External funding to launch a recruitment business is surprisingly accessible, and the process of securing investment is much faster and more straightforward than many other industries.
As a start-up founder, you don’t have to sign away control of your business or an eye-watering chunk of your future profits and rewards either – the average investor stake for customers launched on the RecruitHub platform with seed capital sits within a range of 5% – 25%.
That means all founders are majority owners of their businesses with total control.
Why is it easier to get funding in recruitment than in other sectors?
Rather than gambling on a new product or concept, investors in recruitment ventures are investing in your ability as the founder to re-create (and hopefully exceed) the success you have achieved within agency environments as an employee. Your track record provides evidence to investors that you have generated results before,and with the right support you can stand a high chance of replicating and improving on these through your own company.
You’re also likely to have significantly lower investment requirements than other industries, with the majority of capital going towards keeping your bills paid while your new agency’s revenues ramp up in the first year of trading.
On top of this, carefully-structured investment models and government tax incentives to encourage start-up investment can make your company even more attractive to investors, enabling you to launch while giving away minimal equity.
Many of the recruiters we speak with regularly who are keen to explore starting their own agencies lack key information on the options available for them to receive funding to launch.
We have prepared this resource to help future founders better understand the routes and models open to them, and to make the best choice for themselves and their business.
Please note that this guide is produced and shared for informational purposes only and should not be considered investment advice.
Equity financing means the sale of shares in your business to investors in exchange for cash. It’s one of the most common routes for launching start-ups, but there are several types of investor and investment model to choose between.
The options at launch
How to maximise your equity at launch
Any deal you agree with investors will be based on an initial valuation of your company, determining how much equity you give away in exchange for the investment.
Many factors can shape this, and the more you can do to retain a strong initial equity position, the more you will benefit financially as your company becomes successful.
- Explore options to co-invest: Investors want to see that you have a stake in the business and are sharing the risk with them. By showing your willingness to co-invest, investors may give your business a higher valuation.
- Focus on long-term growth: Taking a lower salary or investing your own money shows that you believe in the long-term potential of your business. Sacrificing 1 or 2 months’ salary can make a difference in how investors perceive your commitment.
2) Present good financial forecasts and a clear business plan
- Present realistics financial forecasts: Investors want to see realistic financial forecasts that show you can effectively manage funds and build a profitable business.
- Prepare a clear business plan: A well-structured business plan demonstrates your understanding of the market opportunity and how your proposition will attract clients.
Get in touch: RecruitHub helps founders create professional financial forecasts and business plans that can be presented to investors in a clear and compelling way. Book a call with us today
3) Demonstrate strong customer (and potential customer) relationships
- Provide evidence of strong client relationships: Investors are more confident when there is a lower risk of venture failure. Demonstrating strong relationships with existing and potential customers is crucial.
- Identify target customers: Relying heavily on untested ideas or assumptions can negatively impact your valuation and ownership stake in the start-up. Clearly define your target customers and outline how you plan to win them over.
4) Leverage tax incentives
- Explore tax efficient investment schemes: Some start-up investment schemes (such as SEIS in the UK) help investors by enabling them to claim tax back for part of their investment, as well as providing additional protection against losses should your start-up venture fail.
- Reduced need for large equity stake: The safety net provided by these schemes allows investors to take on more risk without requiring a large equity stake.
- Increased equity retention: With investors needing less equity, founders can retain a higher percentage of ownership in their businesses after fundraising.
Get in touch to discuss funding with our team. RecruitHub has experience launching agencies under SEIS, providing founders access to investment capital at lower rates compared to non-SEIS models. Book a call with us today.
Debt financing refers to money loaned to the business, to be repaid in future in accordance with a loan agreement.
The key difference between debt and equity financing is that loans do not require founders to sell shares in their start-ups. They do, however, create a future obligation to meet repayments.
Key Questions to Ask Yourself
Whichever model you opt for to fund your recruitment start-up, it can be useful to work through a high-level checklist to ensure you have the right partner and deal for your short and long-term goals.
Jumping to accept the first proposal you receive can be a mistake which will hang over your venture for years, becoming more and more painful as your business grows and flourishes.
As you assess your investment options, ask yourself:
- Will you have full operational control of your business?
- Can you raise future capital and sell the business on your terms, at your price?
- Will you pay any ‘service’ charges to investors in addition to their shareholding?
- Will investors sit on the board of your company?
- Do investors expect to be operationally active within your business?
- Have you spoken with other founders who have been funded by your chosen investor?
- Are you raising more capital than your business really needs to get started?
- Have you read and understood the full investment contracts?
- Have you calculated dividend payments to investors in years 1-5? 5-10?
- Will you still feel good about your deal when your business is worth $1m? $5m? $10m?
Case Study: RecruitHub
RecruitHub was recently introduced to two senior recruiters looking to launch and scale their own agency.
They wanted to quickly hire to build a business with international reach and maximise relationships they had with clients as well as add high-performing people to their team, and needed a six-figure sum to launch.
The founders had an offer from an investor that wanted a majority stake to invest, but they were nervous about giving away control of their business and parting with such a large portion of the long-term value they planned to create.
Both founders provided RecruitHub with information about their billing histories and their plans for their business. We worked with them to build a business model and create financial forecasts to assess how much launch capital they needed and indicate how much equity they might need to give investors to attract the investment.
Our team then worked with the founders to review and understand their restrictive covenants and other legal obligations.
After review, RecruitHub introduced them to our angel network who chose to invest for an equity stake of less than 25%, and both sides agreed to investment terms giving the founders full operational control of their business.
RecruitHub supported the founders with preparation and completion of paperwork for the investment and submitting SEIS applications.
The founders meanwhile focused on launching their business – building their brand with our design team, signing up clients and lining up retainer contracts inside their first week!
Want to explore?
We take a collaborative approach to new customer partnerships, working with prospective founders to create a detailed vision and financial forecast of their planned ventures.
We don’t expect founders to ‘pitch’ us their polished business plans – instead, we work together to test and explore the viability of each new business concept, projecting financial performance, founder income and wealth creation potential.
Want to learn more?
Get in touch for a confidential discussion to get the process started.
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