Getting Ready to Raise Money for Your Business in 2022

Our third year of living with Covid-19 is about to start. Given the new omicron variant, we anxiously wait to see if it causes a spike in infection, which may cause a downward turn in economic growth. What does this mean for equity fundraising in the year ahead?

Let’s look at the stats for early-stage businesses from 2021 and offer some advice for companies looking to raise equity in 2022.

All data is based on UK headquartered companies who raised equity capital from 01 January to 01 December in comparative years. Data comes from Beauhurst.

Are fewer companies raising capital?

The number of equity fundraises in 2021 is slightly above 2020 with a total of 5,315 versus, 5,278. While both figures are lower than 2019 and previous years, this is to be expected.

 

Who’s getting the money?

Mega rounds, e.g. the likes of Revolut and Snyk, distort the total picture of funding early-stage companies. Hearing about these doesn’t help a seed or early-revenue stage company understand what to expect when they go to raise capital, so we’ve focused on earlier rounds to show what’s happening in this part of the market.

The number of rounds by broad business stage shows that many early companies have been successful in attracting funding, with seed-stage companies accounting for nearly half the rounds in the year.

 

The classifications, however, are not hard and fast, so we also have to look at the data according to round size. As many businesses nowadays do a number of smaller rounds, it’s possible that the same business is being counted twice in any category, for example, if a business did two £250k rounds in the given period.

 

Does this mean you should raise £250k or less because there seems to be more activity there? Running multiple smaller rounds is an approach worth considering. This strategy depends on which type of investor you’re targeting though and is no guarantee of success.

Of course, we’re looking at data on reported raises. No one reports or tracks unsuccessful raises, so while there have been 2,000+ successful rounds for £250k or less, it says nothing of those that failed to reach their minimum target. A conservative estimate is that half of the businesses fail to reach their target.

Are Fintech companies getting all the money?

They are getting a good chunk. Alongside them are AI, eHealth, digital security, and Edtech. Despite the round size or business stage, these categories appear again and again at the top of the list and, of course, Fintech is notable for pulling in a number of mega-deals.

Are you doomed if you’re not in those spaces? Maybe not.

Let’s pause for a moment and consider what those ‘buzzwords’ mean? Firstly, they all include a focus on tech. The breakdown for most of them is the application of tech to a specific sector like health or education. AI is of course not sector-specific, so it can apply to any sector.

There is some overlap here with companies being counted in multiple categories and some companies knowingly capitalising on trending terms. Digging into the data shows that the once-grand buzzword ‘big data’ has dropped down the list with sexier terms taking its place.  The message here is tech, tech, tech, and if it uses AI even better.

But…AI is a much-abused term. A study by MMC Ventures in 2019 found that as many as 40% of European firms that were classed as an AI startup, did not actually use AI in any material way.

Importantly, it is not necessarily the businesses themselves applying the label. Often it was third-party research sites. However, the benefit of having such a label applied and doing nothing to correct it was 15%-50% more funding than other technology startups. While the study is now a few years old, there is little evidence to suggest a major correction with this issue.

That’s what the stats tell us so very briefly here are some tips for fundraising in 2022.

Your proposition and USP

  • A good idea alone is never enough. Make sure the problem you’re solving, and your solution are clear.
  • Outline your USP and how is that sustainable, taking an objective viewpoint.

Your team profile

  • Investors invest in people. So, make sure you have a standout team.
  • If you are light in an area, find an advisor or non-executive director to give confidence to potential investors, and provide you with valuable advice and contacts.

Evidence of traction

  • Proof that you have product-market fit and sustained growth goes a long way. Highlight any big brands you have as customers or partners. This is especially important for consumer brands and marketplaces, as unless you have a growing customer base, your business is little more than an idea which investors will perceive as a big risk.

Getting all your documents in order

  • Getting investment requires a host of documents. We always recommend working with an advisor to create your deal as it helps ensure all information is available, professionally presented, and credible.

Your investor target list

  • Be clear on what types of investors you want to target, for example, angel investors, VCs, or regional funds.
  • If possible, work with a network like Envestors, which has deep knowledge of the players in the space as well as pre-existing relationships with investors. This will take away the difficulties of trying to engage with potential investors by yourself.

Subject to the impact of the new variant of Covid-19 it currently looks as if the 2022 early-stage investment arena will be similar to 2021.  This suggests that competition for funds will high so put all your efforts into your preparation and expect a long battle to get the equity funds you need.

 


 

Chantelle Arneaud is from Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities, and sectors – creating the single marketplace for early-stage investment in the UK. Envestors partners with accelerators, incubators, and angel networks to provide a white-label platform empowering them to promote deals, engage investors, and connect to other networks. Founded in 2004, Envestors has helped more than 200 high-growth businesses raise more than £100 million through its own private investment club. Envestors is authorised and regulated by the Financial Conduct Authority.

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