Sarah Willingham’s 13 essential lessons to raising finance

In an exclusive interview with Startups.co.uk, Dragons’ Den star and Plusnet Pioneer Sarah Willingham offers finance tips and explains why “the funding landscape is miles better” than it was…

To say Sarah Willingham’s career history is impressive would be an understatement.

Along with two degrees and an MBA to her name, the business mogul is the former owner of Indian restaurant chain Bombay Bicycle Club, the founder of AIM-listed NutraHealth and co-founder of financial advice site Letssavemoney.

Outside of her business ventures, Willingham is a serial angel investor – her investments include the London Cocktail Club and the Craft Cocktail Company – and her wealth of investment experience has seen her become star of enterprising BBC Two show Dragons’ Den.

But that’s not all.

This month, Willingham has joined with Startups.co.uk and business broadband and phone provider Plusnet and a panel of business Pioneers; familiar faces from best-loved brands in the industry and successful start ups, for a stimulating programme of events, mentoring and content designed to help small businesses grow.

“Excited” by her involvement in the programme, Willingham’s expertise in raising finance for her own businesses made her the ideal candidate to become a Plusnet Pioneer and guide start-up businesses through the difficult process of financial planning.

As a Pioneer, Willingham will be sharing her expert insights on raising finance at a one-off funding masterclass in Birmingham, alongside successful entrepreneurs Jordan Daykin of GripItFixings, Leigh Purnell of Petalite, and Nutmeg CFO Tracey Sambrook.

To give you a taster of what you can expect to learn at the Plusnet Pioneers event, we held an exclusive interview with Willingham to gauge her views on everything from the UK funding landscape to arrogant entrepreneurs.

Currently travelling the world with her family, visiting locations such as Australia and LA – “I have become that friend you should unfollow on social media!” – Willingham took some time out to offer funding advice and lessons for start-ups and small businesses…

1. Raising finance is always going to take some level of graft

A recent survey from Startups and Plusnet found that 43% of start-ups and small businesses have found it hard or very hard to raise funding. Willingham has got an explanation for this, arguing that investors favour entrepreneurs with a proven track record:

“If you’ve taken the leap and gone off your path, it makes it difficult because investors look for experience. If your business is developed and you’ve got a proven business model, you can get [access to] traditional models of finance. Those types of people with a track record in a particular industry find it easy.”

But that’s not to say that a new business can’t secure finance, especially if you’ve got a solid a business model. Willingham notes that “funding is always going to be available”:

“I always say ‘If you had £1m what would you spend it on’? If you don’t know the answer this means you don’t have a business model. You should know what the return will be. If I was going to open another London Cocktail club I could tell you exactly what the cost would be and what my forecast would be, we wouldn’t struggle [to get backing].”

Ultimately Willingham believes you’ve got to be willing to take risks: “Nothing comes without some level of graft or a challenge”:

“When you go out funding for a start-up that’s when you need to tap into business angels and to much more riskier options than the traditional routes.”

2. Finding investment has a lot to do with surrounding yourself with the best people

Willingham spent her early career managing restaurants including Pizza Express and Planet Hollywood but it wasn’t long before she decided to go it alone and run her own restaurant chain.

In 2004, in partnership with the Clapham House Group – the parent company of Pizza Express – she bought loss-making Indian restaurant chain Bombay Bicycle Club, then with six sites, and turned it into a profitable 17-chain company.

So how did Willingham get the investment to purchase the Bombay Bicycle Club initially? She tells us that sourcing investment was made easier by “already having contacts” and a network around her, although she “hates the word ‘network’”:

“I don’t ‘network people’ I build relationships with them. The best advice I’ve ever had in my 20s was to surround yourself with the best people. Some people may call that networking but I call it making relationships. When you start a venture, it’s making sure you have really great people around you as that makes it much easier to tap into [investment].

“With Bombay Bicycle Club it wasn’t a straightforward process [to raise funding]. I knocked on 100 doors and at the end of the [process] I had two options which was amazing.

“I had a bit of a nightmare though because at the absolute last minute someone made a higher offer for the business and I couldn’t believe it. I really think that I ended up getting the business because of none other than good relationships.”

