The way through the woods

Too many clients still conflate funding with investment. Know the difference, and choose your path wisely, writes Karen Holden


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Funding and investment are words I hear daily as many of my clients start their enterprising journey. The two terms are used interchangeably. But I define them as very distinct opportunities. Many clients fail to understand the array of options available to them, and the risks and benefits of each. Too often, people dive in, unaware – because of desperation, excitement, naivety or ignorance – that there is more than one path open to them.

Because of this, my legal practice seeks to fill a space that the finance sector has created. We can discuss the many options available in the market without conflict or personal gain; explain the differences; highlight the legal pros and cons; and start them on the right path for them and their business. We say “without conflict” as we do not profit from whichever route they take.

Take debt financing, bank loans, bank growth enablers and corporate bonds. These options are very much ‘funding’ for your business, as no equity is passed over – although creditors will want to see a payment vehicle and a detailed plan. These are in sharp contrast to crowdfunding and angel investment. While equity investment might mean that you are not ‘on the hook’ for a loan or to pay back, you have released a share of your empire, and you may have to accommodate investors’ requirements.

There are many opportunities, rates, structures, brokers and platforms. But how do you know where to start?

I set up in 2009 with £5,000 and a case of files. I made the common mistake that many starting out on their own do – I extended too much credit to clients, failed to find the right accountants at the outset, and lacked the requisite understanding of my cash flow. But seven years later I am a far better solicitor, since I can understand and offer practical and legal advice in relation to starting up, surviving and developing a business. I use my mistakes and the strengths I discovered to help my clients avoid their own bumps in the road.

As a result of my experiences, I identified gaps in the legal and financial sectors. This discovery has enabled my company to advise clients on various alternative routes. And we ourselves have sought to develop these avenues further, for example:


Creating corporate bonds anywhere from £5-20 million, which permit companies to raise funding from retail, overseas and sophisticated investors paying an agreed market rate interest set by the company. There are no personal guarantees or investor requirements to meet, no equity given away and companies remain in complete control of their business. However, they must have collateral and structures in place.


We frequently examine the banks’ growth enabler programmes, work with them on their ability to borrow on intangible assets, place clients on mentoring programmes, and of course clients can go for straightforward market rates loans. Understanding and knowledge of banks’ criteria and outlook is invaluable guidance for clients who want to go down the route of debt funding.


Knowing the pluses and minuses of crowdfunding and angel investment. These are often at the forefront of most clients’ ambitions. The TV show Dragons’ Den, in which would-be inventors pitch for business to a panel of limelight – and equity – hungry celebrities has a lot to answer for. It often sends people on a pitching frenzy, willing to give up inordinate amounts of equity for relatively modest investments. Such pitches remain a perfect route for some clients, but for others the terms are just too prohibitive for their business to truly grow. So we try to prepare them for this route, if that’s the way they want to go, fully armed with all the information necessary to protect themselves.

For many, the investment and funding landscape is a minefield. When clients look at the vast array of options available to them and try to understand each one, they often fall back on simpler, more common mechanisms regardless of whether that option is best for them. Sadly, those that take the wrong path can very rarely get off it.

Anyone starting up or expanding a growing business needs to be prepared to take the next leap by going in fully armed with all the information and options available to them. Find someone independent and free from conflict to offer this advice, because you may end up on a path which is not suitable for you. Good lawyers help clients understand the different options out there, let them make an informed choice, introduce them to the people in the market that can move them forward, and are always there to protect and support them. They advise on the initial terms, the paperwork, the risks, the options and structures. Their clients’ success is their success!

Karen Holden is founder of A City Law Firm, which won Most Innovative Law Firm of the Year London 2016, and is listed in the Legal 500