Tech startups ‘struggle to spend funding on growth’

Startups across the UK and Ireland are securing funding with ease, but struggle when deciding how best to use the money to grow the company.

A survey of decision-makers at 250 tech startups, commissioned by expense management platform Soldo, found that 70 per cent said they found the funding process easy.

According to the research, Scotland was the best place to fund a startup, with 93 per cent finding the process easy. Yorkshire and the Humber was the most difficult place to secure funding, with only 46 per cent finding it easy.

Despite Brexit, investment in UK tech firms reached an all-time high in 2019, according to data from Tech Nation and Dealroom. However, startups are struggling to spend that money on growth, with some 95 per cent facing difficulties in making spending decisions.

More than one in four cited economic and political uncertainty as one of the biggest challenges in spending money on growing the business. A further 18 per cent said they do not have the necessary financial insight to make spending decisions, while a quarter said that they were held back by personal fears around making the wrong spending decision.

The research also found that startups are prevented from achieving growth by restrictive spending policies. Lengthy financial sign-off processes dampened spending for 20 per cent, while nearly one in five said that their teams and employees don’t have the necessary freedom to spend for company growth.

Darren Upson, vice president for small business at Soldo, said: “It’s great news that startups are finding it easy to secure funding, however poor financial insight and inefficient internal processes are preventing them from spending it on growing the company.

“A lack of financial insight means start-ups are unable to overcome personal fears and make confident decisions in a turbulent political and economic time.”

For those which struggled to secure investment, one of the biggest challenges was being able to provide investors with a financial forecast (35 per cent), with a further 29 per cent finding it tough to secure investor meetings. Another problem was negotiating a good deal, with three in 10 saying that the deal terms were bad, or the investor wanted too much equity.

The majority of startups funded their business through a bank loan (44 per cent), while 26 per cent used an alternative loan provider. Bootstrapping is still one of the most popular methods for starting a business, with 40 per cent of startups using personal savings to fund the company. Another 24 per cent opted for the venture capital route, while a fifth secured funding through an angel investor.

When asked how they would spend an anonymous cash donation of £1 million, nearly half said they would develop new products and services. A further 43 per cent would improve operations, and 41 per cent would invest in new equipment and software. Paying off debts would also be a priority for 30 per cent of startups.

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