What does the 2019 General Election mean for startups and SMEs?

“Next week voters face their starkest choice yet, between Boris Johnson, whose Tories promise a hard Brexit, and Jeremy Corbyn, whose Labour Party plans to “rewrite the rules of the economy”. Mr Johnson runs the most unpopular new government on record; Mr Corbyn is the most unpopular leader of the opposition. On Friday the 13th, unlucky Britons will wake to find one of these horrors in charge.”  – The Economist 

The result of the election, for better or worse, is inevitably going to have an impact on the potential fortunes of your startup. We’ve done some investigating into the manifestos of the three main parties topping the polls – Conservative, Labour, and Liberal Democrats, to shed light on what their policies might mean for your business. This article touches on just a few of the policies and their potential impacts. We do not intend to offer a value judgement of any form, instead, we hope to provide a high-level overview of policy changes. 

The Conservative Party 

The mantra ‘get Brexit done’ dominates the Conservative manifesto, with few radical policy changes that could negatively impact small businesses, other than the economic impacts of Brexit itself. They hope to leave the EU in January and continue negotiating a trade agreement with other countries throughout 2020; experts predict that to leave without a deal would make average incomes 8% lower than they would otherwise have been after ten years.

Embedded within the manifesto are some modest policy changes that could benefit startups; they have promised not to raise income tax and VAT, cancelling “plans to lower Corporation Tax, keeping it at 19 per cent,” with the hope to “redesign the tax system so that it boosts growth, wages and investment”. They also pledge to clamp down on late payments and “support start-ups and small businesses via government procurement, and commit to paying them on time” in an effort to “support small businesses that are exploited by their larger partners.” 

Additionally, they plan to “expand start-up loans, which have particularly high take-up from women and BAME entrepreneurs”. So far, the British Business Bank has supported “90,000 smaller businesses with over £7 billion in investment or loans, and will continue to grow.” They have also announced a £3bn National Skills Fund, which will provide “funding for individuals and SMEs for high-quality education and training”. 

The Labour Party

Labour, if elected, hope to negotiate a new Brexit deal within 3 months, prioritising protecting workers rights, a UK Customs Union and an alignment with the single market – then putting the deal to a second referendum. 

Nationalisation prevails in their manifesto, requiring increased taxes on businesses and individuals. Corporation tax would be increased from 19% to 21% by April 2020, with further rises taking it to 26% by 2023. For small businesses – which Labour have defined as those with a turnover below £300,000 – “the current 19% corporation tax rate would be retained initially, rising to 21% by 2023”. These actions could taint the current attractive corporation tax rate in the UK, which helps promote foreign investment.

Additionally, they plan to “rapidly introduce a Real Living Wage of at least £10 per hour for all workers aged 16 or over” using “public finances to help small businesses manage the extra cost”. They plan to give individuals working regular hours for more than 12 weeks, the right to a regular contract, as opposed to zero-hours. Further, they plan to get rid of entrepreneurs’ relief – the charging of capital gains tax at 10% on up to £10m raised from selling a business, in an attempt to reform what they believe is currently “an inefficient system of tax relief”. The manifesto also mentions setting up a Business Development Agency, which would offer “free support and advice on how to launch, manage and grow a business”.

The Liberal Democrat Party 

The ‘middle way’ appears to characterise the Liberal Democrat manifesto, relative to the increasing divergence of the Labour and Conservative positions, offering a centre-left stance on free market capitalism, With regards to Brexit, the push to stop it in its tracks by revoking Article 50 is clear, in favour of open markets and a liberal society.

The Liberal Democrat manifesto offers an apparent end the Brexit saga and unreformed taxation policies. This would not only see an end to Brexit anxiety, but means that small businesses would also be able to operate under the same terms as they are used to. Liberal Democrats want to take Corporation Tax to 20 per cent “and keep the rate stable with a predictable future path.”

Vince Cable, Jo Swinson’s predecessor, is a firm advocate of the startup scene, just days before the election, he is giving talks on topics such as ‘The State of Entrepreneurship in the UK’. His party introduced the Department of Business, Innovation and Skills, and the Growth Accelerator, a 4-year programme helping rapidly expanding SMEs. Further to this, R&D programmes, support for flexible IP rules, and regional creative enterprise zones demonstrate the party’s alignment with the needs of small businesses. 

The Lib Dems wish to broaden the role of the British Business Bank, by introducing a ‘start-up allowance’, to encourage entrepreneurship by helping with living costs during the formative period of businesses. Additionally, they hope to “support investment in new UK digital start-ups by reforming the British Business Bank’s support for venture capital funds to enable it to help funds ‘crowd in’ new backers rather than acting as a funder of last resort.” From a training and development perspective, they are proposing “a new Skills Wallet for every adult, giving people £10,000 to spend on approved education and training courses”. 

