Things are going well in my company Sonovate, but it hasn’t been plain sailing! Right now, the fintech market is starting to resemble the California Gold Rush – everybody wants a piece of it.
It’s easy to forget how difficult it was to secure finance in the years before the recent boom. We passed due diligence repeatedly and with flying colours, but couldn’t convince Lloyds, HSBC, RBS, or Barclays to step up and lend us the money we needed.
We survived – and won – the uphill battle, and we’re glad that the current surge of interest in fintech will make things easier for new start-ups to get off the ground.
Nonetheless, getting the funding you need is never going to be a simple proposition, and if conventional sources such as the old-fashioned banks keep saying no, you’ll need to look elsewhere – but where exactly?
1. Think internationally
The first mistake we made was expecting the big four banks to be receptive. We may be enjoying an economic recovery, but UK banks remain risk averse and are still hesitant about investing in start-ups (despite SMEs being the lifeblood of the economy; it makes no sense!).
But it struck us that if financial institutions on British shores weren’t open-minded enough to consider what we were offering, perhaps those further afield would be.
This turned out to be the case. We approached several institutions in America and one, PNC, was willing to supply us with the funding line we needed – one which enables us to finance up to £250 million in the UK recruitment contract market over a three-year period.
What compelled them to fund us? We’re proud of our product, but it’s hard to say; a different economic climate, detachment from the UK market, a genuine belief in the possibilities of contract finance – it could have been anything.
The point is, foreign businesspeople can think differently. A firm ‘no’ on these shores could be an emphatic ‘yes’ overseas!
2. Sell yourselves
PNC’s funding line is invaluable to us, but we also needed to secure the necessary venture capital funding to help run the business.
The reluctance of the banks to lend to British SMEs, combined with the rapidly expanding technology sector, particularly in the capital, has led to a huge increase in angel investors, and a reliance on them.
The essential thing to understand when you’re shopping your company around is that you’re not selling your business as much as you are yourselves.
When we pitched to our angel investor Paul Birch our offering was worlds away from its current state, but we were confident and self-assured in the face of several other rejections, and he invested £4 million. His confidence was in us and the disruptive potential of our business model.
Having backed several successful tech start-ups, Paul’s support didn’t just have monetary value; he gave us a level of legitimacy that we needed.
3. Be prepared to explore unusual options
It’s always important to remember that you have more options than you think. We didn’t have much success with it in its current form, but if government-led initiatives such as the British Business Bank, designed to provide SMEs with funding and advice, is hammered into something more helpful and less bureaucratic, it could be a lifesaver for your start-up.
Equally, new finance models are emerging that are seriously disrupting existing ways of thinking. You probably don’t need to be told that crowdfunding is a big deal nowadays but it isn’t just about kickstarting Apple Watch temporary tattoos or Pokemon parody webcomics.
While it has already become a serious option for B2C companies – companies like Pebble have become major players in its space – it’s beginning to find traction among B2B start-ups as well. Rather than attempting to hook one or two ‘big beasts’, crowdfunding provides the ability to offer lower amounts of equity in exchange for a lower financial commitment from several different investors.
The rise of Kickstarter, IndieGoGo, and Patreon in the absence of funding from wealthy individuals and institutions proves that people, on the whole, are less willing to part with a lot of money for a potentially massive reward, than a little money for a smaller gain.
Some, none, or all of these options might work for your start-up; I don’t pretend I can provide you with the perfect solution. But the fintech iron is piping hot, and there’s no better time for a small, innovative organisation to strike.
If you’re creative, thorough, and determined in your pursuit – and if your product is as good as you think it is – you will eventually secure the all-important finance you need to launch your business into the big time.