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Securing growth funding is a ubiquitous challenge for entrepreneurs, and nowhere is this more critical than in the technology sector.
In the UK we are not yet at the point where banks and venture capitalists hire technology experts as a matter of course to advise them on the true growth potential of ideas being pitched to them. Neither is there the proliferation of deep-pocketed serial entrepreneurs with their own technology success stories under their belt that we see in California.
Funding structures
The UK funding structure is well set up to cope with the demands of entrepreneurs in this sector. People use cloud technology and get access to free services meaning that they can get a lot further on a lot less money. Investors are able to see if there is a viable service or product before the company needs material funds.
Innovative funding structures are very important to a technology SME. The average entrepreneur does need some help to work out which one is best for the business once they get past the initial friends-and-family stage.
Types of funding
There are a number of angel networks out there but it is not immediately obvious what sort of corporate engagement and corporate accelerators exist. That’s really where a good CFO comes in. A good CFO will have a wide-ranging knowledge of what instruments are available and who are the right contacts.
The bottom line is that it’s not enough just to know what type of funding you want, it’s absolutely critical to know who to approach. That is where a good CFO really starts to have a big impact on the business and make introductions.
The type of funding a tech business should look for depends very much on the stage the company is at. Early stage businesses can start by borrowing from friends and family, and also start looking to attract some angel investment.
Once the business has some traction, and the business model has evidence of success, that is the point at which a business can look for venture capital.
Businesses experiencing rapid growth can access a number of growth funds; this is also where debt finance can come into play and, potentially, peer-to-peer lending.
The technology sector is growing up. It may not be long before technology forms a key part of most investors’ portfolios.
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