Startups know that securing funding is possibly the most crucial, yet most challenging task.
Given the priority is to get new products or services developed, tested, and out to market ahead of competitors – obtaining funding can be difficult for an already lean team. This can be compounded by the limitations of basic back-end technology and processes.
For those successful in securing seed funding – the need for financial support is often ongoing. Further rounds are usually required to take the business to the next level – be it through talent acquisition, product enhancement or better technology to improve operations.
If you’re struggling to secure the funding you need, you’re not alone. Recent research has shown that half of Australian SMBs have not been able to secure sufficient funding on at least one or more occasions over the last five years.
So, no matter where you are on your business journey – funding matters and could well define your success. Here are three things you may want to consider to make the process easier:
Alternative lending options
No matter where you are in your investment cycle – from seed funding to Series A, B or even C – chances are cash flow is still a top concern. According to the latest SME Growth Index, 82% of small business owners say that cash flow issues keep them awake at night.
This pressure can result in two things: firstly, SMBs turning to costly financing options that keep the lights on but may also result in more financial strain. In 2021, an alarming 43% of SMBs used personal credit cards to fund short term receivables. Secondly, startups may engage lower quality, or downright untrustworthy, suppliers as it appears cost-effective at the time, but that can ultimately cost their business in other ways.
Thankfully, the evolution of Australia’s SMB lending market in recent years has led to a diverse range of lending products now being available. Some of these can offer much needed cash flow relief without the traditionally hefty costs that come with it. The demand for invoice finance, as a new means of funding in particular, has doubled since early 2018, with 16% of SMBs taking out a new invoice finance facility in the past year.
We have recently noticed a number of startups in this space that provide innovative funding tools, making it easier and more affordable for businesses to engage with, and pay good quality suppliers.
The role of back-end technology
Scaling fast is the cornerstone of startup success. While most SMBs know the value of good technology to help them scale, many don’t consider that efficient business management processes can help them secure that critical funding they need to enable quick growth in the first place.
Most startups get by with skeleton staff who are primarily focussed on driving product innovation. As a result, operational necessities like financial reporting can be neglected, and it can be easy to fall back on familiar, yet archaic, manual systems like excel spreadsheets. Inevitably these methods lend themselves to human error, version control issues and offer little visibility across the business.
Investors want one simple thing – confidence. And jumbled spreadsheets, or reports that are either inaccurate or lacking in detail, do little to inspire confidence. Investors need to be given a clear picture of business performance and success if they are to invest into your startup.
So, from the word go, startups need full visibility across their business to be able to produce up-to-date financial reports and other required documentation on demand. With the right technology, you can clearly demonstrate your business’ momentum and progress, and give investors the assurance they need to invest with you.
It’s more than just financial returns
It’s safe to say that the past two years have been, at best, tumultuous for small businesses in Australia. A key outtake from this is that investors want to get involved in businesses that are sustainable in the long term – not just financially, but by environmental or social standards as well.
In light of this, ‘impact investing’ or investing in products that provide not only financial returns, but also generate positive social and/or environmental returns, is on the rise in Australia. According to a recent report, Aussies have invested almost $20 billion in impact investments in the last two years – an astonishing 250% increase over that time. Further, they are predicted to want to invest five times as much – or $100 billion – in these investments over the next five years.
To secure impact investing, you will ideally need to provide evidence of both social impact and financial performance. Outside of financial returns, the leading motivators for funding impact investments are measurable impact, and mission alignment. The United Nations’ Sustainable Development Goals are the most widely used framework for measuring and demonstrating that your business has had a positive impact.
With this in mind, take the time early to think about the broader societal impact you want your business to have. Set a clear mission, strategic objectives and goals, and put a formal structure around how you will work toward achieving these.
Securing funding is never completely devoid of stress or disappointment. Exploring better business process technology, looking at emerging methods of funding or assessing the social or environmental impact credentials of your business, are just some of the ways you might be able to ensure your efforts pay off.