3. Look at what others are doing in your industry and replicate it

2004 was a big year for Willingham as, alongside her purchase of the Bombay Bicycle Club, she decided to take a leap of faith and “leave her industry” to co-establish AIM-listed NutraHealth plc.

A specialist in vitamins and supplements, NutraHealth would go on to achieve multi-million revenues, eventually being sold to Elder Pharmaceuticals in 2011 for a £12m sum.

Willingham says that the business idea for NutraHealth came from sitting on a “phenomenal board” of an organics supplements business – hence having the contacts to make it work – and being inspired when she saw another “company float a shell on AIM and raise the money they needed”.

“I thought it was an amazing idea and I put it to the board and suggested that we did the same – so that’s what we ended up doing. It’s harder to do that now as markets aren’t the same.”

While listing a new business on AIM is certainly not a viable option for most entrepreneurs, Willingham thinks NutraHealth serves up a “key lesson” for start-ups and small businesses:

“I didn’t know what floating on the Stock Exchange meant at the time but I saw a company had succeeded so I followed them. I would advise that for start-ups [raising funding should] look at other people in your industry and see what they’re doing and replicate it.”

4. Get to grips with alternative finance options

Alternative funding has soared over the last few years and is now worth over £3.2bn in the UK. Yet many start-ups and small businesses are not au fait with alternative financing options.

The Startups’ and Plusnet survey showed that 63% of small businesses believe ‘new’ sources of finance are not accessible – a view that Willingham feels needs to change, and fast:

“Alternative funding is an opportunity not a complexity. [For instance,] with invoice financing or invoice discounting if you’ve got bad credit terms but good invoices, it is such a good deal. Not enough people know about that.

“I will often advise business owners to consider invoice discounting as they won’t be able to afford 90 day payments terms and they [often] look at me blankly. More people need to know about [alternative] options like that.

“I particularly like crowdfunding and platforms like Kickstarter s these are great methods for certain businesses. You can get so many people behind your brand and you can’t ask for more than that.”

5. Be confident: The funding landscape is miles better than it was

Given that entrepreneurship has become more popular and more high-profile – boosted by shows such as Dragons’ Den – you would expect it to have become easier to raise start-up finance. A view that Willingham holds: “It’s become cool to do business; which means more and more people want to invest in business”:

“When I was sourcing finance in my late 20s there were only traditional routes to go down and you had to have an understanding of these, so you were limited.

“One of the best things the government has ever done is to introduce the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), long may they continue. These de-risk a very risky venture and, through these schemes, the government have encouraged a lot of investment into small businesses.”

To help give businesses this funding confidence, Willingham hopes to guide, inspire and challenge people to take the first or next step in their entrepreneurial journey.

She said: “I am honoured to be on the Plusnet Pioneers panel to help budding entrepreneurs realise their ambitions. I have mentored businesses and business people from global corporations to new challenger start-ups and so I have a perspective on lots of different types of business. I can also teach people what I have learnt from my own business failures and successes.”

6. Know the three simple things you should be able to offer an investor

Before her time on the Den, Willingham – alongside her husband Michael Toxvaerd – built a solid investment portfolio, backing businesses in industries ranging from technology and consumer finance to health food.

So, what does she look for when investing in a business? Willingham reveals that there are three essential ingredients to a good pitch:

“Firstly, you’ve got to like the person and not enough is said about that. Very rarely would I invest in a business if I didn’t like the person. This also works the other way around, you need to make sure you like your investor – you need to know they’ve got your back and you want to see eye to eye. You want someone who’s going to challenge you but who’s on the same page.

“Secondly, you should think about why an investor should invest in you over a person standing next to you? What have you got that another business hasn’t?

“Thirdly, what has your business got that makes it stand out? Are you doing something entirely new or something that someone else is doing but doing it better? I particularly like [the latter] because it’s hard to educate a new market.”

7. Understand the key metrics of your business

Given her investor background, it’s not surprising Willingham has a lot of advice to impart on the metrics and KPIs start-ups should have ready to share with investors:

“You need to be able to explain how you’re converting customers and you should be able to show you understand that very basic business model. You need to know your margins and cash flow.

“You need to be mindful of bad credit terms that larger purchasers give you, the outline of your basic profit loss, your basic credit sheet, [you should be able to share] investment you’ve had to date, any credit you’ve had to date, and [should be able to outline] your actual business model; the entire foundations of which your business is based.

