Funding options available to businesses now
Starting and growing a business is a challenge in any economy, but in a global lockdown, ensuring cash flow is even harder than usual. Money, as always, does make the world go around, especially for businesses looking to scale. Even in these troubling times, there are still many forms of available funding. In this post, we've rounded up the most important funding options, so you can make sure you're maximising all available financing for your company.
Governments around the world have made new funding options available to businesses struggling through the pandemic. Packages differ across regions, but most governments have implemented support packages either in the form of cash injections, assistance with payment for salaried employees, or at the very least, tax holidays and relaxed payment terms.
As the terms of eligibility and the type of program vary from region to region, most companies turn to government websites as the first port of call. However, this might not provide the full picture, as financial aid is given both at a national and local level by different authorities. It is recommended for a company to check both the website of the national tax authority, like the ATO in Australia or HMRC in the UK and the websites for your regional administration, for example, the website of the local government of New South Wales in Australia.
Venture Capital and Angel Investment
In the first weeks of the pandemic, a wave of panic hit equity deals all over the world. Many VC and Angel-funded deals were suspended or postponed indefinitely, and it seemed like a bleak time for anyone trying to woo investors. Things have changed quite a bit since then, and equity is starting to thaw across the board from seed to series C and beyond.
While some investors are still hesitant to jump back into the water, some are excited more than ever by the opportunities this brings. Wilson Casado, an angel investor in Perth: "As an investor, I personally think that this is a great time to fund startups. These companies will allow ‘ setbacks to be turned into springboards’, and such opportunities are worth investing in. The sector will also play a key role in creating new jobs, which will be critical in the recovery phase."
If you're seeking investment, it is a great time to engage with VCs and Angels, as COVID-19 has opened up channels of communication that were dormant up to now. Most venture capitalists are active online, looking for solutions, and many have offered to help and advise entrepreneurs and companies struggling through the lockdown. And don't forget the old silicon valley adage: "Ask for money and get advice, ask for advice and get money" – it could apply even more in a world much more interconnected through online means.
R&D finance is an easy way to make use of the funding you've already invested to fuel your company's growth. Many countries in the world run R&D incentive programs, and this means that the government can refund a certain percentage of a company's investment in R&D as either a tax credit or a tax offset. These types of government funding are often backward-looking as they are based on year-end financial reporting. That's why they are often slow to materialise and can come in many months or even years after the company has invested in R&D.
R&D Finance companies bridge the gap between when the company needs funding and when the local tax authority can make a payment. This payout can happen 6-12 months earlier than the usual timeline. This type of financing is available to early-stage companies, even to those that are pre-revenue. Companies like Fundsquire offer this service in Australia. Globally, other forms of R&D funding also count SRED financing in Canada and R&D tax credit finance in the UK.
Revenue-based financing (RBF) is a form of funding where investors give capital to a company in return for a percentage of continuing revenues. This payment usually happens until the principal or capital amount is repaid, plus a negotiated multiple. These types of funding mechanisms are typically long-term and range from one to five years in length.
For companies that have little collateral but a steady stream of revenue, like e-commerce and fast-moving consumer goods, RBF makes a lot of sense, even in this climate. Lenders are still looking for good deals, and both RBF financiers and high-quality borrowers can benefit from a long term agreement in these uncertain times. If your company has no collateral but is revenue-generating and growing steadily, RBF might still be a great source of capital at this time.
Crowdfunding leverages your ability to sell your value proposition for cash. The two main types of crowdfunding, equity and rewards-based crowdfunding, have both been hit slightly by the crisis, but not significantly.
In a study by Enventys Partners looking at the volume and success rate of Kickstarter campaigns, it was found that "From January to April 3, 2020, campaigns generated a total of $20,245,501, which is up from $12,810,399 during the same period in 2019. Average first-day funding increased 45% from 2019 to 2020 with this year's campaigns bringing in an average of $7,826." Overall, with the increased audience of web-based funding platforms, the expected crowdfunding crunch is much less worrying than for other funding sources.
The key to successful crowdfunding is still having a great pitch, some engaging collateral, and a demonstrable product, but if those are your company's strengths, then this might be the way to go.
The global pandemic could be remembered as the challenge of a generation. However, there are still many ways to keep going and even thrive amongst the chaos. Outlined here a few of these avenues in this post, but if you have some funding ideas that forgot to mention, we would love to hear about them.
Fundsquire is a global leader in R&D Finance, with offices in the UK, Canada, and Australia. We help companies around the world protect their equity and increase their investments in growth by enabling them to access their R&D tax credits cost-effectively and as early as they need them.
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Related article: Government Stimulus for Businesses Affected by COVID-19
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