Women's focus: securing funding

Funding is crucial to launching a successful venture, but on average women’s
businesses start up with a third less capital than those of their male
counterparts.

This lack of funding among women’s businesses is mirrored by low numbers of
female investors. Less than 5% of UK business angels are female. More needs to
be done to encourage women to explore this exciting and potentially lucrative
form of investment.

So what are the funding options for both women (and men) needing start up or
expansion capital? The first step for companies looking for financial backing is
to work out what sources of funding are available. Depending on your size and
structure these may include grants, loans, or for businesses with growth
potential, business angels and venture capital.

Friends, family and angels

Statistics suggest that 90% of people willing to invest in your company will
be friends and family. The remaining 10% of angel investment is accessed through
networks. These networks give companies the opportunity to regularly pitch to
registered investors.

With the difficulties involved in getting funding it’s tempting to accept the
first offer that arises, but consider it carefully. Choosing the right investor
involves much more than simply picking the most financially attractive offer.
Your investor must understand the goals and ethos of your business so that you
can work together in the long run. Get to know your potential investor, their
goals and their desired level of involvement before asking yourself if you can
work as a team.

Debt funding

The usual alternative to equity investment from an investor is debt funding
from a bank. The major benefit of taking out a business loan allows you to
remain in the driving seat of the company and keep full ownership of the
business. However, the bank may ask you to personally guarantee the debt and if
the business does not succeed then you will be left with the responsibility for
repaying this and could lose any assets that were put up against the loan.

Alternative funding

Both debt and equity funding routes have their own specific attributes and
pitfalls, but there are now other avenues available for entrepreneurs. On the
market there are loans such as a mezzanine loan fund which can fill the gap
between traditional debt and equity funding. It can be a standalone funding
source, but is best used as a complement to other types of finance.

We have started a new programme called Funding Enterprising Women (FEW!),
financed by the South East England Development Agency (SEEDA). The scheme is
designed to help female entrepreneurs understand the various funding sources
available to them and maximise their chances of successfully raising finance.
This includes the chance to showcase and pitch to a panel of supportive
investors in a unique environment nicknamed ‘Dragonflys’ Den’.

It’s worth bearing in mind that female investors are often likely to see the
potential in ventures led by other women, especially those that target a female
market. Women also tend to have a genuine desire to help the next generation of
entrepreneurs and to support socially-beneficial products and services. Female
business angels typically spend more time with their investee businesses;
assisting on strategy development, helping with short term problems, making
contacts with suppliers and recruiting members of the management team.

Finance South East is currently launching a ‘Women Investing in Women’ scheme
to encourage more women to consider becoming business angels. The scheme will
focus on investment in all sectors but with a particular interest in female-led
firms or products that would appeal to a female market. There’s a long way to go
and it’s going to take time for this initiative to kick in.

Britain’s number of women-owned businesses lags behind many other countries;
only 15% of British companies are majority owned by females compared with 30% in
America. At the moment women’s businesses command only 2% of the venture capital
available in the UK. If we are going to generate a more advanced culture of
women’s enterprise access to improved funding must play a big part.

Case study

‘I walked away from the business angel idea – it terrified the life out
of me’

Nicky Smetham, director of Suburban Turban

When milliner Nicky Smetham set up Suburban Turban – an online retailer
specialising in fashionable headware accessories for women suffering from
hairloss – earlier this year, she admits knowing where to turn for advice on
funding was a huge challenge.

A free three month ‘investing in women’ course at the University of Surrey
proved invaluable, opening Nicky’s eyes to the broad range of issues facing
women entrepreneurs. ‘

It was the tool bag to get the business off the ground,’ she says. The course
also introduced her to experts and mentors and Finance South East.

Despite having initial privately-sourced funding in place, Smetham admits
planning ahead for funding hadn’t occurred to her.

Being in the start up/early growth phase of business development,

Nicky was looking to source between £50K and £150K.

‘I wasn’t at the right stage for grants, and I walked away from the business
angel idea because of the share of business they would require – it terrified
the life out of me.’

In the end, she opted for a small loan agreement, a bank loan where 75% of
the debt is secured by the DTI.

Smetham’s funding advice for budding entrepreneurs

• Take the longer-term view: ‘The need for money is not the same as
investment-ready status.’

• Plan, plan and plan again: ‘Don’t get to the point where you need the money
but it won’t be available for three to six months.’

• Be passionate about your idea: ‘That’s how you will differentiate yourself
from the competition.’

• Understand the nitty gritty: ‘For me, it was ecommerce and search engine
optimisation. You must be able to prove that you understand that side of things
if you’re looking for funding.’

www.suburbanturban.co.uk

Sally Goodsell is CEO of Finance South East