Finance for scale-ups

Once your start-up has proven the potential of your business idea, it is time to take it to the next level.

As a scale-up, your company needs to find its feet, ensuring your product fits the market and experimenting with everything from pricing to customer segmentation. As a scale-up, your business will have proved its product and its own viability and is ready to embark on growth. It has already validated its product within the marketplace and has proven that the unit economics are sustainable - in other words, it can demonstrate that putting £x into the business will result in £x plus in returns.

But it will mean a whole new scale of challenges - and funding needs. Your business may retain some of the characteristics that made it a successful start-up, and remain flexible. And in a turbulent market, this is a particularly attractive trait to secure funding.

Finding funding for start-ups may be challenging. Lenders are generally unwilling to take a risk on a business that has no proven business model, evidence of profitability or assets. The vast majority of entrepreneurs at start-up level are, therefore, forced to gain most of their finance from friends, family or through asset-based lending. 

At scale-up level, your business may look more viable to conventional lenders - but you still cannot call on the same funding sources that may be open to a business which has a record of successful trading stretching back over a number of years.

Fortunately, at Rangewell, we have particular experience with businesses during the scale-up stage, and we know the solutions that we can call on. 

Grants

There are many grants available in the current market, with some of them possibly ideal for scale-ups, and it may be easy to find details of grant providers and current schemes relevant to your sector. However, there will always be fierce competition for free money. Grant proposals can take a long time to put together, and months spent trying to nail down the cash could be a big disadvantage to your business if it means that it loses its market lead.

Remember also that a grant will not usually provide all the funding you need. You’ll usually be expected to match the funding with finance from a commercial lender. Grant providers prefer to fund businesses that are commercially sound enough to attract support from the private sector. This will usually mean getting a commercial lender to provide match finance - at Rangewell we work closely with grant authorities and can help you to secure the commercial funding you may need.

Crowdfunding  

Crowdfunding has become important as a way of raising funding for start-ups, and may also have its uses when you are scaling your business.

Equity Crowdfunding is when people pledge money to your business and are given a share in it as equity. With Reward Crowdfunding, they will receive a reward - most commonly one of the products you are offering.

You’ll need to shout about your launch to anyone who will listen, and if you don’t meet your goal it could potentially leave you worse off then before. Success can also be a problem. Over-funding means extra demand that you might not have bargained for.

Peer-to-peer lending

Peer-to-peer, or P2P, funding is often confused with crowdfunding but is, in fact, very different. Both use the power of the internet to attract large numbers of people to back your business, but peer-to-peer lending is a loan. Peer-to-peer Loans are made up of the funds of many different investors, and you can apply for loans of up to £1 million with some of the leading platforms.

Like any other commercial loan, you will pay interest on the money lent to you.

You can borrow large sums and it can be easier and more flexible than a bank loan. It also shows that you have clear support for your idea, helping to demonstrate that it has mass appeal. However, paying the interest can be expensive if you can’t pay back what you have borrowed.

Venture capitalists and angels

Venture capitalists - often shortened to VCs - are most commonly professional investors who will lend their support and funding to your business idea.

This can be particularly valuable in the scale-up stage. They will be able to support your business, not just with funding but with commercial know-how and contacts that can be just as vital for your success as their money. 

Venture capital firms are made of professional investors. Their money comes from a variety of sources – including corporations and public pension funds. The purpose of venture capital firms is to find businesses that have high growth potential and, in exchange for their involvement in the business, they expect a high return on their investment. After a period of time, venture capitalists sell their shares in the company back to the owners or through an initial public offering, which usually means they make much more than what they originally put in.

Venture capital is high-risk, high-reward option for both business and investor,  but a popular choice for scale-ups looking for cash to boost growth. Venture capitalists actively look for targets with high growth potential, but look closely at any venture capital offer to ensure that you are getting a balanced deal, and not signing away your business.

Angel investors tend to provide smaller sums of money and to be more hands-off than VC investors - and may be more appropriate for start-ups than scale-ups.

VC or angel investors will need to be really passionate about the idea and willing to take the risk before investing. This kind of investment always means that you will give up some equity in your business and, thus, lose some control.

Private equity

Private equity is later-stage funding which can be used to develop an existing, proven business model. Private equity investors tend to be more risk-averse than venture capitalists, meaning that the investment is typically used to fund steady growth of an established business, rather than an explosive scale-up where the risks can be as high as the rewards.

There’s nothing to repay because, with equity funding, you are selling a share in your business in return for the investment you receive. It can potentially mean losing control of your company – and it will certainly mean sharing all future profits with your investors. In short, equity investors make their return from your growth. Find out more about Private Equity for management buy-ins and Private Equity for management buyouts. 

Mezzanine Finance

Mezzanine Finance sits between equity and secured debt. A lender will provide the funds you need, secured on the future of your business. They will offer a high level of funding, but you will need to repay their debt and interest charges - if you fail to repay, the lender will have the right to take an agreed proportion of equity interest in the company. Because of the security provided by the equity option, Mezzanine Lenders can provide very high levels of finance.

Lending

Commercial lending - or debt finance - can provide high levels of funding. You can take out a loan for the funding you need, and repay it, with interest in instalments.

Lenders make their decisions on the risk of a particular deal. It may be possible to get a loan for a scale-up based on the performance in the start-up stage, but you should expect the loan to be secured - which means you will need to provide collateral or security that the lender will take if you are unable to keep up the repayments.

Why you need Rangewell to find finance for your scale-up

With the various funding options available, it is essential to get expert support when you are looking for scale-up finance.
Finding the most appropriate funding type and securing the most competitive deal across the entire market takes time and expertise. At Rangewell, we know the funders who can offer the most competitive rates whatever the funding challenge.

We know that time is crucial when you need to maintain the momentum of your business, and can find solutions fast - or work with you to tailor the kind of complicated ‘Jigsaw’ Funding plan you will need to support your plans.

We understand the challenges of scaling up. Call us now to get our experts working for you