At a venture meet-up yesterday I sat in a hot room listening to questions posed to an expert panel on prospects for start-up funding.
Having been a capital-raiser for my own business as well as for a variety of entities ranging from SMEs to public sector monopolies, I always found it fascinating how important we deem those with keys to the ‘money chest’. What has also been quite fascinating is relatively how many ‘guides’ (advisors, brokers, introducers ) there are to guardians of the chest (lenders, investors, fund managers). Whether for start-up, commercial expansion, buyouts or turnaround, capital is still scarce these days. And anyone that could possibly ease our thirst, gets our attention.
The biggest barrier to entry, is the Big R: Relationships. Lenders need to have relationships with their customers, investors like to deal with people who are either known to them, or one of their existing relationships. Hedge fund traders like to deal with their relationship brokers and counterparties.
Many have tried, and continue to find ways to make it easier to connect end users of finance to the providers. Social lending, peer-lending, illiquid exchanges are all trying to create flowing channels of funding but none seem to have rivalled traditional funding methods.
Someone attempting a crowd funding model was at the meet-up. As one of the panellists remarked, it will be interesting to see whether they are able to get past the Big R. Another attendee represented a broker connecting commercial borrowers to private lenders. Both models require significant ‘offline’ interaction between counterparties. While both businesses target different borrower and financier segments, they still require a health balance of funders and ‘fundees’. And regardless of stage or type of financing, there is the main ingredient.
Anyone that can get that balance right is one step closer to narrowing the gap between those who need the cash from those who have it.
Until then, the Big R plays a big role and the commercial world will continue to do the rounds and knock on doors. With some luck, we find some advice, funding and friends along the way.