The squeeze on first-time fundraisers in the South West: How to buck the trend by thinking long-term

Dr Ben Masheder, Funding and Finance Manager, Innovate UK Business Growth SW

Innovate UK Business Growth is the Going Global Partner for the Tech South West Growth Forge programme.

Raising early-stage funding here in the South West is not easy in 2024. Grant funding is a little scarce compared to last year, the equity market is slowing down, and we’re seeing the same trend in the debt market.

Focussing on equity – The British Business Bank’s Small Business Equity Tracker (July 2024) reported that the number of announced equity deals in the South West declined by 23% last year, while the value of those investments also declined by 67%. But this was not just a South West problem; nationally, 2023 saw the highest number of down rounds – when a company’s valuation is lower than it was during a previous raise – in the last 10 years!

The result is that many fundable companies are taking longer to secure less money at poorer valuations. Bad news for the growing innovative businesses we support who’s plans often rely on equity raises.

Looking a little closer at the deals that are being done, we are seeing investors reinvesting more in businesses they have previously funded, rather than seeking new deals. This has in-part led to early stage businesses experiencing a concerning lack of pre-seed and seed finance.

But some players and bodies are looking to change that. Qantx, an early-stage investor operating exclusively in the South West, has a fantastic team and ethos that has achieved notable successes backing new innovative businesses with pre-seed and seed investments as well as grants from their Blavatnik Prize!

Additionally, the British Business Bank’s £200 million South West Investment Fund, delivered by partners across the region (including Maven Capital Partners, and The FSE Group), is actively seeking new deals. Nevertheless, market risk appetite remains conservative.

So, what can be done?

The first step is to put supply-side issues to one side, nothing can be done to change those, and focus on improving what you can control. A recurring theme in another British Business Bank report, the annual Small Business Finance Market Report, is that the number one barrier to access of external finance is an unfortunate lack of understanding of all the finance opportunities available.

So, what’s the best way to find out if you are missing a trick?

I can tell you now that Google or even AI tools like ChatGPT are no substitute for talking to an expert. My team here at Innovate UK Business Growth see that first-hand.

Our experience has proven time and time again that a short, honest conversation will yield far better results than a day spent down these digital rabbit holes. And that’s why we base our whole support model around 1-2-1, funded access for businesses to specialists.

We won’t do your work for you, but we get fantastic results from first providing an expert ear to listen to plans, pains, and past performances. We use this to guide a conversation examining assumptions, dissecting funding options, and focussing on impactful outcomes. Ultimately, we co-create a plan of actions that works with a business to bring in expertise, focus time where it is needed, and give the business certainty to navigate the myriad funding options out there.

So, if equity is best suited to you, we can then begin helping you to not only achieve that first raise, but plan ahead for the second and third.

Of course, the competition is fierce, but we know the regional and sectoral investors, and can support you through programmes like Investor Partnerships from Innovate UK which offer grant funding alongside an equity raise.

Separately, at Innovate UK Business Growth we have curated two additional structured programmes under our Invest-Ability offer. These provide intensive support for both early-stage and more mature companies with specifically designed workshops and events, honed to increase the investment readiness of a business with proven results.

The programmes culminate in events where we get you in front of real investors to pitch your business, build important investor relationships and gain essential feedback on how to improve.

Even with this support behind you, raising equity here in the South West will not be easy. Particularly for first time fund raisers, convincing a VC or an angel to take a chance on you is tougher than it’s been in a long time. But Innovate UK Business Growth can help to stack the odds in your favour with funded, bespoke support. Our Funding and Finance team is on hand to help you turn your hard work into funding that can fuel growth.

To get started you can submit your details here, or reach out to me directly at ben.masheder@innovateukedge.ukri.org