Approachable, relatable, person-centred: A new chapter to empower business funding
Leading figures from the North East finance and funding landscape gathered recently at a roundtable discussion convened by British Business Bank (BBB) to understand the barriers facing businesses. What emerged was a clear opportunity to address the region’s significant untapped potential through empowering entrepreneurs with foundation knowledge and support delivered in an accessible, inspiring way.
The British Business Bank (BBB) is in a unique position within the UK to represent the business community and influence UK Government policy. However, to do so, it’s important that the bank understands regional influences and how they shape the overall picture of the support needed to drive businesses and the economy forward.
With insights gained from the discussion and other research, the bank hopes to define a problem statement and provide recommendations ahead of government spending reviews.
Participating in the discussion were: Jonathan Armitage – NEL Fund Managers; Ken Arnold – North East Growth Hub; Chris Brown - Innovate UK; Nicki Clark – UMi; David Nixon – Maven; Bill Hartshorne – NEEAL; Nicola Kilkenny – NatWest; and Hannah Wade – CPI. They were joined by BBB’s Shaun Fooy, Vicky Mears, Warren Ralls, and Angelene Woodland, who chaired the conversation.
As with many areas of the business ecosystem, finance and funding are complex, so it is important to address three core needs: raising awareness, correcting misconceptions, and providing support. The importance of these increases for under-represented groups, who have additional barriers to seeking and securing finance and funding.
Someone like me – representation matters
The discussion started with an exploration of these barriers faced by under-represented groups in entrepreneurial communities. There’s no shortage of ambition in the North East, so why aren’t more people accessing available funding?
BBB shared statistics that 31% of the North East population live in areas that they would consider to be deprived. Of these, 36% are open to accessing funding, but when they do, 16% are then declined.
There is an ongoing gender gap in funding – BBB’s Small Equity Tracker shows that for every £1 invested, only 2p goes to all-female founder businesses.
The group agreed that the North East lacks a clear place for entrepreneurs to get basic information and support on finance and funding.
There are lots of pockets of resource and generosity, yet there isn’t a holistic service that is readily available, well-resourced and person-centred. Locally funded projects can be too focused on ‘outputs’, and general business support services are stretched.
Events are well-intentioned, but the group shared that entrepreneurs have commented that they felt out of their depth, confused by all the jargon, or out of place among a sea of people who didn’t look like them.
This extended to working with young people to encourage entrepreneurship, too. Some useful lessons were learned when an attempt to impress with a ‘posh’ venue and food backfired, causing the participants to feel intimidated and reticent to openly discuss the topic.
A good practice example given was an education session on finance and funding for aspiring and established entrepreneurs that was held on a Saturday, working closely with the pastor of the City of God Centre in Walker, Newcastle.
The session was attended by over 200 people from around the North East, mainly from the Black African community.
The pastor ran the session, with the advisor introduced and presenting some information. Attendees also heard from someone from within their community who had been successful in securing finance and funding. This stimulated discussions and people who were helped in that session then became strong advocates for others in the community.
The takeaway was that for all under-represented groups, if you don’t see people like you getting investment, you’re not inspired to put yourself forward. Entrepreneurs want to be inspired and learn from individuals like themselves who can act as role models.
The group also noted that early-stage investments enjoy remarkable success when experienced angel investors are involved, but we don’t have enough individuals engaged in this region.
The opportunity: Discovering and partnering with diverse entrepreneurs, community leaders and angel investors to inspire and educate through advocacy and shared experiences.
Mismatched expectations – frustration all round
Following on from the discussion about under-represented communities, it’s perhaps no surprise then, that entrepreneurs often aren’t well-prepared for engaging with investors.
There was also an argument that perhaps investors aren’t well prepared for engaging with entrepreneurs, either.
It was clear from the discussion that there’s a real gap in the market between the finance and funding options that businesses need, and what’s on offer.
Some of the issues shared were:
- Investors whose funding starts at £25,000 are being approached by businesses that have been turned down for smaller Start-Up Loans of £10,000 to £15,000, due to poor credit histories.
- Finance is constraining businesses in the middle of policy – most need £30,000 up to £200,000 of loan finance to provide thoughtful working capital, but banks want to start at £2m.
- There’s nowhere obvious for companies to go for funding around the £5-10m to enable them to move from proof of concept to commercial launch and scale.
Many turn to Google in lieu of anyone else suitable to talk to, and they end up with inflated expectations that cannot live up to reality.
It creates frustration and disgruntlement on all sides. Investors want to invest, but they need well-prepared entrepreneurs who can tell their story effectively and know their figures. Entrepreneurs want investment, but they don’t know where to go, or what to do to prepare themselves.
The effects of the mismatched expectations are keenly felt on both sides. Exhausted, scared and demoralised entrepreneurs. Investors crying out for entrepreneurs to show the determination and acumen required for them to back their businesses.
Investors do see a difference in the entrepreneurs who have worked with Innovation SuperNetwork on their investor readiness. However, in general there is too much emphasis in the market on the availability of finance and funding, and not enough on supporting people to understand and access it.
The opportunity: Targeted education for entrepreneurs to address misconceptions and prepare them for what investors expect to see, and the amount they may secure.
Aligning financial offerings more closely with the needs of the market, which may need to be on a geographical level. There could be potential to operate a scheme like student loans, where Start-Up Loan repayments are tied to earnings. However, grants would still be needed to de-risk projects.
Open for investment – a marketing problem?
The group identified a wider rhetoric on the entrepreneur side that you have to go down South to secure investment, and on the investor side that the North East lacks the appetite and ambition for securing investment.
To attract more investors to the North East, it was suggested that the region could join forces with Scotland and North West England to emulate the ‘Golden Triangle’ – the science, technology, and innovation cluster in the southeast of England that includes Oxford, Cambridge, and London.
The North East has had lots of marketing of its tourism highlights, but we don’t yet have a clear marketing campaign on how investable our businesses are. We need to think about what we are projecting and how to share a clear, compelling vision. It needs political leadership, similar to what Greater Manchester and Liverpool are achieving.
Building up the region’s inward investment more generally is also important. Pragmatic Semiconductor was cited as a good example of a company that has expanded to Durham from Cambridge, and is doing very well.
The opportunity: Develop a clear marketing campaign for the region, potentially working with a wider geographical area, to entice investors and businesses to come and see what the region has to offer.
Moving forward – a coalition of the willing
To address the opportunities, the group considered and welcomed a suggestion to convene a diverse pilot group of 15-20 companies who need investment. This group could meet quarterly and act as a focus group on getting them the support they need and taking the learnings from those journeys.
BBB will now take these insights onboard to create a problem statement and provide recommendations ahead of government spending reviews.