How to raise funding for your business – your questions answered

Entrepreneurs in the UK seeking investment for start-ups or business growth are strategically positioned in a highly favourable market.

The UK boasts the world’s second-largest venture capital market, trailing only the United States, with a remarkable investment total of £22bn in 2022. Additionally, it is a leader in Europe in terms of private equity investment with around £46bn of capital deployed during the same year.

However, the process of raising capital presents its own set of challenges, particularly for novices in the fundraising arena. The journey to secure funding is often difficult and complex, with a variety of funding types and many different providers, each with their distinct approach in terms of the amount they are prepared to invest and the types of businesses they are willing to support.

This guide looks to address the most frequently asked questions by entrepreneurs embarking on the journey of securing funding whilst providing a comprehensive overview of the funding landscape.

Which would be better for my business – equity or debt funding?

Determining the most suitable form of funding for a business—be it equity or debt financing—depends on various factors, including the nature of the business and its current stage in the lifecycle. This decision is crucial as it influences the direction and control of the business.

Opting for equity funding entails relinquishing a degree of control, as investors will acquire a stake in the business and expect some level of involvement in its operations. However, investors bring with them a wealth of expertise, experience and networks. As they have a vested interest in the success of the business, they can be a significant asset.

Conversely, debt funding is appealing to many entrepreneurs because it allows them to retain full ownership. Yet, it comes with the obligation of regular repayments, which can exert pressure on the business’s cash flow. Entrepreneurs must also demonstrate their capacity for repayment to lenders and may be required to give personal guarantees that put their own assets at risk. Typically, debt financing is more suitable for established and profitable firms with a lower risk profile and is less likely to be an option for start-ups without a stable revenue stream.

I am looking for equity investment but am confused about the options. What’s the difference between Venture Capital, Private Equity and Angel Investors?

Those seeking equity investment often find themselves navigating a complex array of options. Understanding the distinctions between venture capital, private equity, and angel investors is crucial for making informed decisions.

Venture capital (VC) predominantly focuses on early-stage companies exhibiting high growth potential. The venture capital landscape is diverse, with numerous funds that specialise in different sectors or different stages of development. These stages range from pre-seed (concept development) and seed (prototype creation) to Series A (where a business is generating revenue and planning to scale) and beyond.

Angel investors, typically high-net-worth individuals, often possess extensive experience and entrepreneurial backgrounds in their respective sectors. Some angel investors work independently, actively seeking investment opportunities and playing a significant role in the businesses they support. Others may participate in angel networks, co-investing with fellow members in specific ventures. Generally, the greater the number of investors in a venture, the lesser the individual involvement.

The emergence of crowdfunding platforms in recent years has introduced a new dimension to fundraising. Crowdfunding can be an effective way to raise capital with minimal investor involvement and to validate business concepts in a broader market. However, this approach can be extremely time-consuming, and where the business fails to raise a significant amount, it can be damaging to its credibility.

Private equity (PE) funds typically invest in more established companies, often facilitating management buy-outs or buy-ins. These funds collaborate closely with management teams, aiming to enhance value by improving efficiency and fostering business growth. Private equity firms usually have an investment horizon spanning several years, after which they seek to sell their holdings to realise their gains and redistribute funds to their investors.

What is Traditum’s role and how can they support my business?

Traditum’s unique approach combines the benefits of private equity and angel investment.  We bring together a select group of high-net-worth individuals, each with a deep understanding of your market sector, and collaborate closely with your business to support strategic planning and value creation.

This methodology offers companies the expertise and value typically associated with a private equity firm, while simultaneously providing investors with tax incentives and the opportunity for more hands-on involvement. This can range from formal participation, such as Board membership, to informal support such as access to valuable contacts and industry insights. Traditum typically invests sums ranging from £0.5 million to £5 million, in exchange for a significant minority stake in the business.

Our focus is on small enterprises operating within large markets and with proven market demand. Unlike typical private equity firms, we generally do not provide funding for management buy-outs and we prioritise long-term growth and development rather than trying to sell the business after a few years.

How do I find investors? And do I need professional help to do so?

To identify potential investors, start by carrying out thorough research online. Nearly all funders maintain websites and are frequently active on social media platforms. Identify those with representatives in your area and understand their investment criteria. Additionally, some data services offer insights into the most active investors regionally. Exploring local angel networks and platforms like the Angel Investment Network, which facilitates connections between entrepreneurs and investors, is also advisable.

Many cities hold regular networking events for start-ups or businesses seeking investment. Engage with fellow entrepreneurs to gain insights from their experiences and seek advice from your accountant, lawyer, or local business support organisation.

Many corporate finance advisers and other consultants offer a dedicated service to those raising funds. Although it can be costly, they can assist in effectively positioning your business, refining your pitch, and preparing financial projections. These professionals often possess a deep understanding of each funder’s preferences, aiding in targeting suitable investors.

While some funders may be cautious about approaches involving a corporate finance adviser, others regard proposals from professionals more seriously, considering them as qualified leads compared to the multitude of poor-quality pitches they receive each year. Should you opt for professional assistance, ensure you are clear about the fees they will charge, both in the event of success or failure, and the range of services they will provide.

What does Traditum look for in a business?

Traditum maintains a distinct set of investment criteria, ensuring that our resources are allocated to businesses where we can deliver the most significant impact. It is essential to note that if a business does not align with our criteria, this does not diminish its quality or potential to secure investment elsewhere. Our criteria are designed to identify opportunities where our expertise and resources can be most effectively utilised.

1. A passionate management team – We prioritise businesses with a highly engaged management team. Our collaborative approach to value creation hinges on the engagement and motivation of the team we partner with.
2. Proven market demand – while we see many great concepts, a business must show there is significant market demand for its product or service, which is typically demonstrated through robust sales performance.
3. Focus on growth investment: Contrary to traditional private equity firms, which often support management buy-outs, we seek to invest in companies utilising funds to fuel growth, not as a reward for departing shareholders. We want management teams to recognise that value creation is ahead of them, not behind them.
4. Small companies in large markets: While niche markets have their advantages, we prefer to invest in small companies operating within large, expanding markets as this provides greater potential for sustained growth.
5. A significant minority stake – Traditum specialises in investments ranging from £0.5 million to £5 million in exchange for a minimum 20% equity stake. This reflects the commitment of time and resources that we and our investors dedicate to each business.