Philip has over 40 years’ experience as a corporate and commercial finance specialist working with SMEs and larger companies to support their business development and finance needs.
Finance in the Spotlight – Early-stage equity funding key to boosting innovation
During the coronavirus crisis, we have seen many businesses diversify and adapt their offering to continue operating. Innovation has enabled businesses to sustain their livelihood during the lockdown and will continue to be an essential ingredient for their growth as the UK moves into the recovery phase.
With new health, social, economic, cultural and environmental needs having emerged during the pandemic, businesses are being called to develop products and solutions to address these challenges in the post-lockdown period. This type of innovation is often driven by start-ups and early stage businesses, with funding traditionally being a blend of founder capital, public sector (e.g. Innovate UK), business angels and seed stage venture capital.
Bridging the gap in the early-stage funding marketplace
To support UK start-ups and businesses driving research and development in some of the most dynamic sectors of the UK economy, the Government announced in April a £1.25bn funding package. This included the launch of the Future Fund scheme as well as additional Innovate UK funding.
The Future Fund was designed to provide businesses with loans from £125,000 to £5 million, subject to at least equal match funding from private investors. Whilst the scheme is necessary, it is restrictive in nature, with eligibility criteria requiring businesses to have already raised at least £250k in equity funding in the past five years. It heavily focuses on supporting private investors and venture capitalists reserve funds for existing portfolio investments and re-appraises the investment focus in light of the emergence of new business models.
This presents some challenges. Historically, 70% of equity funding is raised in the South-East which means that SMEs in the North West region may struggle to raise the necessary capital and financial support for new Innovate UK funding applicants may be limited due to the high volume of applications and their competitive nature.
A significant ‘gap’ or ‘funding challenge’ seems to be emerging in the early-stage funding marketplace. As the landscape will change rapidly, SMEs will need to be well informed and agile to respond, to secure the finance required to develop and commercialise new products and services.
Specifically, businesses seeking equity investment should aim to:
- Crystallise their value proposition
- Develop a fundraising strategy
- Enhance investment readiness levels
- Seek support to navigate the complex funding
landscape and gain introductions to appropriate
Schnap Ltd, a local start-up with global ambitions
A prime example of this approach is Schnap, a North West digital start-up which had developed an innovative Social Media application (Schnap app) and approached GC Business Growth Hub for support.
The business which launched the app on 17 March was introduced to Mark Renshaw, specialist Access to Finance Advisor, when seeking £100k seed equity funding. The Schnap directors had already spent more than £60,000 of their own funds on the design and creation of the Local Social Interaction platform prototype, to get from Innovation Readiness Level IRL 1 to IRL 7 and were looking for support and experience in finding the investment needed to scale the business.
A collaborative approach
Mark initially reviewed the business’ short-term strategy and invited them to an Equity Investment Readiness event, helping them prepare their pitch. In addition, Mark referred Schnap to Samuel Bafunso, Innovation Advisor within the Hub to further develop their value propositions. Samuel worked with the client to develop and map out a comprehensive business model and strategy which would be sustainable and scalable. Furthermore, Samuel helped the business explore intellectual property, facilitating initial discussions with Dehns Patent and Trademark Attorneys.
Samuel made some key introductions for the business. Firstly with Marketing Manchester, the agency that promotes Greater Manchester (GM) to local and international audiences - to explore partnership opportunities and promote the Schnap app to the GM hospitality sector. One of the app’s features enables bars and restaurants to sell their services from their premises, giving customers the ability to order via the app directly to their table instead of queuing at the bar or waiting for table service helping to minimise contact and serve as an added protection solution for the hospitality sector when it is allowed to reopen.
Secondly, he introduced them to one of the Hub’s partners, Sci-Tech Daresbury to explore further product and service development. Mark is also simultaneously working with Schnap to explore investment via the Chinese Investor Scheme and through GC Angels.
Powering business-led innovation
Innovation will be critical for the UK economy and its recovery from the coronavirus lockdown. In order to grow, businesses will need to be able to cultivate and promote an innovative culture, whilst identifying appropriate sources of funding to support this.
The Hub’s Innovation team can help SMEs overcome the barriers to research and innovation, strengthen their value proposition and create long-term, impactful collaborations with leading research organisations as well as access Innovation Vouchers.
If your based in Greater Manchester and seeking innovation support, product or service development then please contact the team directly.
In addition, you can access fully-funded, tailored support through the Access to Finance team which has significant knowledge of the funding landscape and extensive relationships with:
- Business Angel networks
- Venture Capital
- Public Sector Funds
- Alternative emerging sources such as International Investors (via UK Home Office Innovator Visa’s)
If you are based in Greater Manchester or Lancashire, our COVID-19 specific finance workshop can help you navigate the funding maze and help your business innovate, adapt and prepare for a new trading environment.
This article originally appeared on GC Business Growth Hub.
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