These policies demonstrate that innovation and business entrepreneurship remain a priority. Yet the uncertainty brought about by Brexit and its subsequent effects on business arguably tarnish the potential contribution of such policies, making the advantages seem merely compensatory in comparison to the damage already caused. It is also worth remembering that manifesto claims are not always substantiated, as the Institute of Fiscal Studies’ General Election Manifesto Analysis shows. It makes for some interesting reading as we wait to see the outcome of Thursday’s election. 

Bioplastics company – Teysha Technologies – completes £1.2m EIS funding round on Angel Investment Network

Amsterdam: Plastic waste floating in a canal in Amsterdam, The Netherlands

According to the UN, 300 million tonnes of plastic waste is produced every year. If current trends continue, our oceans could contain more plastic than fish by 2050. Confronted by increasingly urgent global issues, more and more entrepreneurs and investors are working to see business objectives align with what’s best for the planet. The bioplastics company Teysha Technologies are doing just this, by helping tackle the world’s plastic problem. 

With a world-leading team, Teysha has created a material patented, renewable, fully biodegradable plastic substitute. Using organic waste matter, they can create polymers for 100s of different applications: whether you need a hard casing for a lipstick packaging or a flexible wrapping for a retail item, they can do it. From building insulation to car dashboard moulding, the potential is vast.

The product also completely bio-degrades back into earth-friendly organic matter, and even this process can be tailored. For example, the product can be broken down in water in a matter of hours, weeks or years, or it could be waterproof yet still breakdown in compost.

Coca-cola “coke” bottle washed onshore – maria mendiola

Teysha has successfully raised £1.2m of investment, supported by Angel Investment Network (AIN). It is also one of the handpicked companies featured on SeedTribe, an online community connecting profit-with-purpose startups with expertise and investment. The investment is being used to deliver prototypes and secure contracts, allowing them to tap into the global bioplastics market which is set to be worth $43.8Bn in 2022. 

Duncan Clark, Director of Operations at Teysha Technologies said: “We are delighted with the interest we have received from AIN investors. Made from all-natural and inedible agricultural waste streams, Teysha’s second-generation bioplastic is the result of decades of R&D. One of the biggest challenges facing bioplastics, as this new industry evolves, concerns the fate of the products when their use has ended, our product tackles this by breaking down to its constituent earth-friendly organic building blocks.”

According to AIN’s Sam Louis, Head of Consultancy, who led the fundraise: “Teysha’s technology creates an incredible opportunity for how we produce materials. The investors on our platform were really drawn to its ability to answer the growing demand for sustainable plastics, its inherent versatility and the ability to create so many different products depending on need. It’s exactly the sort of company we love to be involved with and we have seen a significant rise in interest among investors for impact-led businesses of this type.”

With exciting times ahead, the company’s future is looking undeniably bright. Teysha is part of a movement of companies paving the way for change. This is made possible by the foresight of investors, who are using their influence to support businesses which align profit with purpose, to help create solutions to some of the world’s most pressing problems.

If you’d like to explore pitches from a huge range of entrepreneurs around the world, click here.





How is Angel Investment Network different from crowdfunding?

From crowdfunding sites to online platforms like Angel Investment Network (AIN), there are a multitude of options available to entrepreneurs looking to fundraise. Making the right decision can be a daunting task and it’s sometimes hard to choose the right strategy and identify value. You may be asking yourself, where does Angel Investment Network stand in all of this, if it’s not a crowdfunding site? 

We’ve highlighted a few of the ways AIN differs from crowdfunding, offering a valuable alternative to the ubiquitous crowdfunding sites:


1. Sophisticated investors

Our investors are self-certified as sophisticated investors and/or high net worth individuals. They are typically looking to invest a significantly higher amount than the average crowdfunding investment of just £68. Instead, ticket sizes average at a healthier £50,000. With AIN, you’ll have less small ticket investors and a lower administrative burden, making it easier and quicker for you to raise money. 

2. International Reach 

We have investors from almost every country in the world. Crowdfunding platforms can struggle to achieve this because of varying regulations around crowdfunding in different countries.

3. A flexible service 

AIN offers a very flexible service that grants you access to a large network of potential investors. Unlike crowdfunding, once the initial connection is made, users can take further discussions off-platform and we don’t take part in processing payments. How you then work with them is entirely up to you and the investors: round size can change, valuation can change, it’s as flexible as you like, for as long as you like.

On AIN companies can even complement their profile with any other fundraising avenues that they are exploring – there’s no exclusivity. 

4. No hidden fees

Our platform works on a straight upfront listing fee, and can even be free. With crowdfunding, you will usually be charged a commission on all the funds you raise during your campaign. Our fee doesn’t change if you get more investment, making it a very cost-efficient option.

5. Diverse sectors and investors 

Often crowdfunding platforms can be less effective with businesses that aren’t as universally appealing or consumer-facing. We have companies from almost every sector on the platform, from IT and communications startups to medical ventures. AIN allows users to broadcast their idea to thousands of potential investors looking for new businesses to invest in.

