Securing investment in a high inflation economy
When you consider the current economic and political landscape in the UK, the old Chinese curse ‘may you live in interesting times’ comes to mind. There’s no doubt we are living through tumultuous and turbulent times, where the cost-of-living crisis and high levels of inflation are making these ‘interesting times’ for many, including UK businesses.
Research released last summer by Close Brothers Asset Finance and Leasing, showed that despite the multiple pressures facing businesses, there was a strong appetite among UK SMEs for borrowing to invest in growth. Two-thirds of businesses surveyed said they would be seeking funding for investment in the next 12 months.
This hunger for finance across the SME community creates a significant challenge for many emerging start-up and scale-up companies which require external investment to help them reach their full potential. High inflation can prove a barrier to investors as this can have a detrimental impact on their purchasing power.
Since I helped set up TribeFirst in 2015, we’ve proudly supported over 120 businesses, raising in excess of £60million in growth investment. While we continue to build on that success, there is little doubt that this difficult economic climate does make this task an even greater challenge.
In this era of high inflation, growth-focused businesses looking for investment should ensure they are SEIS or EIS-registered. These UK schemes are becoming increasingly important as they offer the only means for investors to shield themselves from rising inflation through investing in capital gains tax-shielded assets. SEIS and EIS classification removes all liability for capital gains tax for potential investors.
There have also been a number of recent changes made to SEIS which should help early-stage businesses. Companies can now raise £250,000 through in SEIS, an increase of £100,000, and they can now do so in the first three years of trading, giving them an additional year on the previous two-year limit. The threshold for company assets for SEIS-qualifying businesses has also been increased from £200,000 to £350,000 while the personal investor limit for SEIS has been doubled to £200,000 per year, unlocking more potential investment funds from individuals.
In terms of timing for seeking investment, it’s best to start to look to raise money before it’s needed. The amount of time a business can stay afloat without extra capital, known as runways, are a key factor for investors and can open uncomfortable conversations if addressed too late. Even when engaging professional support from a business such as ours, it is always better to do this in a timely and thoughtful manner rather than in a last-minute rush. This is especially relevant for companies looking to crowdfund, as the due diligence process will take time to complete.
It's also important to take time to prepare for an investment campaign, taking advice from as many sources as possible. By searching online, you can often source details about other successful campaigns which can be incorporated into your own. Another key aspect of this preparation involves identifying your audience and the investors that you want to approach and preparing ways to communicate with them to ensure they understand a company’s offering.
When it comes to the moment of approaching investors, many company founders start by asking friends and family. This is often a sensible first step but it’s important to present a request for money as an opportunity rather than a favour. While you might find it awkward asking friends and family to invest in your journey, especially during a cost-of-living crisis, just imagine the uncomfortable situation a few years down the road after building a successful business when they ask: “why didn't you come to me for that early investment?”
In any economic climate it’s essential for company founders to be active networkers, seeking out events where they can pitch their business and the investment opportunity it provides. I advise you to always carry a card or other means of sharing your business and its aim to any potential investors they may meet.
In this current climate, it’s more critical than ever for company founders to be specific about how they would use any external investment, ideally with a proposed timetable for rolling out these plans.
When talking to people that might wish to invest in your company, it’s also essential to look for value beyond the money. Consider what the individual investor has to offer in terms of their own experience, especially where it relates to your own business.
Once an investment campaign is live, good communications are a must as this provides an ideal opportunity to market your company to potential investors. This includes posting regular updates to a campaign webpage or via other direct forms of communication about how the investment round is progressing.
Post-campaign updates are also essential as many growth-focused companies require more than a single round of investment. According to research by crowdfunders Seedrs, around 70% of investors are more likely to re-invest in a company if they receive informative and interesting updates on a regular basis.
We are living in ‘interesting times’ but for growth-focused companies there are still opportunities to secure investment. By getting their approach right, the old Chinese proverb could prove to be a blessing rather than a curse.
