Tech investment is approaching all-time highs. With great demand for new technology across sectors and industries, what should technology companies consider when planning to raise funds?
NEO continues its 5 Questions series with a Q&A with Ronnie Preiskel, Managing Partner at Preiskel & Co LLP.
1. What are all the potential sources of funding that tech companies could consider? Which are more appropriate for startups versus companies at a later stage of development?
The type of funding that is most suitable for a company would depend on that company’s stage of development. We find that angel fundraising is very effective at the early, pre-revenue stages, or alternatively crowdfunding could also be used by companies that are starting out. Some UK investors would also be keen to take advantage of tax breaks, available in some cases when investing in a startup. In certain cases, government grants might also be available.
As a startup reaches the next stage with higher sales and possibly international expansion, it would require far greater funds than before. Typically, this funding would be provided by VCs or strategic investors via multiple rounds of fundraising. After this, once a startup reaches a certain scale, it might decide to go public via an IPO or a SPAC, or that further private equity / VC investments is the best way forward.
2. What role does a company’s geographic footprint play in determining where that company should fundraise?
At the earlier stages of development, it is much easier to raise money from local investors – those based in the same country as the company. This is of course easier to do if your geography has a thriving community of angel investors. However, geography becomes less important as the company grows.
3. How has COVID changed the fundraising landscape for tech companies?
Anecdotally, it seems that the appetite to invest in tech startups has greatly increased after the pandemic hit. The very nature of fundraising has changed as well. Earlier, it would have been hard to imagine any money changing hands without investors first having several face-to-face meetings with company founders and with management to get to know them and kick the tyres.
4. How has Brexit affected London’s standing as a fundraising destination for tech companies?
It’s much too early to fully understand the impact of Brexit. For now, we see that tech companies continue to thrive in the UK. With many people continuing to work remotely, it is difficult to understand Brexit’s impact on recruitment of talent going forward. What’s already clear, however, is that many fintech companies are likely to be affected because their FCA authorization won’t enable them to provide services in the EU.
5. What advice would you give to tech companies that want to capitalise on the surging interest in their sector?
It’s a great time to be a tech business and capital is plentiful, so you’ve won half the battle. But yours is not the only tech company out there, so it is absolutely essential to put together the best possible management team and a wider team of experienced advisors to help guide you through the fundraising process.
When considering your options, it is also critical to find the right investors for your company – those who can add value to the business, rather than just chasing easy money. And once those are found, understanding the right level of fundraising you need to enable your company to progress to the next level is also key. This is important in order to avoid being caught in a desperate position and having to accept whatever terms are offered at the next fundraising round.