We don’t just have angels, we also have family offices, funds, Venture Capital, and Private Equity firms on our network. It is rare that you would find these on a crowdfunding platform.


We have raised over £300 million for startups around the world, and have built a global network of thousands of entrepreneurs and investors.

Could you benefit from our global network of investors? Click here to get started.

Angel Investment Network celebrates 15th anniversary

From a vision of opening up the closed world of angel investment to an expanding global network of a million users

AIN London team

From a proposal for a rabbit mashing factory in Russia to successfully funding What3Words, Angel Investment Network (AIN) co-founders Mike Lebus and James Badgett have seen it all. It has now been 15 years since our co-founders and childhood friends formed AIN, now the world’s largest online angel network. What started in the early days of the internet as two friends having a vision of an interconnected network of angel investors and startups has led to a platform now spanning 90 countries and more than a million users. Meanwhile the team is now 25 strong with team members in the UK, USA, Mexico, Spain and Nepal.

Our co-founders in earlier times…

Living and breathing the startup world since the early noughties, the team has successfully raised funds for standout companies like What3Words, Novastone and Rosa’s Thai. In the last few years the company has been developing at a breakneck pace with the launch of two spin-off brands, SeedTribe, a community for impact-focused businesses, and BrickTribe, which connects investors and lenders with property developers with proven track records. 

In the last year alone, AIN has received over 100,000 pitches from entrepreneurs across the globe, with the figure doubling over the last two years. Alongside existing markets there has been a rapid growth of startups coming from emerging markets. Meanwhile investors registering on the site have surged nearly 40% year on year, now standing at more than 200,000 registered business angels. 

Alongside the online platform, AIN also runs a successful broking division, which has seen exceptional growth in the past 12 months. AIN has been involved in several significant raises in 2019, including eco-friendly baby product business Kit & Kin, fully customisable bio-polymer plastic company Teysha, and Pin Point, a data science offering early cancer detection.

Our co-founders James Badgett and Mike Lebus today

Speaking about the anniversary James Badgett said:
“When we first set up, no one looked for investment online. Most investment came through personal connections, which not everyone has access to. We saw that good ideas weren’t getting the funding they deserved, because entrepreneurs’ access to angels outside their immediate circles was severely restricted. We imagined a platform which gave all entrepreneurs access to a national and international network of investors; and, of course, the only way to do that was online. It is remarkable to see how it has grown and we are proud of AIN’s place at the epicentre of the startup scene in the UK and now spanning the globe.”


Mike Lebus said:
“When we set up AIN, angel groups tended to be focused on a regional basis. Applying to them, following up, getting feedback, arranging meetings, etc was fairly laborious. We had the idea of creating a portal to streamline the whole process for entrepreneurs and investors. I feel immensely proud to have helped brilliant companies like Sweatcoin and What3words on their journey to huge success. However, of course there are no guarantees of funding and the startup idea needs to capture the imagination of any potential investors. Over time you do get a sense of what will work and what will sadly remain a pipe dream. We launched the broking division to apply our team’s expertise of selecting high quality dealflow and to help our investors identify the best prospects.

With AIN now having a footprint in every continent (except Antarctica where unsurprisingly there doesn’t seem to be much demand), we can’t wait to see where we’ll be 15 years from now! Happy anniversary AIN.


 

#SixtySecondStartup

Welcome to the first in the series of our #SixtySecondStartup blog. Each month we will be profiling a different founder with some quick fire questions.

This week we are talking to Julian Hall, Founder of Ultra Education C.I.C. Ultra Education teaches young people aged 7-18 entrepreneurial skills to help them grow or start a business. Through their app they ensure that all young people, regardless of their background, have access to the tools needed to develop their entrepreneurial skills.

Our interview with Julian:

What does your company do?

We teach entrepreneurship to kids aged from 7-18 years old. We have developed an A.I. powered chatbot that can deliver entrepreneurial education to kids at scale through a native mobile app.

Why did you set up this company?

We believe that entrepreneurship is a great vehicle to help increase the life chances of children and young people. It helps them to develop life and work skills.

We knew we were onto something when:

A parent told us that their child never concentrates in school but we had captured their imagination in less that 20 mins. 

How did you get your first customer?

Word of mouth! I told the story about how my own daughter picked up entrepreneurial skills by watching me working at home. After we realised these skills could be taught and started sharing that idea, we got immediate demand from both parents and schools.

Our business model:

Is a subscription based mobile app powered by A.I. and supported by human mentors in the chat. 

Our most effective marketing channel has been:

Word of mouth through social media. We promote the successes of our ‘kidpreneurs’ and which other people also share on their social media channels.

The biggest mistake that I’ve made is: 

Not growing our team early enough and not capturing the impact of our work.

We think that there’s growth in this sector because: 

More and more kids want to work for themselves and have ambitions that schools are unable to currently support on their own. Entrepreneurship is becoming common place, but kids and young people still don’t have access to on demand support. 

