Because of the [tag]credit crunch[/tag] and the prevailing economic mood at the moment, it is harder for companies to [tag]raise money[/tag] at the moment than it has been in the past. This might be a strange blog for a business angel to write – but here are some alternative ideas for how you might look to raise money for your enterprise without seeking help from external investors.

One of the problems with seeking external investors is that the process does take a lot of time. You will without a doubt seriously underestimate the amount of time, energy and effort it takes to raise money. One tip I would consider giving is that before you meet any potential [tag]investors[/tag], find out what else they have invested in and what the average amount of their investment is. If they have invested in very few companies and invest a small average amount – they will take up a lot of time and may not invest at all. This is where angel groups can be very helpful. You must be disciplined when you come to fund raising as you need to keep your eye on the business at all times and as we all know there are only so many hours in a day!

So I hope you find these tips useful (all used and implemented by me in the past!)

1. Do you need that much money? Whilst more often than not, businesses underestimate the amount they need sometimes, they do overestimate how much they need in a vague manner. “£1/2m sounds about right for marketing” has not been unheard. I like budgets which don’t just tell me what a business is planning to spend but what they are hoping to achieve with that spend. There is one person I work with all the time - and between the two of us we are somehow able to find ways for objectives to be achieved without any spend (or minimal). Once he was able to take out a £750,000 spend from a business! My best was a bit more modest – I was able to save £200,000. Think about the objectives you wish to achieve – rather than how much you would like to spend. You will be amazed at what you can come up with.

2. The biggest spend with many start ups is capital expenditure or stocks required. Business angels I know have helped many companies acquire stock at very favourable terms (including 90 days credit) because of who they are. It is possible (although I have only done it once) to persuade some key suppliers to take a stake in the company. You may not want to do this as you will then be tied in to that supplier. The alcoholic drinks trade does this all the time, hence the term, tied pub. One of the questions you should ask any potential investor (see the blog appointing a board) is if they can help you secure these supplies – without investing hard cash in the business.

3. 

   Selling without a product - Sometimes possible
   Two of the businesses I invested in recently were looking very close to acquiring some confirmed sales. As they were so close, my role initially (although I had agreed the terms of my potential investment beforehand) was to get the sales closed as best we could without a product! We managed to get that done and off the back of that we were able to get a bank overdraft which kept us going for a short time (3 months) and meant crucially that we could raise money at a much higher valuation and with investors feeling more comfortable as we had demonstrated demand.

4. With one other business, who thought they needed substantial investment, because they had several customers, we were able to raise very little (which I put in myself) and then get our invoices factored. Factoring is where a bank agrees to lend you money at something like 70% of the face value of any invoices you raise – providing there is a pool of invoices. It can be expensive – but less expensive than giving away equity!

5. I should mention that many businesses which are starting up do qualify for grants and there are literally hundreds of grants and schemes available. (I have never yet been able to access one for any business I am involved in). The only ‘scheme’ that I have seen in companies I am involved in is the Small Firms Loan Guarantee Scheme. I don’t know the details – but look into it

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