How the availability of funding can encourage start-ups to innovate3 min read
Start-up businesses and entrepreneurs are always bursting with innovative and exciting ideas to solve industry problems. All too often, however, they face issues with implementing those ideas. The reason many fail to implement their solutions and get their businesses off the ground is a lack of cash.
Why start-ups might fail
A study by CB Insights found that 29% believed the lack of finance was the primary cause of their start-up’s failure. This puts it as the second most popular reason, behind their business having no market demand. It is therefore the duty of a start-up’s founders to establish how much cash is needed, not only to set up the business but to run it day-to-day as well.
During times when profits are minimal and expenses are high, start-ups need access to finance to provide the foundations needed to turn their business into a profitable concern. Access to finance can underpin the purchase of essential infrastructure, such as machinery, software or hardware, as well as ensuring a start-up can meet its financial obligations, such as invoices to suppliers and employee wages.
The British Business Bank has recently confirmed it will be releasing its next wave of funding for fast-growing start-ups across the UK. It’s announced a total available sum of £200 million up for grabs. The British Business Bank, established in 2014, has provided £5.9 billion in finance for innovative start-ups all over the UK. One of the biggest success stories from access to British Business Bank funding is tech firm Improbable Worlds, which has expanded to become one of only 14 UK companies to reach the $1 billion ‘unicorn’ status.
Many start-ups are eagerly looking to innovate and become the next ‘unicorn’ company. There are plenty of avenues to consider for accessing much-needed growth finance.
Start-ups can often get their hands on government grants, provided free of charge, to support everything from new technologies to social needs. There are grants available for all kinds of business demographics. These include female entrepreneurs, minority entrepreneurs, as well as single mothers and many more.
Bank loans or overdrafts
Providing a start-up can demonstrate a watertight business plan based on rock-solid market research and encouraging revenue projections, high-street banks can provide business loans, or extend overdrafts, to allow new firms to handle seasonal fluctuations in cash flow.
These are high-wealth individuals that are driven to invest in high-growth ideas that are yet to materialise. They invest funds in exchange for shares or stocks in the company, therefore benefitting from any long-term success. Angel investors also offer their own entrepreneurial skills to start-ups to drive these ideas forward.
Check out crowdfunding platforms such as Indiegogo and Kickstarter to see the power of crowdfunding. This allows individuals to invest a small amount of money towards an innovative idea. Equity crowdfunding gives investors a share of the company in exchange for their funds. Alternatively, reward-based crowdfunding gifts investors rewards during the lifecycle of the business.
Finally, business incubators are designed to accelerate the growth of ambitious start-ups. These incubators can often be found at colleges and universities. This provides entrepreneurs with free access to facilities, business consultancy, as well as seed funding in exchange for equity.