We worked with AIN because:

We believe that angels are not just thinking about a monetary return but also a social return.

Get started today and view pitches from a huge range of entrepreneurs around the world.

A worldview on startup stats

Angel Investment Network connects startups and investors from all over the world. But what does the current global startup climate look like? We have drawn together some statistics to give a brief global overview. 

In terms of numbers, the USA has by far the most number of startups at 46,606.  The UK comes in third place, with 4,901, just a couple of thousand behind India.

However, despite the USA having the highest number of startups, it is Uganda which has the greatest number of entrepreneurs per adult population at 28.1%. Interestingly, 5 out of the 15 countries with the highest proportion of entrepreneurs are in Africa, and Southeast Asia and South America are represented by 4 countries each.

Moving on to unicorns, meaning private companies with a value of over $1 billion, China is in the lead with 149 unicorns, compared to 146 in the USA. These two countries are vastly ahead of any other, with the UK and India coming in a distant third with 13 unicorns each.

Whilst these statistics only scratch the surface of the global startup landscape, they show that it certainly is an exciting world out there! 
All statistics and infographics are from the article Startup Failure Rate and 80+ Other Startling Statistics About Startups.

Angel Investment Network has networks around the world. Wherever you are based, if you are looking for investment find your country’s network, register and then upload your pitch.

TechRound Interview with Seedtribe CEO Olivia Sibony

This interview with Olivia Sibony was originally published in TechRound on 21st May 2019.

We caught up with Liv Sibony, the CEO of Seedtribe, a community hub for entrepreneurs, investors and change-makers interested in impact entrepreneurship and using business as a force for good.

Tell us a bit about your career…

I started out at Goldman Sachs before leaving to launch a foodtech startup called Grub Club. It was a platform for connecting diners with unique dining experiences. We sold to Eatwith in 2017.

I was only too aware, from my experiences at Grub Club, of the challenges entrepreneurs face in raising funds and I had always had a passion for seeing how business could be used as force for good, so I then joined Angel Investment Network (having raised money for Grub Club through them) to launch and grow their impact-focussed platform, SeedTribe.

I am also a board member of UCL’s Fast Forward 2030, which aims to inspire the next generation of entrepreneurs to launch businesses that address the UN’s Sustainable Development Goals (SDGs).

UN sustainable development goals millennial angel investor technology investors olivia sibony interview
The 17 United Nations Sustainable Development Goals

How did the idea for Seedtribe come about?

Seedtribe started out as a hybrid angel investment/crowdfunding platform with two complementary aims:

The first was to support impactful businesses and find them funding.

The second was to encourage non-traditional investors (including women and younger people) to back startups by simplifying the investment process and allowing them to invest smaller amounts.

We ran it like this for around a year and helped some awesome companies including:

  • Advanced Sustainable Developments, launching the first complete circular economy solution for food grade plastic recycling in the UK.
  • Airex, an alternative to traditional air floor insulation reducing unwanted heat loss by regulating air flow.
  • Hopes Initiative which maps, analyses, and optimises the energy consumption of businesses, managing energy expenditure, consumption and impact on the environment..

But we soon realised that we could do so much more to make our own impact and help the eco-system develop.

So, what is Seedtribe now?

Seedtribe is a community platform to connect entrepreneurs, investors, policymakers, jobseekers and volunteers and together inspire, create and support businesses for a brighter future.

We basically try to support the business-for-good eco-system by bringing together all the right people into events, online discussions, fundraising campaigns and educational workshops.

The new Seedtribe homepage coming soon…

What’s the mission?

We want to be the glue that brings the best, most talented, driven, passionate people together to be the change we all need to see in the world. We are the go-to place where impactful entrepreneurs connect with an invaluable network that help them scale.

Collaboration is the most powerful tool we have for inspiring and empowering change. At Seedtribe, we enable collaboration between individuals, startups, corporates and governments to create a better world.

By connecting the dots, we help each party or person find the right way to contribute. That way, we can get beyond all the noise and bluster, and allow everyone to take meaningful and positive action.

Our system will allow everyone to contribute positive action according to their experience, values and competencies.

What challenges do you face?

Despite reaching a market cap of $500bn and growing five-fold since 2013, the impact space is still in its infancy.

Some people still confuse investing in impact/business-for-good/profit-with-purpose with philanthropy. Even though this could not be further from the truth. ‘Impact’ business do not seek to achieve an environmental/social purpose at the expense of profit, but rather, the purpose and profit-creation are intertwined.

What’s your vision for the future?

I want to see more businesses working as a force for good. At the moment, investment is 100% tied to the idea of only caring about a financial return.

I wish we could see a paradigm shift where we feel more engaged in investing in the future, so that we can make more long-term, sustainable decisions that don’t just revolve around our personal financial returns.

