Knowledge: Whatever source of business funding you’re investigating, it’s vital to know exactly what you’re trying to achieve and exactly how you’re planning to do it, says knowledge development manager, Arlen Pettitt. Here, he offers some observations on how businesses might find the right funding package to meet their needs
“The North East Growth Hub lists more than 80 different funding sources, ranging from support for research and development, to covering some of the cost of hiring an apprentice, to finance for relocating your business.”
The good news is the landscape is far more diverse that it used to be – grants, loans, venture capital, crowdfunding, to name a few.
The bad news is, with such a range of options, it can be incredibly difficult to know what’s right for you. Even once you’ve nailed down what type of funding is right, there’s then the question of which grant or which loan.
You won’t be eligible for everything on offer, and even where you are, it might not be right for your purpose – it can depend on the size of your business, the sector you operate in, where you are geographically, and what you’re planning to do with the funding.
In both the North East and Tees Valley Local Enterprise Partnership areas, they have a team focused on delivering funding, offering support and signposting to specialists. In the north of the region they’re called Growth Hub connectors, and in the south they are Growth Consultants.
The North East Growth Hub lists more than 80 different funding sources, ranging from support for research and development, to covering some of the cost of hiring an apprentice, to finance for relocating your business.
In Northumberland, Durham and Tyne and Wear, the North East Fund has a £120m pot to invest in 600 businesses before 2023, with five sub-pots targeting innovative businesses, disruptive businesses, those with ambitious growth plans, and two specifically for small businesses, whether new or established.
The Tees Valley has funding for growth, leadership and management, capital investment and match-funding for things like innovation. There are also grants available for start-up and scale-up businesses.
Applications for all of these programmes tend to be simpler than engaging with your bank for finance, with less involved in the initial approach and more focus on the future business case.
In some cases, even these programmes might not fit the bill, so what about alternatives like crowdfunding?
There have been some notable successes with businesses reaching out to their current or future customer base and asking them for support.
In the North East, two high profile cases are the Lakes Distillery and Noveltea.
In 2017, the Lakes Distillery raised £1.75m in the space of a month, with around two and a half thousand people investing in their plans to create a single malt whisky for a total 3.53% stake in the business. They also successfully pulled forward revenue by allowing enthusiasts to reserve a barrel while it was still maturing and not yet ready for market.
Noveltea, a far smaller affair at the outset – under a million valuation compared to over forty million for the distillery – successfully raised more than half a million pounds over the course of two crowdfunding rounds.
Both used online platform Crowdcube and made use of government backed schemes providing tax relief to investors.
The Lakes Distillery investors could make use of the Enterprise Investment Scheme (EIS) which allows 30 per ent tax relief up to £1m investments. Noveltea’s backers could receive tax relief of up to 50 per cent for up to £100,000 investments.
One obvious thing they had in common is they’re both alcohol-based businesses. That’s not inherent to the success of their crowdfunding campaigns, but being in the food and drink sector will have certainly helped.
Having a product the general public can understand – and want to consume themselves – gives you a wider and more engaged audience, leaving other sectors at a disadvantage.
It’s more exciting to invest in a growing food and drink business whose products you can see on the shelves and in your kitchen cupboard than a B2B service provider, no matter how good their business model.
Whatever source of funding you’re investigating, it’s vital to know exactly what you’re trying to achieve and exactly how you’re planning to do it.
Having that clarity of vision will allow you to look for the right funding package to meet your needs, rather than trying to fit your needs into a defined funding package.
You may also be required to improvise.
Billingham-based Fijifilm Diosynth is part of a multi-national, multi-billion- dollar biotechnology business but is still required to find the funding it needs to meet growth aspirations, and bundled together various sources of finance in order to move forward plans for a new BioCampus.
The entire plan will cost £14.5m, with just over a third coming from Fujifilm and the rest drawing in funding from the Tees Valley Combined Authority, the Tees Valley Business Compass and the Local Growth Fund.
It will create 50 jobs, and relocate their highly skilled workforce to a new facility.
These are big sums of money, especially when for most businesses getting started means using your own savings or borrowing from friends and family, but it does show the value of a clear sense of what you’re trying to achieve and using that to pull together money from various sources.
That clarity lets you seek the right funding for the right purpose.
Say you’re a business in County Durham and in need of a new website – NBSL have grants available to match fund up to 40% of business improvement projects between £2,500 and £8,000.
Or maybe you’re a company in Redcar in the process of developing a new product – the Tees Valley Business Compass has an innovation voucher programme for 33 per cent of the project.
Or maybe you’re taking on a new graduate from Northumbria University for a six-month internship – the university can help you access nearly £4,000 towards their salary.
Whether it’s substantial investment you need, or just a little bit of additional help to deliver something that will make a significant difference to your business, the best place to start is by cutting through the noise and speaking to an expert – not about what funding you want, but about what you’re looking to achieve.