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Research: Start-ups in the North struggle to invest funding on growth

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New research has shown that start-ups in the North of England are struggling to secure investment and when they get it, to effectively spend it on growth.

There’s a split picture between businesses in the North East and North West, with one in three of those in the North East saying they were struggling to secure investor meetings and over half experiencing a “lack of investor willingness.”

That compares to North West companies which are securing investment “with ease” but they aren’t able to effectively spend it on growth.

The research has been carried out by spend and expense management platform, Soldo, which interviewed 250 start-ups across the UK and Ireland.

“It’s great news that start-ups in the North-West are finding it easy to secure funding. However, poor financial insight means they are unable to prioritise effectively and make assured decisions in a turbulent political and economic time,” explained Darren Upson, VP for Small Business at Soldo.

“Start-ups must find a way to gain confidence in how they spend on business growth, otherwise, they may find that their business stagnates in the critical years to come. Soldo’s technology empowers start-ups to spend in the right areas and its budgeting and control capabilities ensure their funding is working hard for the business.”

In the North East, 100% of business surveyed said they’d used personal savings to fund the business, and only 4% secured venture capital.

Half of start-ups in the North East used crowdfunding, while 1 in 3 used an accelerator or incubator program.

Just half of them said they found it easy to secure funding – which is one of the lowest in the country.

Two thirds of start-ups said they struggled to secure funding due to having an uncertain financial forecast.

When asked what they’d do with an anonymous £1m cash injection, half of the start-ups said they would develop new products and services. 50% would improve operations and pay off debts. Just 17% said they’d hire new staff or invest in marketing.

Company directors said that they struggled to make spending decisions due to a range of factors, including economic and political uncertainty (50%); and personal fear of making the wrong choice (33%).

North West

In the North West, 65% of start-ups claimed they found it easy to secure funding, but 87% said they struggled to spend it on growth.

Like the North East, they were put off spending on growth because of political uncertainty and fear of making the wrong decision.

According to the research, start-ups based in the North West are prevented from growth by a “lack of financial insight.”

17% claimed they didn’t have the necessary insight to make the right spending decisions. The same percentage said lengthy financial sign-off processes and restrictive spending policies also impacted on their spending; while 9% said that teams and employees don’t have the necessary freedom to spend for company growth.

The research also found that 39% struggled to provide investors with a financial forecast; 35% couldn’t find the time to develop their investor pitches; and 3 in 10 said that investors were unwilling to part with their money.

“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,” continued Upson.

“It’s also important for start-ups to put efficient and admin-light financial processes in place from day one. Doing so will free up valuable time which can be spent driving the direction of the company.”

Further findings showed that 43% of North West firms funded their business through a bank loan or personal savings.

13% looked to family or friends; and 9% worked with angel investors, crowdfunding or incubator programmes.

Just 4% secured funding through Venture Capitalists.

When asked the question about how they’d spend a £1m anonymous cash donation, more than half said they’d develop new products and services. 52% would invest in new equipment and software. Hiring more staff would also be a priority for 48% of start-ups.

Soldo is backing up the research with a tour around the country, in partnership with the Startup Van, Hiring Hub and Arctic Shores. It’s due in Manchester on January 29th.

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