If everyone were encouraged to see investment as the “triple bottom line”, companies would be incentivised to act in the interest of people and planet, we would see less short-termism, and I also think it might engage more people in the world of investing, as they’d see how it relates to their own values and future, not just a return in the next 12 months.

Where can people find out more?

We are currently rebuilding the Seedtribe site to create more of a community focus and attract users beyond just investors and entrepreneurs. They can visit the existing version at www.seedtribe.com and help us shape it at by answering this questionnaire.  I’m also always open to chat so they can connect with me on LinkedIn too!

The Sunday Times’ Q&A with Angel Investor Olivia Sibony

Every week The Sunday Times talk to a business angel investor, one of the early-stage investors who collectively inject £1.5bn a year into British start‑up companies. This week they featured our very own Olivia Sibony, Head of Impact at Angel Investment Network’s new impact-focused platform, Seedtribe.
Here’s the piece as printed in The Times:

Olivia Sibony runs SeedTribe, an online platform that connects investors who want to back ethical businesses with entrepreneurs looking for funding. It is part of Angel Investment Network, which has about 1.1m members.

SeedTribe raised £2m last year and is currently working on companies including gaming developer, Playmob, and 28 Well Hung, a “carbon-beneficial” steak and chips chain.

Sibony, 38, co-founded Grub Club, helping London diners find culinary experiences. Two years ago, it was sold and rebranded Eatwith.

Star investment

Playmob can be integrated into a company’s website to engage users with the United Nations’ sustainable development goals. Dove [soap] uses it, reaching more than 4m people in three months. It is profit-driven, but at the same time doing good.

Common misconceptions

People think we don’t want to make a profit. If you don’t have any money in your bank account, you’re not going to be able to make an impact.

Mission-focused

Impact has to be embedded in the business. If you create a medical device that helps scan for early signs of skin cancer, the more devices you have the more impact you’ll have.
UN sustainable development goals millennial angel investor

What I learnt

Building your own business teaches you what to do — and what not to do. I try to think of the next three things I need to do, rather than getting overwhelmed with 100 things at one time.

I wish I saw more…

Diversity among investors. That’s not just for the sake of diversity, which is important, but because we are missing out on so many potentially incredible businesses.

I wish I saw fewer…

Disposable cups and bottles all over the place. There is so much scope for creative entrepreneurship here. We can turn this growing and entirely needless problem into an opportunity.

Next disrupted industry

Housing. There’s a growing crisis — and great potential to do something that is financially viable that enables fewer people to be homeless.

You can read the original piece published in The Sunday Times here

Industry Report: Key Trends in UK Angel Investment 2018

We are proud to be world’s largest online network of angel investors and entrepreneurs – we even passed 1 million users at the end of 2018. This scale means our data can reveal some interesting insights into the angel investment landscape. We’ve collected this information into a report which we’ve called the ‘State of the Angel Investment Nation’.

This first version of the report digs into the trends in the UK based on the data from more than 100,000 businesses and 30,000 investors.

Some Key Findings:

In a snapshot: Software retains its 2017 position as best performing sector, while food & beverage, fintech and property ventures showed strong growth.

• The UK’s position as a hub for food and beverage startups is highlighted by significant growth in both investors and pitch ideas. The sector climbed from the 4th to the 2nd most backed category by investors and remains the third most popular category for pitch ideas.

• Property remains an incredibly robust category for both investment and entrepreneurs. It matched its 2017 positions as third most popular sector for investors and second for pitch ideas. On the back of this, Angel Investment Network has launched BrickTribe – a platform focused specifically on property investments.

Bricktribe industry report

• Site activity mirrored growing societal interest in impact investment, with investor searches for impact-related terms up an average of 24.9% from 2017. The fastest growing sector was ‘renewables‘ which climbed from 40th to 32nd (a 25.4% increase in number of searches). ‘Greentech’ showed a 25.7% increase while ‘environmental’ had a 23.5% increase.

• Searches for ‘robotics’ were up by 7.8% becoming the 4th most popular search term for investors.

Discrepancies between number of Pitches and number of Interested Investors

The results also revealed a large discrepancy in some categories between the level of investment interest and the number of entrepreneurs looking for funding.

• Fashion was the 6th largest sector for pitch ideas, but drops to 14th in terms of the number of investors interested, with three times as many pitch ideas as investors.

• Technology sees a significant discrepancy between investors and pitch ideas. While it is the 4th most popular sector for investors, this falls to 9 for pitch ideas.

• The UK market seems to be under-served for investors in the medical sector. It is the 6th most popular category for investors but only 14th for pitch ideas.

View from the Founders

Angel Investment Network co-founder James Badgett commented:

“We are pleased to present our first public ‘State of Angel Investment Nation’. We hit the million-user mark just before the end of 2018 and so we feel the volume of our data is significant enough to yield meaningful insights.”

“Unsurprisingly, software and technology continue as strong performing sectors. We think the UK’s growing reputation as a FinTech hub, in particular, has helped these sectors maintain their positions. We’ve also seen a rise in other sectors including insurtech, AI/machine learning and IoT.”

