How to ask money for
You want it. They’ve got it. But how do you get it from their pockets into your business? Read this…
Got an idea for a kick-ass lifestyle app, but you’re too afraid to ask your minted twice-removed aunt for a loan? Welcome to the world of anxiety-inducing start-ups. The biggest barrier is often a lack of cold, hard cash to get the ball rolling. Knowing where to go, who to ask and, crucially, how to actually ask for it could be the only thing standing between you and that super-yacht you’ve had your eye on. But there is good news: with a bit of careful planning, you’ll be giving Arianna Huffington a run for her money in no time…
Really? Is this a serious option? It’s pretty much win-win: not only do you get the investment you need, but it’s a great marketing tool – and works especially well for consumer-facing businesses. It did the trick for BorrowMyDoggy, new banking app Monzo and street food start-up London Union: all three have raised over £1 million this way.
Get the cash You need to crank up the excitement – but also break down exactly where the money is going, and how it will benefit the business – so donors know why you’ve set that target. Perks such as being the first to try the product or having their name on the packaging help. It’s also best to ask friends and family to donate on launch day – so early viewers aren’t put off by it appearing as if there’s no interest. Stuck? Crowdfunding consultants such as TribeFirst and CrowdfundMe2 will fine-tune your page – for a cut of the money raised. Sounds good, but where should I go? “Different platforms have different strengths,” says Emma Watkinson, CEO of online fashion boutique SilkFred, which raised £145,000 through crowdfunding. What does that mean, exactly? Well, if you’re funding a product such as art, where you can effectively pay people back through consumer consumption, Kickstarter or Crowdfunder is ideal. If you’re raising capital to scale a whole business, you may need to offer people equity, which calls for a platform such as Crowdcube (UK market leader in equity crowdfunding).
And finally, a golden rule… You have to grab potential investors’ attention – and keep it. No easy feat online, where millions of other distractions are just a click away. This means you have to have a great story – that’s either about yourself, your company or who your project will have an impact on. Tell this via video: it can double success rates for reward campaigns. “Experience and recognisable names are also important,” adds Watkinson. Are you starting a fashion business after five years working at Burberry? Mention that. Strangers need to see you’re worth their hard-earned cash.
Sounds refreshingly simple… In one sense it is, but you need a good credit rating (you can check this for free with companies such as Experian and ClearScore), and it’s not unusual to be asked to provide a personal guarantee. Translation: they could force you to sell your home to cover the loan if the business goes belly-up. Scrap that – sounds terrifying. It’s certainly a risk – especially when you’re crouched in the starting blocks ready to sprint.“Debt does not suit early-stage start-ups, regardless of the current climate and the apparent lack of propensity to lend,” says Perks. Are bank loans a no-no then? For tech ventures: yes. Physical products? Not necessarily. As Murray explains, banks are useful “if you can demonstrate that you can make money back in a year”. For instance, if you’re making shoes and need £50,000 to get up and running, as long as you can demonstrate to the bank that you can sell enough to pay off the interest, the money’s yours. Are there better alternatives out there?
Plenty. The government’s Start Up Loans scheme offers unsecured loans of between £500 and £25,000 at a flat interest rate of 6% from one to five years, which come with free mentoring for 12 months. The Prince’s Trust also helps under-thirties get funding, too. There are also sectorspecific grants, such as the ones awarded to energy start-ups by Shell’s Smarter Future Programme.