Active Accounts

How to Raise up to £50k for Your Startup — A Case Study

I’ve been listening to a lot of Tim Ferriss’ podcasts lately (admittedly not an unusual occurrence). His most recent conversation with Eric Schmidt, former CEO and Chairman to Google, advisor to Alphabet Inc., was yet another example of the seemingly unending intrigue that surrounds Silicon Valley and start-up culture as a whole.

For those who aren’t creating the next Amazon or Facebook, raising hundreds of millions of dollars, whilst an interesting topic of discussion — particularly when it goes monumentally wrong (schadenfreude anyone?) — is clearly not on the agenda. Talk, therefore, of seed funding, angel investing and letters of the alphabet prefaced by the word “series” is ultimately moot.

As such, I thought it might be helpful to chat through a couple of the more relevant and accessible means of acquiring finance for small to medium sized businesses (SMEs) based on client case studies.

Before I continue I just want to add that it is imperative that you do actually need funding for your business and “bootstrapping” is no longer a viable option. A very good article from Furuzonfar Zehni on LinkedIn concludes with the following sentiment: “start-up culture has ingrained this notion that fundraising is the be-all and end-all of building a company. However, founders should not allow the dollar to distort why entrepreneurialism exists, and realize the ability to scale always goes back to the product and the value it provides.”

With regards to this particular case study, the business in question is a menswear and e-commerce brand and platform. With a little over three years’ trading history, growth had been considerable during this time (read: the market was responding positively to the minimum viable product) so the timing felt right to seek additional capital to finance upcoming projects.

Given the amount of finance we were seeking (somewhere in the region of £25k), equity finance was not really a viable option. Whilst I do lean toward equity finance for the most part, typically I would recommend debt finance for smaller sums of money — that said, this is dependent on a variety of factors and there is certainly no one-size-fits-all approach to raising finance.

Seeking a quick turnaround, we promptly concluded that the interest rates that accompany peer-to-peer lending (Funding Circle et al) were too severe for our liking. We therefore looked to secure an overdraft facility with the business’ current bank. With a good track record and positive banking relationship, this can be a pretty quick means of securing funding (if you are able to provide all due diligence required, including financials, cash flow projections etc).

There are some considerable benefits to this route in contrast to traditional debt finance i.e. a bank loan. First and foremost, you only incur interest whilst you are overdrawn and to the amount you are overdrawn by and, secondly, there are usually no set minimums to pay back each month.

Closing Thoughts

If your cash flow is under control and you have a firm understanding of your financial position, I think an overdraft facility — if possible — should be the first port of call for most small business owners for the reasons outlined above.

If you enjoyed this and would like to know more, please let me know at andy@activeaccounts.co.uk and I’ll write more. Specifically, what would you most like to know?