Mike Lebus Co-founder Angel Investment Network report

Co-founder Mike Lebus added:

“The growth in investor interest for impact-related businesses is a rapidly rising trend and we expect this to continue over 2019 and beyond as investors increasingly become aware of the value of a conscience-driven approach. Impact projects we raised funds for in 2018 include Verv – an AI home energy assistant – and Demizine – an end-to-end home water recycling system using technology originally engineered for space stations.”

“Notable FinTech companies we’ve raised for include Coconut – current account with inbuilt accounting – and Novastone – a ‘WhatsApp’ for the finance sector. Another cutting-edge client in 2018 was Humanising Autonomy who’ve built the most advanced system for human-machine interactions using London pedestrians to train their algorithms.”

Industry Report Overview

The Top 10 Sectors by Number of Pitches:

1. Software
2. Property
3. Food & Beverage
4. Hospitality
5. Transportation
6. Fashion
7. Media
8. Agriculture
9. Technology
10. Manufacturing

The Top 10 Sectors for Investors:

1. Software
2. Food & Beverage
3. Property
4. Technology
5. Hospitality
6. Medical
7. Transportation
8. Business Services
9. Energy
10. Agriculture

For the Full Report…

We will be presenting the full report to investors at our next pitching event in London (date in March to be confirmed). For more information on specific parts of the data or to request a place at the event, please contact me on oliver@angelinvestmentnetwork.co.uk

This report was referenced in City.A.M on 30th January 2019

This report was also used in a piece on Angel News on 31st January 2019.

Real Business published a longer analysis of our report on 1st February 2019.

Everything you need to know about Fundraising for your Manufacturing Business

Fundraising is rarely easy. But the challenges faced vary between industries. The manufacturing sector, in particular, has its own pathways and hurdles to be navigated when it comes to fundraising.

Below, I cover the sources of finance available for manufacturing businesses and offer advice on which to choose for your business.

Why the right finance is so important for manufacturing businesses

Figures reported in January 2018 show that 17,243 UK companies entered insolvency – a 4.2% increase from the year before. It’s no secret that the first few years of a business are a critical time for its survival. The survival rate of business to year 5 is 44.1%.
________________________________________

“The UK is a great place to start a business, but survival rates are low. The recession has had an unsteadying effect on small and medium enterprises (SMEs) and we need to work hard to rebuild their confidence.”

David Swigciski, Head of Corporate, DAS UK Group

________________________________________

The reasons that a business fails range from product failure, lack of market understanding and too much competition, through to the complexity of tax systems and too much red tape.

Financial planning is perhaps the biggest reason, especially for companies more than a year or two old. Without a stream of cash to sustain itself, a business will die very quickly. Lack of funding, late payments, increased business rates and maintaining your cash flow all contrive to limit the cash available.

When is the right time for a business to borrow?

The life cycle of a business needs cash injections at many stages, including:

• Expansion into new products or markets
• Fulfilling new orders above usual production demand
• Sourcing new suppliers
• Increasing inventory volumes to reduce costs
• Bridging a late payment from a large customer that is in financial difficulty

A good financial model for cash flow forecasting will highlight when your business may need more cash to continue to operate and understanding your working capital cycle is a vital part of this model.

The Working Capital Cycle Explained

The Working Capital Cycle (WCC) is the length of time it takes to convert net working capital (assets and liabilities) into cash in the bank.

If a business has a short WCC then it quickly releases cash from its production cycle which is then free to either reinvest or to purchase more materials. As a result, the business will require less funding.

If a business has a long WCC, then capital is ‘trapped’ in the working capital process and is not free to use. Businesses in this position are more likely to need funding and finance.

A business will try to reduce its WCC to as few days as possible, usually by increasing the payment terms with their suppliers and reducing the time to collect what it’s owed by its customers. Other ways to reduce the gap include streamlining processes, reducing manufacturing times and decreasing the sales cycle.

Understanding the WCC of a business is essential to plan for stability. As any CEO will tell you, the ability to weather all storms is the key to business success.

Once a business is aware of where the financial ‘gaps’ are to be bridged, it can then implement funding to ensure a healthy cash flow is available at all times in order to continue operating. This can range from organising a working overdraft, invoice financing or a short-term bridging loan for growth periods, for example when completing either a new order or launching a new product.

With this knowledge, a business owner can then look for sources of funding to support the business and to keep a healthy cash flow.

How to Choose a Finance Option

First, look for any government funding and loans that are either a non-repayable grant or a low-cost loan. These are regulated by specific guidelines and are often regionally based.

Failing this, you then need to look at equity or debt options…but which one?

debt vs equity angel investment netowrk manufacturing
Ask yourself the following questions:

1. How much money do you need?
Debt finance is suitable for anything between a few thousand to millions of pounds – dependent on finding a willing lender. Equity finance is usually from tens of thousands up to tens of millions and many VCs will only consider investing large sums.

