Raising Finance for Technology Companies

28/01/2009

There is no doubt that today we are in a recession and credit is hard to come by. In spite of this, we are positive that companies with viable business plans and growth potential continue to have a range of finance available to them, be it in the form of grants, loans or equity investment. Together with Business Link, the Access to Finance team guides companies through the many different types of finance available and advises on the best routes to access funding.

The Advantage West Midlands Access to Finance team is focused on removing barriers that small and medium sized businesses (SMEs) may experience when looking for finance to grow and develop. We are keen to see the ICT sector flourish in the West Midlands and have a number of initiatives in place to secure funding for technology focused companies.

We recommend that before requesting finance, companies should develop a robust and realistic business plan with sound financial projections. Based on the business plan, an SME can decide on the most appropriate sources of finance and how best to approach them. Initial advice on finance can often be gained from a company’s own advisors including accountants, solicitors or bank managers, or public sector organisations such as Business Link.

Some of the funding options for West Midlands ICT SMEs are set out below:

The Business Link Investment Readiness programme aims to support potentially high-growth technology and innovative enterprises develop their business proposal so that they are more attractive to the investment community or traditional funding sources.

The Advantage Proof of Concept Grant programme is run by the University of Warwick Science Park on behalf of Advantage West Midlands. It can provide a grant of up to £30,000 against 75% of eligible expenditure relating to establishing that a particular innovation may have commercial potential.

The Grant for Research and Development aims to support research or development work on technologically innovative products or processes. This is achieved by encouraging businesses to carry out R&D activity that they might not otherwise undertake and by helping to lever in other private finance.

The Grant for business investment is a form of financial assistance available to businesses located in Assisted Areas in England to support their expansion, modernisation, rationalisation and diversification of such businesses. For SMEs the whole of the West Midlands constitutes an "Assisted Area". The amount of assistance which may be available from Advantage West Midlands ranges from £10,000 to £1,999,999. Above this level applications are appraised by BERR itself.

For companies looking to borrow from banks, the new Enterprise Finance Guarantee scheme guarantees 75% of the loan for borrowings of £1,000 - £1m with turnover up to £25 million. The guarantees will be available through Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds TSB, RBS/Natwest and Northern Bank. It will be available from other lenders if they apply. The scheme will operate until March 2010.

In terms of additional financing options, the West Midlands has a range of further loan finance options:

Community Development Finance Institutions can provide loans of up to £50,000 to businesses with viable business plans but which have been unable to finance their requirement fully from mainstream sources The CDFI network provides coverage across the whole West Midlands region.

For funding above £50,000, the Advantage Transition Bridge Fund is an option. This fund reopened on 14 November 2008, since when 377 enquiries have been received, resulting in 87 applications, of which 27 have been approved for loans totaling £2.4 million.

Early stage technology businesses that are looking to raise finance through equity investment, have three main routes to investment open to them:

Business Angel networks, such as Advantage Business Angels, Beer and Partners, Minerva and Central England Business Angels. Angel investors have received publicity through the BBC’s ‘Dragons Den’, where entrepreneurs invest their own money and provide expertise in the expectation of achieving a return on their investment.

Venture Capital funds – there are two generalist funds in the Midlands which are the Advantage Early Growth Fund and the Advantage Enterprise & Innovation Fund. These funds are for businesses looking to raise from £50,000 to £2 million. In addition, the Advantage Creative Fund provides finance for creative businesses, such as serious games companies. The Mercia Technology Seed Fund is an option for early stage companies and will consider pre-revenue businesses with their own IP and a strong business plan. The fund manager may sometimes suggest strengthening of a company’s management team as a condition of investment.

InvestBX is a West Midlands initiative which brings together high net worth individuals and companies needing finance. It is run on a similar basis to an electronic stock market and has already listed two successful companies. InvestBX will help a company to raise money and also provides an after market in shares.

Finally, we believe that for companies with a strong vision and ability to executive a robust plan, funding is available.

For more information, please find below some useful links:

Regional SME focused financial initiatives with AWM support

West Midlands Finance

Business Link

Business Link Investment Readiness

Community Development Finance Institutions

Advantage Business Angels

Grants for Research and Development

Enterprise Finance Guarantee scheme

Grant for Business Investment

Advantage Early Growth Fund

Advantage Creative Fund

Mercia Seed Technology Fund

InvestBX

Article by Patrick Palmer, Head of Advantage West Midlands' Access to Finance