November 25, 2019

7 in 10 businesses fail to secure external finance  

Securing funding is not only crucial in supporting businesses to get off the ground but also plays an important role in helping enterprises scale quickly and maximise their potential. However, it’s not always plain sailing. Two in five (39%) businesses seeking investment have failed to secure funding more than three times and 9% have made five or more unsuccessful attempts.

The reasons behind this are varied. By far the most common explanation given by founders is that their management team wasn’t strong enough (45%), exceeding the number of firms which said their business model wasn’t good enough (27%). Nearly three in ten (28%) founders said their business didn’t meet the criteria for investment and 22% admitted to not having a good enough handle on their finances.

Scale-up firms, defined as those undergoing rapid growth, tend to enjoy more success securing investment, according to the newly published data. Nearly half (45%) gained funding on their first attempt compared to 16% of non-scale-ups. Indeed, the very nature of these businesses makes them attractive to investors and lenders, but, scale-ups are also more likely to have had a concise business plan in place (52% vs 29%). They are also more likely to know exactly how much money they need to raise from the outset (39% vs 24%) as well as the route they want to pursue (39% vs 23%).

For scale-ups that have failed to raise capital, some 55%, the barriers mirror those faced by others. Well over two fifths (43%) of scale-up founders stated the reason they were unable to secure external finance was the lack of strength in the management team, followed by their business failing to meet the criteria for investment (29%).

Stephen Drew, Professional Services Managing Partner of Smith & Williamson’s Birmingham office, said: “Birmingham and the wider region is a great place to start a business, it has been cited as the top place for start-ups outside of London. But business potential can be quashed if founders are walking blind in to investor meetings. Preparation is key. Understanding what investors value will put businesses a few steps ahead, and this means taking a good look inwards at business plans and the management team.

“Awareness of the keys to success will not always be enough on their own. Engaging with experts from the outset can improve the chances of securing funding. There must be a shift in the industry to see the value of guidance through this process. This will see the number of firms successfully raise external finance skyrocket, and importantly reduce the number of those with funding regret.”

*The findings in this report come from a survey of the founders of 501 scale-up companies, and more than 500 non-scale-up SMEs in 2018.

By Stephen Drew

See more content from Smith & Williamson here.

 

Newsletter Sign Up

Newsletter Sign Up

Get regular insights direct to your inbox.