Perhaps it is the case that you already have decided on your business model, have done an extensive market research, and you know what makes your product or service unique in contrast from that of your competitors. However, you lack funding, which is essential for your business to grow in size, operations, and ultimately, generate profits. But now, in the middle of a global pandemic, you’re afraid the chances your business will succeed are getting smaller. After all, where and to whom could you go to for advice, when most establishments are closed?
We want to start by telling you that there is no reason to lose your hopes. Statistics show there’s been a 60% increase in new online businesses and in ventures in a variety of fields, such as food delivery services. As is the spirit of the entrepreneur, to innovate and adapt to hard circumstances, several startups across Europe were born with the intention of bringing solutions to the problems we are all facing.
However, it is a fact that in a time of uncertainty, this is reflected in how investors choose the businesses they will support. That is why you need to strategize and plan every step for your business to grow. If you want to know how to grow your business in the middle of a crisis, this guide is for you.
Where do you start?
Funding and fundraisers are essential pillars that support the growth of a startup. After all, for a business to function, the entrepreneur needs to allocate sufficient financial resources in a variety of tasks to keep things running smoothly. And this need will accompany you on your business’s path towards growth, as many aspects, such as staff, will need to be raised accordingly. That is why it is a high priority to direct the right amount of funds to each focus point surrounding your business, for it will ensure a proper management of all tasks.
Every startup has financial goals to be achieved, and in order to succeed at them and raise the competitiveness of your business, you will need to seek proper funding. To start, there are two basic categories for funding a startup, one that costs you equity, and the one which costs you debt. There is a third, gifts and other forms of grants, though they are less common than the former.
First and foremost, debt, a (sadly) well-known concept, is money you’re obligated to pay with interest over an agreed period of time. An example of this is a bank loan. Small bank loans are a typical source of funding for businesses, but they are quite often restricted to those with an existing income or with a form of collateral to cover the costs if needed. Bootstrapping can also be included in this category, or the use of your personal money to cover expenses of your startup.
Equity is a percentage of ownership in your business offered at market value in exchange for payment. This is how businesses deal with investors, but in order to attract a venture capitalist (VC), you must first have a perceived value of your company or a proof of confidence to give a VC the confidence to invest. However, it is important to note that an entrepreneur usually refrains from giving too much equity away, as this will lead to smaller profits for the company and can mean a potential loss of control.
Finally, grants and gifts can come in the shape of personal investors, such as investment from family members and friends, and also crowdfunding. Taking into account these three basic categories, the entrepreneur needs to decide the most appropriate type of funding for his/her company, while also being mindful of the stage his/her company is in.
Which type of funding is the best and most suited for your company?
There are, in fact, many funding options, including:
1. Bootstrapping and personal investment
3. Public funding & government grants
1. Bootstrapping and personal investment
It is usually advised for an early-days business owner to start gathering funding by bootstrapping, or self-fund, and later to ask friends and family to invest. Covering expenses of your startup with your own money, and for as long as possible, is advised as it is harder to convince someone to invest in your business if you haven’t done it yourself first. This means working on your company as a side project until you are able to save up money for the later stages. Although this can be a long-term decision, it is gratifying, as it gives entrepreneurs a bigger sense of control of their businesses and may increase the chances of future investment pitches towards venture capitalists. The only downturn to this method, besides costing your own money, is that you won’t benefit from the wisdom an experienced, third-party investor could provide you with.
The following option, or step, is reaching out to family and friends (or Personal Investors) to invest in your business. According to research by Fundable, over 38% of entrepreneurs report raising money from loved ones. Though friends and family are often unable to invest large sums, they are more likely to support your idea while asking for a low interest rate or low equity. At the same time, the personal commitment between both parties makes the entrepreneur more committed to success.
As the name suggests, this type of funding involves a large number of individual investors who don’t necessarily have a say in how your business is operated. Crowdfunding can be used not only to gather initial funding, but also to fundraise future products and services. The key is finding a pitch that is compelling to a large crowd. One way to achieve this goal, for instance, is by offering incentives, such as giveaways.
With the dramatic rise of online activity since the start of the pandemic, many companies that chose this type of funding have been successful – such as MATE.BIKE, which managed to raise 2.6 million euros on SEEDRS. The two biggest crowdfunding platforms are Indiegogo and Kickstarter; and the choice of which platform to use largely depends if you’re looking for equity crowdfunding, you’re a digital creative or a non-profit.
