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Venture capital funding in a cold climate

Some are blaming this decline on Brexit, whilst others believe this is part of a wider correction in the market. According to CB Insights, the volume and value of deals in the US declined in the last quarter by about 25 and 40 per cent respectively as compared with 2015. But whatever the reason, how can you secure venture capital funding in the current climate

Alternatives to crowdfunding and venture capital funding

Much venture capital funding in Europe have moved away from doing seed investments. Crowdfunding and others have filled some of this gap, but what are the other alternatives?

(1) Self-funding

It is often forgotten by many start-ups, but a company’s customers are the best source of funding in the long-term. Focussing on revenue and customers early in a company’s life is vital. Companies like Market Invoice or Satago provide invoice financing for SMEs, which can assist cash flow.

(2) Angel investment

Despite the rise of crowdfunding, angel investors are still an important source of financing for start-ups. Although we understand that the number of applications is down this year, Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) provide an attractive means for high net worth individuals to invest in early stage companies.

(3) Debt finance

Although, most early stage business will not qualify for traditional business loans, there are a number of schemes (such as Startup Loans and the Enterprise Finance Guarantee Scheme) which are aimed at start-ups. The government has also recently introduced the alternative finance platforms scheme to help SMEs access finance. Through this scheme, UK banks will pass on the details of small businesses they have rejected for finance to alternative platforms for potential funding.

(4) Research and Development (R&D) tax credits

A number of early stage clients opt to fund themselves using tax credits. Up to 32 per cent of the money spent on R&D can be reclaimed from HMRC. The funds are either received as a refund on corporation tax or, in the case of loss-making companies, a cash credit.

(5) Government grants

There are a number of UK and EU-backed grant programmes available to startups. These programmes aim to support early-stage companies carry out research and development projects.

Continue reading to find out what investors are looking for.

Image: Shutterstock


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