2. Are you prepared to give away equity and a share of your business?
This is a clear choice between equity and debt. You will also have to consider how much equity you’re prepared to give away if you choose to go down an investment route.

3. What are your growth ambitions?
An equity investor is predominantly motivated by aggressive growth, for a return on their investment. A lender such as a bank is only concerned with their capital being repaid and growth is generally not an issue.

4. How long do you need the money for?
For a short-term cash injection, debt finance is the most suitable. If you have long-term needs, then equity investment could be a better option.

5. Do I need support?
An angel investor will also act as a mentor and can have significant input into helping you start up and grow a business. If you have a great product or a proven business but need help to take things to the next level, then an angel could be the best option for you.

It is worth noting that equity finance is a more expensive way to borrow money, but the investor is taking most of the risk. Debt finance means that you keep control of your business – and at a lesser cost – but most of the risk is yours.
Manufacturing fundraising angel investment network

What do I need to prepare to apply for funding?

1. Evaluate your business to understand what it requires

2. Draw up a business plan to clearly outline your strategy for growth and how you will use the required funding

3. Use research to show that your plan is realistic and achievable. Know your business, the market and your figures inside out.

4. Get advice on the application process, especially if you’re seeking equity investment. Speak to an adviser who can help you prepare your plan and who can give you advice on how to apply and pitch.

Sources of Finance for Manufacturing Businesses

Government Grants and Regional Agencies
The government has a variety of schemes, grants and funding options for businesses at every stage, from startup to innovation and exporting, and every business should review what funding and support is available. This type of funding is focused mainly on small businesses but not exclusively.

Grants and schemes are all subject to strict criteria and some are match-funded, which means the business must either self-fund or find external funding to match the grant on offer.

Funding support is available for businesses around the UK, with a variety of grants and loans on offer, all with specific regional criteria. Grants are constantly changing; therefore, it’s best to review what’s currently available here.

• For business innovation, Innovate UK has a series of competitions to fund between £25k and £10m for a product development project.

UK Export Finance can offer advice and support to businesses who are exporting, usually though underwriting loans and finance.

Business Finance Partnership helps small to medium-sized businesses find finance from private sector investors.

The Prince’s Trust has helped small businesses and entrepreneurs under the age of 30 since 1983. They offer mentoring, grants and loans.

For more info, I wrote a separate post on grants here.

Startup Loans

For a new manufacturing business struggling to get finance, the government-backed Startup Loans can offer a personal and unsecured loan of up to £25k. The benefit of this loan is that you do not need any assets to secure funding but the individual is personally liable for the loan and not the business.

To be eligible to apply you must be:

• Unable to have secured funding from elsewhere
• Your business is less than two years old and is based in the UK
• You are 18 or older and a UK resident, with the right to work in the UK

If there are multiple partners, each person can apply for a loan of £25k up to a maximum of £100k investment in one business. The loan is to be repaid over one to five years at 6 percent.

With the funding, a business also receives one year of mentoring and support to prepare a business plan.

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“Bank Loans and commercial mortgages are the fourth most popular form of external finance among UK SMEs”

British Business Bank Analysis, SME Finance Monitor

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Bank Business Loan

For an established business with a trading history, a bank loan is one of the most popular choices for securing finance.

Your options are based on the credit history of the business (including the business owners’) and whether you have any assets that you can offer as security. Property is usually the bank’s first consideration for security but machinery and equipment may be considered.

The business must prove that it can afford to repay the loan.

The other option, of an unsecured loan, will usually require a personal guarantee from the owner or directors of the business and will be subject to higher interest rates.

The benefit of a business loan is that you retain control of your business and can arrange funds quickly.

For a manufacturing business, a close relationship with their bank is essential to support their financial plans and to facilitate expansion and growth. Business loans are suitable for buying equipment, machinery or to fund the development and launch of a new product.

Bank Overdrafts

Another option for established businesses to support cash flow is a working capital overdraft with the bank. 16% of SMEs use an overdraft.

An overdraft is not a loan but is a means to both facilitate growth and to manage cash flow. An overdraft is expected to be used to bridge gaps on a monthly basis with the account being in credit for part of the month.

Overdrafts tend to have high interest rates but this is only paid on the overdrawn balance and so offers a flexible solution on a short-term basis to bridge gaps. There will also be an arrangement fee to pay.

Venture Capital (VC)

One of the most popular ways to fund a start-up or a business in its early stages, that has aspirations to scale quickly.

A VC is a fund of investors who are motivated to make an above-average return on their investment and in return they’re prepared to take a risk on early-stage, unproven businesses. They do factor that a certain percentage of their investments will fail but the ones that succeed can deliver massive returns.

The VC is focused on investing in a business that has long-term growth potential and will require a significant percentage stake in the business to reflect the risk that they’re taking. They expect to hold an interest in the business for five to seven years before they see a return.

