UK startups need more support in understanding an increasingly complex early stage funding process.
A new survey from Angel Investment Network (AIN), the world’s largest online angel investment platform reveals that less than half of respondents (44%) said they had a good understanding of the fundraising process when dealing with investors. Less than 1 in 7 (15%) described this as very good.
The survey of 223 startups highlights a big gap in fundraising expectations versus the current reality of the process with more challenging market conditions. For startups that had previously raised investment, 54% revealed it had taken longer than expected, versus just 17% who said it was quicker than expected.
Meanwhile 38% said the funds ran out sooner than expected, more than double the number who said they lasted longer (17%). However 45% said the fundraising period was about the same as expected.
Once raised, funds lasted less than 6 months for nearly half (43%) of respondents. 26% said they lasted 6-12 months, and 15% managed them over 1-2 years. In response to the present climate, 42% have needed to raise smaller amounts than planned.
The survey results underscore the importance of fundraising education for UK startups as three quarters (74%) of respondents said raising investment was one of their top challenges in the next year. The next biggest challenge was hiring the right talent, listed by 47% of startups, product innovation and development (37%), followed by consumer or business confidence (30%).
Profitability top factor in winning funding
For those who raised successfully, profitability was the top factor that led investors to back them (24%), followed by scalability (18%), the team (13%), and then revenues (8%). Despite the challenges on raising funding, more than two thirds (68%) are optimistic about the next 12 months.
However, the process of launching and running a startup is having a toll on the mental health for many. 57% revealed it had impacted their mental wellbeing. 1 in 4 (25%) said it had greatly impacted this. Going for walks was the best way startups supported their mental health, according to 61% of respondents, followed by mindfulness/meditation (44%) and discussing challenges with family and friends (40%).
Startups call for easier access to grant funding
With the budget this week, the startups polled also revealed what they would most like to see from the new Government. Top of the list was easier access to grant funding according to 80% of startups, ensuring more consistent long term policies (43%) and lowering corporation tax (42%).
On the back of the research, AIN is launching a new campaign for startups to be ‘investment ready’ when seeking finance with a new content series aimed at demystifying the fundraising process, based on two decades of experience supporting startups.
According to Mike Lebus, co-founder of Angel Investment Network, “The fundraising landscape for UK startups has become increasingly complex. Our survey reveals this is leading to longer fundraising periods, cash shortages, and valuation reductions.
“It’s vital that startups come into this process with the best possible knowledge to be investment ready but less than half have a good understanding of a process they really need to be experts in. Over the next few months we will look to address this knowledge gap, with advice and guidance from investors and startups who have raised successfully.”
According to James Badgett, co-founder of Angel Investment Network, “We have been at the heart of the startup ecosystem for 20 years supporting the nation’s brilliant startups.
“They have been the fuel of the country’s economic growth during this time. So it is crucial the UK Government listens to their concerns and ensures easier access to grant funding and a favourable and consistent tax regime to ensure we remain a leading hub for startup investment.”
