Business Finance: Nothing Ventured, Nothing Gained

Entrepreneurs know that finding their feet isn’t always easy. Figures from the British Business Bank show that nearly half of new businesses are still rejected by banks for loans and overdrafts. At the same time, the understanding of alternative finance remains low, even though more options are available than ever before.

The Importance of Selecting the Right Investors

Research indicates that the first two years of a startup’s journey are critical to its success. It’s vital for businesses to choose patient investors who are willing to offer the support young companies need during this fragile period. While traditional finance can be intimidating, alternatives such as venture capitalists (VCs) or boutique business angels are worth considering. These investors are motivated by the same desire as business owners: to build a successful enterprise that offers a strong return.

David Melvin, an angel investor at 24 Haymarket Private Capital, invests in disruptive technologies ranging from online fashion boutiques to sensor components for smartphones. He explains that successful investment isn’t just about the idea—it’s about execution. Investors look at the robustness of the business model, the route to market, and the competitive landscape. Melvin notes:
“We want to know that they haven’t been planning their business in a bubble.”

What Investors Look For

Most VCs expect quick growth and want to see a company leading in its sector. Simon Menashy, partner at MMC Ventures, emphasises the importance of understanding the entrepreneur’s progress and business plan. He adds:
“We talk to customers to ensure they are getting value from what the company is creating.”

For many investors, the attitude of the founder and their team can make or break a deal. Alliott Cole, Chief Executive of Octopus Ventures, assesses a team’s vision, commitment, and resilience. Cole explains that they are drawn to entrepreneurs who combine ambition and confidence with humility and self-awareness.

Luke Davis, of IW Capital, echoes this sentiment, stating that business is often more about the human element than the product itself. He notes that:
“It’s the principles of the owners that determine the outcome of the business.”

Avoiding Common Pitfalls

One common mistake businesses make is overvaluing themselves too early. Davis warns that raising money based on inflated promises might succeed in the short term but could lead to disappointment and negative sentiment among investors in later rounds.

Understanding Capital Needs

Knowing why a company needs capital is crucial, whether it’s for technology investments or recruitment. VCs often play a key role here, but other sources of alternative finance, such as lease and loan funding, can also complement VC investment. These options are especially helpful when venture capital isn’t suitable, or banks are unable to lend.

The Role of Finance in Supporting Growth

Andy Davis, Managing Director of White Oak UK, explains that for many small businesses, spreading the cost of investment is essential. Whether it’s paying a VAT or tax bill, investing in new assets, or acquiring vehicles, finance can provide vital support for cash flow.

Davis says:
“While growth investments are crucial, they can strain cash flow. Finance can help businesses manage these expenses both simply and quickly.”

Aligning Ambitions for Success

Giving your business momentum is often the hardest part, but ensuring that your ambitions align with your investors’ goals is a proven way to set your company on the path to success.

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