UK Start-Ups Looking to the US for Funding
Amidst an uncertain economic climate at home, UK start-ups are looking abroad for both private and commercial financing, it has emerged. In particular, technology enterprises are seeking both financial and informational assistance from more ‘savvy’ US investors. Factoring services, those that allow new companies with a solid business plan to gain funding by providing the lender with copies of invoices, are more prevalent across the pond and can be combined with an input of private venture capital.
Traditional UK lenders, including venture capitalists, have become rather risk averse since the onset of the financial crisis several years ago. It is this move to a more cautious outlook that has seen UK companies seek debt factoring (in the case of an acquisition of another company and its invoices), or, should they be looking to solve a short-term cash flow issue, the broader arm of factoring services. There is also an increasing trend towards seeking stateside assistance, where the appetite for investment in innovative start-ups is still relatively healthy.
Relevant bodies in the UK are concerned by the pattern and are working on initiatives to ensure that local companies can expand their businesses without the need for foreign investment. The British Venture Capital Association for example, aims to support UK companies engaging with potential investors as well as encourage firms with operations outside of the UK to set up shop here.
There are certainly UK companies on the market seemingly well-equipped to offer factoring services to start-ups with a strong business plan; however the cautious nature of UK-based venture capitalists is driving homegrown business to the US. Coupled with this is an appetite, from technology enterprises in particular, to position themselves within the industry’s main marketplace, Silicon Valley. In these cases, private investment is the preferred route for start-ups to take, as debt factoring is more suited towards funding the acquisition of a company who is able to sell their outstanding invoices to the lender.
A key aspect for British lenders in convincing start-ups to remain in the UK is the kind of service level they can offer, such as assigning a project-based finance director to a client, at least for the initial stages. This, according to prominent thinkers in the industry, could be a pivotal factor for many small companies in the way that they manage their finances in the early days of trading.