ALTERNATIVE FUNDING FOR ENTREPRENEURS
ASK entrepreneurs to name the biggest challenge they face in expanding their business and I would expect most to say raising the finance they need to grow. Whether it is thousands or millions, generating the capital required to expand will at some stage be on the agenda of every ambitious business.
As a country we are being urged to produce more fast-growth firms that have the capacity to deliver the much-heralded “enterprise-led recovery”, and that requires a higher level of investment capital.
However, for many entrepreneurs, the prospect of going cap-in-hand to the bank or giving equity away to a venture capital (VC) firm is an unappealing prospect.
Banks aren’t offering favourable terms to small businesses at the moment, and there aren’t enough VCs to go round.
Moreover, the sheer number of hoops and guarantees that banks require from business owners are standing in the way of fast-growth businesses looking to expand.
For entrepreneurial companies, often the most pressing challenge is how to generate the capital needed to spearhead the next phase of development and there aren’t many funding options available for entrepreneurs. Many business owners are not interested in surrendering any control of a business to a private equity or venture capital firm and the banks are reluctant to lend at the moment.
This situation has encouraged a number of enterprising firms to seek a more enterprising route to raising finance. The likes of Hotel Chocolat, King of Shaves and Ecotricity – some of the brightest British success stories to emerge in recent years – have all introduced retail bonds that have allowed customers and independent investors to take a stake in the future growth of their businesses. They have taken this route as an alternative to a bank loan or giving away equity to a VC.
This approach to fundraising allows gazelle businesses an opportunity to connect with their customers and involve them directly in their expansion. Retail bonds generally offer better returns on a lower minimum investment than traditional corporate bonds, and far exceed the returns available from bank deposits. This creates a welcome opportunity for investors to get a better return than would otherwise be available on their savings.
It also provides fast-growth companies with the opportunity to invest in their expansion, develop new services and move into new markets. This is exactly what growing businesses need to do to create the jobs, the wealth and the opportunities that this economy so badly needs.
But, this will never happen if growth prospects remain hinged on securing investment capital that never materialises. The challenge that many businesses across the UK face when looking to raise capital need not become an obstacle for growth. The key is to thinking entrepreneurially about how you do it.
Agree with Rupert Lee-Browne? We welcome debate. Do you have a strong view on small business and entrepreneurship in the UK? Email [email protected]
Caxton FX, a foreign exchange and international payments business, launched a new retail bond this week to raise up to £4m to spearhead the next phase of the company’s growth. To download the invitation document and the application to subscribe for the Caxton FX bond please visit www.caxtonfxbond.co.uk