This is a guest post from Soldo, a Tech Nation Rising Stars 2.0 partner.
Tech companies across the UK and Ireland have been securing funding with ease, but struggle when deciding how best to use the money to grow the company.
In a survey of decision-makers at 250 early-stage tech companies, commissioned by spend and expense management platform Soldo, seven in 10 said they found the funding process easy.
According to the research, Scotland is the best place to fund a startup, with 93% finding the process easy. Yorkshire and the Humber is the most difficult place to secure funding, with only 46 percent finding it easy.
This follows news that investment in UK tech reached an all-time high in 2019, according to data from Tech Nation and Dealroom. However, early-stage tech companies are struggling to spend that money on growth, with some 95% facing difficulties in making spending decisions.
The challenge of uncertainty
One in four of the companies surveyed cited economic and political uncertainty as one of the biggest challenges in spending money on growing the business, a position likely exacerbated by the recent Coronavirus pandemic and ensuing economic turmoil. A further 20% said they do not have the necessary financial insight to make spending decisions, and a quarter said that they are held back by personal fears around making the wrong spending decision.
The research also found that tech companies at early stage are prevented from achieving growth by restrictive spending policies. Lengthy financial sign-off processes dampen spending for 20%, and one in five said that their teams and employees don’t have the necessary freedom to spend for company growth.
Darren Upson, VP for Small Business at Soldo, said: “It’s great news that startups are finding it easy to secure funding. However, poor financial insight and inefficient internal processes are preventing them from spending it on growing the company.
“A lack of financial insight means startups are unable to overcome personal fears and make confident decisions in a turbulent political and economic time. Employees – who work on growing the company on a day-to-day basis – are also being prevented from spending on what the business needs to grow. Startups must trust employees with sufficient funds to invest in growing the company. Otherwise, they may find that their business stagnates in the critical years to come.”
Forecasting is key
For those who struggled to secure investment, one of the biggest challenges was being able to provide investors with a financial forecast (35%). A further 30% struggled to secure investor meetings. Another problem was negotiating a good deal, with three in 10 saying that the deal terms were bad, or the investor wanted too much equity.
Upson continued: “When you apply for funding, you need to provide potential investors with all relevant information on business capital and spending. Having this type of information from the start can be the reason your business succeeds or fails.”
The majority of tech companies surveyed funded their business through a bank loan (44%), and 26% used an alternative loan provider. Bootstrapping is still one of the most popular methods for starting a business, with 40% of founders using personal savings to fund the company. Around a quarter opted for the VC route, while a fifth secured funding through an angel investor.
When asked how they would spend an anonymous cash donation of £1,000,000, nearly half of the tech companies surveyed would develop new products and services. A further 43% would improve operations, and 41% would invest in new equipment and software. Paying off debts would also be a priority for 30% of startups.
In such uncertain times, fundraising, cashflow and runway can be more critical than ever. Explore Tech Nation’s guide to fundraising in a lockdown, in light of the Coronavirus crisis.
Soldo is the the prepaid Mastercard® that does your expenses for you. It provides companies from 1 to 1,000+ employees with a unified solution to manage spending and expenses. The multi-user setup features bespoke budgets and rules for each card, empowering staff to spend across multiple channels with automation, visibility and insight. Soldo integrates directly with Xero and Quickbooks to make expense report and reconciliation a thing of the past.