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Overcoming the capital challenge: How to raise finance with your bank

At the same time, governments around the world are increasingly trying to encourage and support entrepreneurs as they begin to recognise the critical importance of the entrepreneur to the development of a countrys future job growth and wealth creation.

Having returned to London last year after a 14 year stint in San Francisco, it is incredible to see the entrepreneurial transformation going on in the UK. 

No longer are UK businesses outdone by lack of talent, scale of management ambition or quality of engineers; instead, there are countless examples of UK businesses leading the way in global innovation evident in fintech, ecommerce and even the artificial intelligence arena. 

While startup activity is very robust in the UK, access to venture capital and finance does remain more challenging when compared with Silicon Valley. 

With a smaller pool of experienced, deep-pocketed venture capitalists to draw on, entrepreneurs in Silicon Valley tend to understand the powerful role of debt as a way to finance a business, an area in which UK entrepreneurs are still struggling to emulate.

Capital challenge

Every year, my organisation takes the pulse of entrepreneurial businesses through the Innovation Economy Outlook survey. The study takes a look at executives perceptions of this critical sector and gathers feedback on opportunities and challenges affecting their ability to grow. 

The overwhelming view from the 2015 report is that fundraising for early stage tech businesses is still a major issue, with 86 per cent of UK innovation businesses saying that raising capital is a challenge.

To fuel their innovation businesses, CEOs are looking for access to risk capital and bank financing that supports their rapid growth and ambitious expansion plans. 

In recent years, Ive witnessed an increase in access to risk capital for UK businesses with the creation of new funds, increasing numbers of angel investors, growing investments by US VC firms and corporate VCs, and development of alternative financing options, such as crowdfunding.

However, the question remains how should innovative businesses approach their financing options as they look to grow? 

Financing options

Financing through banks can provide businesses with the capital they need to complement their recent equity rounds, enabling them to grow the business without diluting their own, or their investors, equity holdings. 

In addition, using debt financing at an early stage what we call venture debt can help early-stage businesses extend their runway, or cash position, to help them hit a funding or value creation milestone. 

For early stage innovation businesses many of which have no hard assets that traditional banks look for accessing innovative forms of financing is vital as they look to move their businesses forward.

Venture debt, term-loans, receivable financing and working capital facilities are commonly used to fund an entrepreneurs vision and help accelerate a companys growth. While debt is an attractive option, with proven impact, the reality is that many businesses dont understand the options available to them.

Traditional banks tend to look at lending to high-growth innovation businesses through a very traditional lens, typically wanting to lend to cash-flow positive companies, often expecting to see several years of profitability. 

They will frequently ask for the founder to personally guarantee any loan, in addition to securing loans against the assets on its balance sheet. 

However, many startup businesses may not have fully established their revenue models yet; therefore, I believe that it is better to focus on the value creation milestones, such as going from a beta stage product to market launch. 

Having worked exclusively with innovation businesses and their investors for over 30 years, weve watched the ecosystem thrive through the means of alternative financing options that specifically fit this sectors needs.

Gerald Brady is head of UK relationship banking at Silicon Valley Bank.


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