Jeff Lynn, co-founder and CEO, Seedrs
"I believe that the UK is the best place in the world to start and grow a business today. A remarkable ecosystem has emerged in recent years that combines talented, ambitious entrepreneurs, investors with creative capital, a supportive government and a culture that is increasingly embracing risk and ambition as necessary elements of growth.
"Combine that with the UK's historic and structural advantages – including its strong education system; highly international outlook; its 'nation of shopkeepers' mentality (meaning that people understand what's involved in starting and running a small business, as contrasted with the continental fixation on huge, state-backed enterprises); and long history of being at the forefront of innovation – and we find ourselves at a remarkable point in time for British business.
"Crowdfunding platforms like Seedrs play a critical role in this ecosystem, and our contribution is particularly important at the earliest stage of the entrepreneurial cycle. For too long, starting a business was largely limited to those with family money or large savings pots – venture capitalists and angels almost never invest in idea-stage businesses, but most ideas need a bit of capital in order to turn into functioning businesses.
"Crowdfunding provides a straightforward and seamless route for entrepreneurs to raise their very first capital from small investments made by friends, family and strangers, giving an exponentially greater number of entrepreneurs the chance to get off the ground. And it's not just about the money; a crowdfunded business will have dozens, if not hundreds, of supporters with a vested interest in its success, and they can provide a valuable source of mentorship, advice and connections.
"But it is not a panacea, and it is not easy money. An entrepreneur seeking capital through a platform like ours needs to work very hard to drum up support for his or her listing and get investors excited about it. This means networking extensively, seeking publicity through blogs and conventional media, and using every other tool available to drive investor traffic. Too many entrepreneurs think that they can just post a listing, sit back and get funded."
Dan Sutch, head of development research, Nominet Trust
"There's a lot of blurring between the different types of funding available to startups at the moment. In part this is because there's a recognition of the importance of finding (or offering) the most appropriate type of support for new ventures, which creates new forms of investment and hybrid funding approaches. It's also because grant funders, VCs and social investors are learning from one another. But crucially, it's also because digital technology is opening up new opportunities to network with funders, skill share, crowdsource finance or access new forms of support.
"Just as digital technology has opened up new routes to support for startups, so we look to support ventures that use digital technology to open up new ways of addressing persistent social problems (such as those found in healthcare, education, civic engagement or youth employment).
"At Nominet Trust we make social investments – focussing on the 'social return' that we can secure through funding innovative approaches, to the use of digital technology to address significant social challenges. Yet thanks to the support from Nominet (the .uk domain registry who set up Nominet Trust) the financial instrument we use is grants: non-repayable funding.
"So why should a startup consider applying to one of our grant programmes rather than taking other forms of investment? There's a clearly a short term business benefit: we don't look to take any IP or any stake in the business. For someone looking to develop a new venture, receiving financial (and non-financial) support without having to release any equity in their work is a great start. It means having greater control over how the venture develops and greater ownership of the rewards that brings.
"But this doesn't mean that the funding is given without the due-diligence or focus of equity-taking funding. The social challenges we're looking to address are complex; that's why they're 'persistent' social challenges. So as part of the investment in social-tech ventures that we make, we put in our time and expertise, networking introductions and support, and also a range of funder-plus activities looking to help develop the teams' expertise and capacity in areas such as business management and communications.
"But there's a longer term reason why talented tech entrepreneurs should consider addressing social challenges and should look at the grants that are on offer to do so. Whether it's the triple bottom line or doughnut economics, the social implications of business matters and the sustainability of your venture is directly tied to the wider social and economic environment in which you operate.
"Essentially your long term business success is dependent upon the broader 'success' of our community, be it local, national or global. And there are financial, social and civic rewards for those who are talented, committed and creative enough to develop ventures that solve big social challenges. And even if it's harder or slower to achieve than just focussing on one of those rewards, well, that's why we're here to support you.
"As Richard Branson said: entrepreneurship isn't about selling things – it's about finding innovative ways to improve people's lives."
Scott Sage, partner, DFJ Esprit
"So you've decided to venture out and start your own company. You are incredibly brave and I commend you. But one of the many difficulties that you will encounter is figuring out which form of financing is the right one for your company. The one that I know the most about using is called venture capital or VC. Traditional VC is money invested into your company in return for a stake of equity, but it is worth noting that VC is only right for certain types of companies – probably less than 1% of new ventures are even candidates of VC.
"First, let's understand how the vast majority of tech products get launched (I am not referring to mom-and-pop digital agencies or traditional businesses; I'm only referring to product-focused tech companies that are building new products for potentially new markets that don't yet exist). Typically, an entrepreneur stumbles onto a problem, and the most sensible and cost effective way of financing your new company is through customers paying for your product! If you are able to generate cash flow very early on from your product or service, then congratulations – you may never need to raise any external capital.
"But, if you are a tech focused company that has to spend time on hiring engineers, writing code and spending money to acquire customers online, then you may need to raise some sort of external capital – most likely from angels or venture capitalists.
"In many ways, VC is complimentary to accelerators such as SeedCamp, TechStars and Y-Combinator. These groups typically invest small amounts of money to allow you to launch your product, test how customers react and continue building more features once you've found your product market fit. This form of financing is for founders who want to be part of a program where they can received mentorship, get introduced to other smart techies and customers, and ultimately be introduced to VCs like me.
"So how do you know if you are a candidate for VC? I would argue that if you can grow your business organically without raising any external capital, then you should. Only if you have high capital requirements that mean you can't cover your costs over the first years of your company should you consider raising outside finance.
"And if you have fierce competition and/or want to acquire customers faster should you consider raising VC for your business? Again, you are if a tough spot if you are spending more cash than you have as you are a risk averse banker's worst nightmare. But at the end of the day, VCs have to return the money they invested and more back to their investors. So on top of needing to invest into high growth and high risk companies going after new markets, we have to be certain that we are backing the best founders, with the best product in that category, hopefully in a market that is growing exponentially every year.
"Remember, only a few businesses can truly scale, and that depends on the market. Sometimes we and the entrepreneur get it right, sometimes not, but the winners are about one in three, so the upside has to be large to cover the two in three that don't scale (they don't fail either), but become great small businesses often with happy employees and customers."
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