invest to make money themselves.

The British Business Angels Association lists each player in this field; most of them exist on a regional basis and will have different bases of charging and deal size and sector.