3. Public funding & government grants
Public funding is usually a smart option for startups, as it means businesses won’t need to give up equity shares in exchange for funding. To get you started, Techfunding.eu gives you an initial overview of public funding opportunities in an easy way in order for you to launch your service in the market as quickly and effectively as possible. The first 30 minutes of their consultation is free, but you need to be reminded that public funding is usually targeted towards research, development and demonstration, and not towards marketing and production.
Applying for a government loan or grant is often an overlooked way for funding startups. In another article at our blog, we run down all the details on how to apply for business aid due to COVID-19 in Denmark, so be sure to check it out. The assistance from the Danish government towards small businesses doesn’t stop there, as there are in fact many opportunities for businesses achieving the funding they need to grow. An example of this comes from the Danish Business Promotion Board releasing 82.5 million DKK to help small and medium businesses to transition towards sustainable practices. Their website offers you all necessary information about the application process and the requirements you need to fulfill for the grant.
Public innovation centers are another alternative for startups looking for funding. These were created by the Danish government, and act similarly to Venture capitalists, with the difference that they usually invest sooner. There are four investment centers in Denmark, and the usual initial investment round is around 3 to 4 million DKK. The four centers are each located in a different Danish region and should be easy to access. They are: Pre-Seed Innovation (Copenhagen), CapNova (Århus/Roskilde), Syddansk Teknologisk Innovation (Odense, Taastrup) and Borean Innovation (Aalborg, Herning).
4. Investors: Venture Capitalists and Angel Investors
Finally, investors are not neutral actors in your business, as accepting an investment means you need to fulfill their expectations on how their money will be spent. Additionally, investors typically ask for a return with interest over a period of time. If you plan on growing a business, your only option will be to accept an investment. The types of investors you can face are Personal Investors (friends and family, as explained above), Venture Capitalists and Angel Investors.
Venture capitalists (VC) are experienced investors that expect large returns by investing in business ideas. This type of investor accepts some risk of not getting their money back, but they usually choose entrepreneurs that have a track record and show value before they choose to place their money – therefore, startups are likely to be rejected for this type of funding. Denmark has some substantial sources for venture funds, and some of the most active are: SEED Capital, Sunstone Capital, Northcap, VF Venture, Lundbeckfond Ventures, Creandum and many more.
Finally, angel investors give relatively small amounts of funds to new businesses in exchange for equity, while being relatively tolerant of other forms of growth besides that of revenue. Like VCs, angel investors may require ownership and a say in how the business is being conducted. Many angel investors prefer to invest together, rather than separately, and Danish angel investors are no exception of this. In total, there are four regional angel investor networks, in which entrepreneurs can get in contact with and make their pitch: DanBan (Danish Business Angels) in Copenhagen, Switzr in Mid and Northern Jutland, BAN in West and East Jutland, and BA in Southern Denmark.
However, it is common that many angel investors are not a member of the associations mentioned above, and instead already have their own personal networks in which they operate. One way to find these investors is through the Danish Venture Capital Association (DVCA), an NGO that compiles both venture funds and business angels. You can find other Danish angel investors that are not present in the DVCA in a very helpful article by Nicolaj Højer Nielsen at Startup Funding Book.
Y Combinator, the first accelerator program, was established in 2005 by Paul Graham. Graham started by investing in a group of tech entrepreneurs to support them develop their ideas. Thus, an accelerator is in essence different from angel investors, as the goal was to homogeneously support and invest in a cohort, instead of individually. However, since accelerators are fairly recent, and there is a lack of clarity on what really defines an accelerator, the lack of data from them within academia makes it difficult to evaluate their active contributions to businesses.
Nevertheless, accelerators have a number of characteristics in common, starting by the fact that they are, in essence, programs designed to accelerate the development of ideas or startups. With that regard, all accelerators have:
- A program with a beginning and end date
- A selection process for participants
- A selected number of participants/startups
- A group of mentors to offer support
- Active mentorship and an education program
That being said, some accelerators can provide funding for its participants – though this is not common for all accelerators. An example of such an accelerator in Denmark is Accelerace, considered to be the leading accelerator in Scandinavia, and the most aggressive investor in Denmark, with up to 30 investments per year.
This guide was for you, the entrepreneur, who is actively looking for funding options for your business. However, even before successfully achieving funding, you must always manage your business expenses steadily and precisely. That is why UbuntuBiz partnered with billy, the easiest accounting program in Denmark. Billy manages your business books, and puts your VAT in order with only a few clicks. Are you interested? Sign up with Billy here and apply our code UBUNTU-BILLY to get 50% off their yearly subscription, a special deal only for UbuntuBiz clients.
It is important to remember that the objective of achieving funding is to eliminate all obstacles between your business and growth. That is why fundraising campaigns should be monitored regularly, to ensure you are on the path to success.