Financing R&D: How Can My Company Attract Investors?
Get the funding your innovative R&D project deserves
Every company needs to innovate and grow in order to stay competitive - but research and development required can be very expensive.
With this in mind, organisations need to plan their projects rigorously, and secure the right financial investment and support. But what are the best ways to attract the ideal investor in order to make your innovative ideas a reality? Here we take a look.
Know your business
Inside out and back to front. You should be able to answer any question about your business that’s thrown at you, preferably without rummaging through a load of notes. You’re presenting your business and your ideas, so no subjects should be vague or off limits.
Have a credible business plan
We can’t stress this enough - it’s the only way a credible investor will take you seriously.
Top tip: Make sure your key points are summarised early on in your business plan. Investors are busy people so they’ll want the key numbers and headline points to be obvious. If you don’t make a concise but compelling case you’re likely to leave empty handed.
Also, don’t forget to include an Appendix at the end of your business plan that includes a detailed list of assumptions. This will make things much clearer for the investor, and while you’re putting it together you’ll be forced to look at your numbers and assumptions in very close detail. Responses to every assumption need to be logically thought through, so they can be defended under potential investor scrutiny.
Research prospective investors to find out as much as you can
This is a particularly good idea when approaching venture capitalists and angel investors. Be clued up on what their existing portfolio looks like, and what their areas of interest and expertise are. Have they invested in similar innovative projects before? Ask to arrange a meeting, if not face to face then via Zoom, so that they can get to know you, and you them. Show them you’re serious, and that you’re keen for your project to progress.
Spend plenty of time on your financial forecasts
Your financial forecasting will be detailed in your business plan, and should be set out professional in an Excel spreadsheet or similar. At the very minimum you’ll need to include a balance sheet, a profit and loss account and a cash flow statement. We also recommend completing a month-by-month forecast for at least the next 12 months to show you’ve planned for any seasonality. Projections for years 2 and 3 will also need to be evidenced.
When pitching, make it realistic
Potential investors want to see a well-grounded, coherent description of what investment you’re looking for, and for how long. Show them what your business has already achieved, along with accurate figures to back up your successes, and tell the investor what support you’d need from them. Again your business plan should clearly discuss what your achievable goals are and how you plan to get there.
Be prepared to give the investor the chance participate
Angel investors particularly are not just a source of finance. These are people who are highly established in their careers and industry, so they’re a veritable fountain of untapped knowledge. Therefore, choose to approach an investor who is operating in your sector or field of expertise, and lay out what consulting or mentoring plans you have for them.
Yes this is a business negotiation and the tone needs to be pitched as such. But don’t be wooden about it. This new project, and your business, is your passion - your baby. So get excited! Show your enthusiasm (within reason) and spread that enthusiasm around.
Highlight the tax advantages of being an investor in innovation
Investments can be structured in such a way that is appealing to potential investors, and which reduce their financial risk. The Enterprise Investment Scheme (EIS) for example allows investors to enjoy reduced tax liability when they hold a stake in a company for a minimum of three years.
Other reliefs are also on offer too. These include the chance to reduce Capital Gains Tax liabilities to 10%, once qualifying criteria is met.
Once your innovative project has got off the ground, don’t forget R&D Tax Credits!
R&D Tax Credits aren’t new. They’ve been around for years and are highly lucrative, but the fact is far too many UK companies still aren’t claiming them. Some don’t know the scheme exists, some wrongly believe either their company or their project isn’t eligible and some are simply put off by the application process (which granted can be complex). But by not claiming R&D Tax Credits, your company could easily be missing out on many thousands of pounds of cash; money which could be reinvested into further innovation.
How does the R&D Tax Credits scheme work?
R&D Tax Credits are a government tax incentive designed to reimburse some of the costs involved in research and development projects. Any UK company of any size (and in any sector) can claim, and a vast number of project types and costs are eligible.
Essentially, if a company has undertaken a project which sought to make an advance in science and/or technology - however small - then R&D Tax Credits could well follow. This is even the case if the project ultimately failed, because it’s all about the ‘journey of discovery’, not the end result.
In our experience, the vast majority of R&D Tax Credit claimants have either recently developed a brand new project, process or service from scratch, or appreciably upgraded an existing one. As much as 33% of costs (such as staffing, overheads, materials and much more) can be claimed. So we’re not talking small change here.
Think your project is eligible for R&D Tax Credits?We strongly recommend having a look at our R&D Tax Credits page, before using our Tax Cloud portal for businesses to make a fully guided, supported and maximised claim. It’s worth reading our recent blog too: How Does Using Tax Cloud Compare To Making A DIY Claim For R&D Tax Credits?
- Submitting R&D tax claims since 2001
- 100% success rate
- Over £100m claimed and counting
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- In-house technical, costing and tax experts
- Member of the Research and Development Consultative (RDCC) committee
Meet some of the team behind Tax Cloud