With a new lot of graduates comes a collection of business ideas – but what about funding?
Mark Brownridge, director general of the Enterprise Scheme Association, talks about the options for graduates looking to launch a business in 2019.
Knowing where to turn
The main challenges that new businesses face are similar to any other, but with a lack of experience that graduates may have over, say, someone who is entering into their third or fourth venture, the situation can provide unique challenges.
Most graduates will struggle to finance businesses through secured loans as they won’t be home owners, so they will need to rely on support from their friends and families. This closes the door for many who are not from affluent backgrounds, so it can be a real challenge for many graduates to secure funding to expand their ventures.
Crowdfunding was a common route that many turned to a decade ago. However, I think that it is a saturated market, and many of the early adopters are struggling today. The platforms are proving to be undemocratic and difficult to gain any meaningful growth.
When you’re getting started and concept proving your business case, small loans from family or working part-time to fund it are common routes to go down. Government-backed schemes provide start-ups and scale-ups with access to finance from investors too.
Speaking of scale-ups, finding the funding to grow can be the tipping point for many graduates. Venture capital opportunities may be attractive to you. However, at this stage, any entrepreneur should invest time and effort into their business plan and work out what they need to grow.
There are many definitions of alternative finance today, so it is important to focus less on the label and more on how the financing will work for you and your business, what other assets you’ll gain besides pure capital, and what you will have to give up in return.
My advice is to consult a professional. Private finance is a complex and competitive market, so always do your research and ask questions.
By using more than one financing option, you can diversify your options for growth, use different methods at different stages of your businesses journey, and work with a number of different parties, who all bring their own qualities to a business.
Part-financing your business using different methods means that you have given yourself the opportunity to find the right funding to grow with your business. Hybrid solutions also help to distribute a degree of financial risk for the investor, so it can be a better deal for the investor, giving entrepreneurs a better chance of receiving investment.
Again, always consult a professional. Even the best business brains out there take advice from accountants and financial professionals, and you should too.
Starting your own business can be incredibly rewarding, but there is always a degree of risk attached to it, so I would always recommend talking to as many people as possible before you enter into any form of financial agreement.
Aaron Short (right), who only graduated last week, talks about how he’s funding his start-up, Accommodation.co.uk, which is due to launch in 2019.
Business funding proved to be surprisingly easy. We found a private investor to fund us so from there onwards it’s been plain sailing.
I think that’s down to the kind of market we’re in as not only is it highly profitable, but there are also a lot of high net individuals who are willing to invest in start-ups. We’re also approached regularly regarding investment opportunities, which is a great position to be in.
Networking is key though – you have to connect with people within your industry to let them know that you’re open to opportunity.
What we considered
Like any young person with an ambitious goal, crowdfunding was one of the options I thought about.
My co-founder and I took a slightly unorthodox approach though. While we were at university, Matt and I knew we needed some funding to get the ball rolling so we bought an ice cream freezer, some tubs of ice cream and boxes of cones and took to Lincoln’s High Street.
It was a hot summer’s day so to drum up some funds, we handed out free ice cream in the middle of the street and asked for donations. We made a good amount of money that day which gave us enough to get started!
Other than that, we’ve stuck primarily to private investments, but we would consider other options – like the more traditional crowdfunding path – in the future. At the moment, our funding is steady and is helping us work towards launching the business in January 2019.
Use the resources available to you
Network, network, network! It’s all about who you know when you’re starting out so attend events, speak to people who know people and use social media.
For example, I added a potential investor on Facebook to grab his attention. He posted a photo of a new vinyl for his business car – I thought it could’ve been much better, so I created a new one and sent it back to him and it got me the meeting I needed.
LinkedIn can be a great way to get your name out there. It’s also worth thinking up some more creative methods of getting yourself in front of an investor. There are a lot of great start-ups around so try to set yourself apart from the rest as early as you can.
You don’t have to dream up something completely innovative and ground-breaking, but if your approach to how you do business is this, then you could be on to a winner.