Self fund

Family and friends

Mainstream banks (Barclays, HSBC, Lloyds, Nat West/RBS, Santander maybe unless included in challenger banks below – opinions vary)

Challenger banks (TSB, Metro Bank, Handelsbanken, etc.)

Factoring/invoice discounting (offered by most banks but also by specialist lenders so included separately here)

Crowdfunding

Angel investors

to which we could add stock market funding, etc. but let’s be honest, not going to happen in most circumstances. What are the main methods of rewarding? Boils down to the following really:

• Feel good (self, family, mates, etc.)
• In kind (for example, if people helped you set up a bakery, free or discounted bread and cakes)
• Interest (either a fixed rate or variable, matched to bank base rate. More exotically I have come across rates which increase with profitability, enabling the investor to share in the spoils. The possibilities are endless…)
• Dividends (either fixed percentage with preference shares or fully variable with ordinary shares with a myriad of hybrid ideas in between)
• Capital return

The latter I shall comment upon in a little more detail. In the outer edges of crowdfunding and most angel investing, the investor will be looking to achieve a capital return. Maybe something of the order of doubling or trebling (or more) over a three to five year timescale. This means you as business owner have to be thinking of how the investor can get their return, what is termed an exit strategy. The fun arises if your time horizon as owner is not the same as that of the investor. If the investor typically wants out in 3-5 years and you are currently (say) 40, you are unlikely to come out of a sale with enough money to retire (given that projected life expectancy of a likely business owner could be another 40-45 years…) so the question becomes what do you do with the rest of your working life. Can one buy out the investor in the agreed time frame? Could another investor take over on the exit of the first? Could you sell your business to a third party and work for them? All questions you will need to ask yourself if this is your preferred method of funding. If there is anything in the above that is of interest, please get in touch. First consultation (up to an hour or so) always free. I’m off on holiday for first nine days of June – Berlin – so there may or may not be posts before my return. The title? Oh yes, my friend Hatty does a lot of work with crowdfunding and angel investors. Contact her on www.focusedforbusiness.com for more information. I’m sure she’d love to hear from you. She likes to remind people that it is a long and arduous task, definitely not for the faint-hearted and before you find your prince, you must be prepared to kiss a lot of frogs… ]]>