“Let’s say you run an online car insurance business, you could know that for every £30 they spend, you get £60 back off a customer so it takes £30 to convert a customer. Nick Jenkins knows that he can spend up to £10 to convert a customer but can’t go any lower because he’ll lose profit.

“We know in the Craft Gin Club how much we can pay to get the customer and that defines our business model and how we advertise; be it Facebook advertising, TV advertising [and so on].”

8. Think of running a business like running a house

When it comes to the matter of cashflow and creating a cashflow forecast, Willingham believes that new business owners shouldn’t be “intimidated” and has an interesting analogy on this:

“People say to me ‘Oh I couldn’t run a business’ but I say to them ‘You run a household, it’s similar’. You have to pay your bills, and make sure you have enough money each month. Say something breaks on your car and you can’t pay it off, you need to work out [how you’re going to pay for it]. That’s a cashflow.

She continues: “You need your car because you need to get work so you take a loan to pay to get it fixed but then you look at the payment terms and realise that if you spread it over 10 months, you can pay the car off – that’s the same as cashflow. Right there someone who knows nothing about numbers has done it.”

9. Avoid these investment turn-offs

If you’re looking for advice on what NOT to do when pitching to investors, Willingham is an advocate of being modest and honest – transparency is key:

“I can’t bear arrogance, I think there’s no time for that in business start-ups. I think sometimes people are nervous which is why they are like that. Big egos are a big turn-off.

“It’s actually okay sometimes if someone doesn’t know the answer and can be open and honest. As soon as you start to make stuff up, you’re doomed. Just stick to what you know and stick to the truth. Be honest. If mistakes have been made, it doesn’t mean you’re a bad business man or woman.

“Often people who have made a business mistake become eminently more investable down the line because they’ve learnt from their past mistakes.”

10. Be inspired by unicorn start-ups but don’t feel the need to follow that path

We’ve seen several relatively early-stage UK businesses such as Deliveroo and TransferWise secure funding rounds that have made them part of an elite group of business unicorns (companies valued at over $1bn).

Some critics have argued that the rise of these unicorn start-ups has created unrealistic ambitions for new businesses but Willingham disagrees:

“It’s hugely inspiring but, for some businesses, you don’t actually need to muddy the waters by getting big funders in. Lots of start-ups are lifestyle [businesses] and that’s fine, it’s a huge undertaking to be involved with that [backing from major investment houses].

“I think it’s extremely inspiring when you see any business succeed but it’s understanding that you might not need to follow that path.”

11. Know what you would do with the investment

Concluding our interview, Willingham raises the fundamental point that anyone looking to raise investment for a business should know what they are going to do with the money.

This point, Willingham advises, is something that many new businesses can’t answer:

“I normally spend say 10 minutes talking to [business owner] about specific [funding] things and then I say to them why do you need funding? Often, they don’t know why.

“So many people feel like it’s the next step, like they need £1m funding, but the first thing to do is to ask yourself ‘Do I actually need this?’ ‘Am I just following the rule book?’

“If someone came along for the Craft Gin Club with £5m now I don’t need it but I know exactly what I’d do with it because our business model is so replicable. With London Cocktail Club, we’ve just raised £1m but we did it with debt because our business is cash-rich and we didn’t want to give away equity.”

12. Don’t confuse investment with help and support

Continuing her point on knowing what to do with funding, Willingham says that “a lot of the time you don’t need funding, you need help”:

“So many businesses don’t need the money, they need the help. For Sublime Science, a business I invested in on the Den, [the founder] was cash rich – he didn’t need the investment and he struggled to use the £50,000 investment. What he needed was those people around the table helping him, challenging his decisions and asking him ‘what do you want to get out of this?’

13. SEIS holds the key to start-up funding

Willingham’s final words of investment wisdom? Make sure your business qualifies for SEIS:

“Any start-up [looking for funding] should try and get SEIS – it makes it very attractive [to investors] to get your first £150,000.”

Sarah Willingham is speaking at the Birmingham Plusnet Pioneers event on Wednesday 8 March. Book your ticket here, places are limited so don’t delay.

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