Investment is delivered in a series of ‘rounds’, beginning with the seed round to test a proof of concept and then ‘series A’ onwards will be large cash injections to allow the business to scale.

A VC is not only looking for a strong business plan, they’re also concerned with the founders and the management team, and are investing in their ability to quickly scale and grow their business, as much as the business idea itself.

Venture capital investment can be used by a manufacturing company that has a new product to launch and expand into new territories or on a worldwide scale but in return, they will have to give away an equity stake in the business.

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“VC is an incredible partnership between financial professionals and founders. Many VCs are often ex-entrepreneurs, so their advice can be invaluable.”

David Mott, Chairman, Venture Capital Committee, BVCA

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Private Equity (PE)

Where a VC is focused on early stage investment in a business, PE is a medium to long-term finance option. It’s more relevant for a proven business that wants to grow or move to the next level and which needs help to achieve that.

The PE investment comes from individuals or specific private equity businesses, rather than funds made up of investors looking to speculate.

The PE investor will take a significant share of the business, often taking control. For this reason, this source of finance is relevant for owners who feel they have taken the business as far as they can and who now need help to achieve the next level, and are willing to relinquish control in return for this. Or, they may want to retire or step down from running the business and instead, retain a minority stake.

For a manufacturing business, growth could represent developing new and existing products, reducing costs and streamlining processes for more profitability and expanding into new markets.

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“You build relationships in Private Equity over three or four years. So, if you’re thinking of retiring and there’s no obvious succession plan, Private Equity makes your exit easier.”

Tim Hames, Director General, BVCA

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Angel Investment

Angel investment is finance provided by private, high-net worth individuals.

An angel investor usually has substantial business experience, with the knowledge and contacts to help other businesses succeed. They often take a hands-on approach and have significant input into the business. A strong working relationship is essential between an angel investor and the business owner they invest in.

Our service at Angel Investment Network is to connect entrepreneurs with our network of 180,000 angels investors worldwide.

A manufacturing business that has developed a new product would benefit from angel investment or a startup that needs the expertise of an experienced business owner to mentor them.

Expansion Capital

Once a business is established and has proven its success, it will want to grow. Rather than relinquishing control with private equity funding, expansion capital can be a partner to help the business achieve its goals by having the ability to inject funds at each growth stage with subsequent investments.

Expansion capital tends to be for higher amounts, such as £1-20m and an investor will expect a 10-30% stake of the business in return.

For a manufacturing business, expansion capital can be applied to the production of new products, entering new territories or even the strategic acquisition of another company (for either their manufacturing capability or even the intellectual property of another product).

Asset Finance

For an established business that has a trading history and which can show assets (that have value) on the balance sheet, finance secured on those assets can be an option to raise funding for growth, without giving away equity.

Banks often require a security guarantee for a loan but are restrictive in what they accept as security – usually only property. An asset finance lender will accept a wider range of security such as, the debtor book, machinery, equipment and stock. In some instances, intellectual property rights or patents can be used.

Traditionally, asset finance was considered a ‘last option’ to raise funding but has become more popular for any business that needs to quickly raise cash.

Leasing and Hire Purchase

A form of asset finance that is so popular in the UK with small to medium businesses that it’s second only in use to overdrafts.

The difference is:
Leasing means you pay a ‘rental’ on the item that you require, such as a van or a piece of machinery. At the end of the rental period the item is returned.
Hire purchase is an agreement to buy an asset over an agreed period of instalment payments. This means the business has the equipment it needs immediately without a large upfront investment and keeps the item once it’s paid for.

For a manufacturing business that needs to invest in a new fleet of delivery vehicles or production equipment this is an option to quickly put in place what is needed. Ideal for start-ups and growth periods.

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“It does the job that businesses need it to, allowing them to get the asset on board quickly and simply so they can start using it within their business.”

Sam Dring, Senior Product Manager, Asset Finance, Lloyds Banking Group

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Invoice Financing

Also known as factoring, invoice financing is a way to reduce the working capital cycle by releasing the value of an invoice as soon as it’s issued to the customer.
An established business will need a trading history and payment terms of less than 90 days on their invoices. They will also need to show that their customers are reliable payers.

An invoice financing lender will lend up to 90 percent of the value of the invoice and then manage the payment recovery from the customer. The cost of the financing is a percentage of each invoice.

Especially relevant to manufacturing businesses who want to reduce a long working capital cycle, release finance out of the cycle quickly and manage their cash flow more efficiently.
The business owner has access to cash and retains control of the company without relinquishing equity.

Summary

It’s very rare that a business is so cash positive from the outset that funding is never needed. Even cash positive businesses often need external finance to accelerate growth and scale quickly.

Fundraising is, therefore, a bridge that almost all business owners face. Making the right choice for your business will save you time, stress and money; and could, ultimately, be the difference between success and failure.

Thanks to Sage for allowing us to use and share their original copy and images. You can view the original post here