Warren Buffett once said, “it’s only when the tide goes out that you can see who’s swimming naked.” If that’s the case, start-up land may as well be a nudist colony. When you are bootstrapping, money tends to be in pretty short supply.
Many a Company has sunk without trace because it has not been able to meet its financial obligations in the early stages of its development, and many a promising idea has never seen the light of day because it has not been able to monetise to schedule.
But very often it’s not the start-up at fault. Investors may have promised them funding which they have subsequently failed to provide on time, tax claims delayed by too much red tape, or creditors defaulted, and the companies have become overstretched, unable to cope with the twin requirements of scaling quickly, whilst at the same time generating enough sales in the short term. Short termism is rarely a businessman’s friend.
Take Hubbub, for example: the start-up builds a licensed, branded Crowdfunding platform which it supplies on a franchise basis to educational institutions including the University of York and Oxford Brookes University. It took the company 2 years and £350k of VC funding to develop its software, and when the product was officially rolled out in early 2014, the company had no trouble meeting its sales targets, having brought on board key clients during their development phase.
But as so often when you are building a new business from scratch, there was a hitch. Clients, especially in the education sector, had extremely long payment cycles. Just when Hubbub needed the funds they had already completed the work for to fund expansion, they were unavailable. Big problem.
Fortunately for Hubbub, they knew Pow and Dan, founders of GrantTree, from back when they first started out. It turned out they were neighbours, their offices are only 50 metres apart in Shoreditch.
Successful Entrepreneurs in their own right, Paulina and Daniel were the perfect people to turn to; they had founded GrantTree because they were sick of watching good companies struggle due to avoidable funding issues.
GrantTree was initially set up to help fellow start-ups win back Research and Development Tax credits, sometimes as much as 32% of their original development costs. So far they’ve helped recoup over £11 million in R&D tax credits for their clients, and now they have a staff of 15 processing numerous claims and grants and helping to scale the operation.
Brainstorming on the bus one day, Daniel and Paulina were trying to come up with ever more creative ways of making sure start-ups weren’t caught short on the fiscal front. Daniel explains: “we were just thinking out loud, trying to come up with as many ideas as possible, and one of the ideas was “what if we paid the tax credits upfront, skipping the whole HMRC delay part?” For some reason, this time, we looked at each other and thought “wait a minute… actually that might be doable!”
They decided to call it the “Power-up Fund”, because it reminded Paulina of a computer game she used to play at primary school, Prince of Persia. “There were these little triangular flasks with little bubbles coming out of them you had to drink to gain extra lives”. Bless you, Paulina!
A sweet analogy, but a true one, because that was exactly what Hubbub needed. A quick financial fix; a short term bridging loan to tide them over while they waited for the funds they knew were on the way. There would have been no point asking a bank, or even a peer to peer lender; unless you really understand the mechanics of how a start-up works, the situation would have appeared too risky.
Daniel confirms this was the case on his side too, “we spoke to a bunch of finance people and accountants, they all thought it sounded terribly risky and advised us against it! But since we have an in-depth knowledge of the R&D tax credit scheme and are able to evaluate a start-up’s case quickly, we decided to trial it anyway, and so far, it’s working very well.”
Daniel and Paulina remembered Hubbub, they looked at their sales patterns and saw that what Hubbub were saying was absolutely correct. They arranged the bridging loan, at short notice, charging a very reasonable 8%. Hubbub has never looked back, recently launching their own Crowdcube page to pay for further growth and expansion, raising over £330k to date. Hubbub co-founder Jonathan May explains: “GrantTree are very open, they pick up the phone to you and most of all they understand how start-ups function. If the Power-up Fund had been available when he did our tax credits we may well have dipped our toes in the water earlier on”.
GrantTree are also moving from strength to strength. They have worked with many successful start-ups including Stack Exchange, Duedil.com and GoCardless, and both Daniel and Paulina have invested privately in two of GrantTree’s client companies after getting to know the founders closely; Daniel in Primio.io, and Paulina in Hubbub.
The Company are looking to make hires within their “first impressions” team. “A good hire in this role would be the kind of person who loves to figure out ways to help others in the start-up world by doing pretty much whatever it takes, and who’s happy to spend all day talking to new people”, suggests Daniel. They hope to add an Events and Community Manager also, “someone to help get the word out about GrantTree and the things we’re up to, who ideally is already well connected in the tech scene, and who will be happy and excited to get to know everyone in the start-up events scene and help GrantTree be in the middle of it.”
That’s the beauty of the start-up community, they look after their own. Honest hard working entrepreneurs stick together, and good projects don’t die because of short term, resolvable issues like a kink in the funding pipeline. If you play your cards right there is always somebody to turn to. Sometimes reaching out to the right people can help take you to the next level.