Ask the credit committee: what makes a good funding strategy?

African American businesswoman raising hand, asking question in business conference

A well thought out funding strategy is vital to a successful innovation loan application. The Innovate UK loans credit committee share their insights.

The questions posed to the credit committee included:

  • what makes a good funding strategy?
  • how do you engage investors and frame feedback?
  • what are common challenges to raising equity?

This blog hopes to provide insight into these questions by asking the non-executive members of the Innovate UK loans credit committee. The credit committee are the decision-making body of the innovation loans programme. On our panel:

  • Hanadi Jabado, Managing Partner at Sana Capital is a seasoned start-up advisor, angel investor and a non-exec
  • Lisa Greenhalgh, Director at LSG Advisory, is a qualified management accountant, non-exec, finance director and investor
  • Margarita Skarkou, Investor at 2150, leading climate and sustainability venture capital firm; experienced venture capitalist (VC) and non-exec with a background in engineering and corporate finance
Business people huddled around paperwork on table

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Why is a good funding strategy important?

Before we get into the question and answer (Q&A) I wanted to highlight why having a proper funding strategy is so important when applying for an innovation loan.

Innovation loans are used to fund eligible costs of the specific research and development (R&D) project only. Other inevitable costs of growing a business, such as working capital and sales and marketing, will naturally require other means of funding.

Most scale-ups cannot be funded by retained earnings or grants alone. Equity raises (either via direct share capital or a convertible instrument) are therefore a common way of funding early-stage businesses.

Alongside addressing funding needs to underpin the technical and commercial aims of the business, professional investors (for example: angel, VCs, regional funds) can add value as follows:

  • a meaningful indicator of support from a third party corroborates the level of potential in a business, including commercial and financial capabilities
  • ‘skin-in-the-game’ from an investor means they are incentivised to make the business succeed
  • investors with deep pockets can further support growth
  • lead investors may also be able to bring further investors in or lead larger equity raises
  • investors may provide support via an advisory or non-executive director position, helping to provide governance and challenge to management team decisions
Businesswoman wants to ask a question on a seminar

Credit: VioletaStoimenova, E+ via Getty Images

Q&A with the credit committee

Question: What key elements do you look for when reviewing the funding strategy of a loan applicant at credit committee?


Quite often, loan applicants are firefighting and trying to raise funds in isolation, to meet their immediate funding needs. The question I ask is whether the loan applicant has a funding strategy that goes beyond the fire that they are trying to put out. I want to see a coherent plan to finance the company over the next couple of funding rounds, with clear milestones and value inflection points.

It is also key to understand who they are raising from, and whether it is smart money.

How advanced the conversations with these investors are. Loan applicants often mistake the interest of the potential investors for firm commitments.


I would look for the problem they are solving and why the need for their solution. I would also look at the track record of the management team, whether they demonstrate a good understanding of the market they are targeting (size of market, competition etc.). The numbers need to add up and I would want to see realistic revenue and growth targets along with sufficient cash headroom throughout. Businesses would need to be realistic about timescales for fundraising, which is a hard and very time-consuming process, always underestimated.

Question: Outside of your role on the Innovate UK credit committee, you have experience in the world of venture capital. Do you have any guidance for how to engage and communicate with potential investors?


Do your homework on the pool of potential investors and approach the right kind of investor at the right time from a thematic and stage point of view. Most notable angel syndicates and VCs will outline their investment strategy on their website. Being familiar with this, tailoring the message and prioritising investors is a great starting point. Practice your pitch as much as you can and actively seek feedback from investors prior to launching a funding round – taking part in VC office hours and accelerators (many of which are free and do not take equity) is a great way to get to know investors in a more informal setting and increase visibility for your start-up. Be persistent if you do not receive a response from a relevant investor the first time, but know when to accept a no and move on. Talk to other founders in a similar thematic space who have already raised equity; seek feedback from them about their investors and process overall.

Question: What do you see as the main challenges to a relatively new business seeking equity finance, and do you have any general guidance?


It is notoriously difficult for an early-stage business to get equity funding. Investors want to see revenue generation and some traction so do not always wait for the finished article to get something to market to enable revenue generation and develop product further. Investors will also look at the same things that the credit committee does, however the key is someone who knows the numbers inside out when challenged.


Identifying the right investor(s) who can understand where the business and product are today, but also, importantly, can share and push the founder’s vision further. Remember if things go well this is a long term partnership, not just a quick cash injection so finding the right backers, especially if they will be on your board is key.

Communicating that vision; articulating the problem being solved and why this has the potential to be the best commercially scalable solution.

Negotiating a term sheet and valuation. I highly recommend resources like ‘Venture Deals’, talking to other founders who have successfully raised equity and a lawyer (many law firms offer pro bono advice to early stage start-ups).

Question: A company may seek investment from many investors before securing a positive response. How should companies consider feedback around a negative response, and how do they separate a polite ‘no’ from a potential future investor?


If you receive feedback around a negative response, it is important to start by thanking the person who drafted the feedback. I would then read the feedback in detail and analyse it:

  • are there ways to articulate your pitch better for the next investor?
  • are there elements you can use to strengthen your business case?

I would also keep in mind that investors see about 1000 investment opportunities a year but only invest in 10!


My key takeaways from the brilliant insights of our panel include:

  • presenting a coherent funding strategy is an extremely important part of a successful innovation loan application
  • you should focus on both the short and the long-term needs of your business to give space to grow. This could mean raising more equity and raising it earlier than required for your immediate cash needs
  • ensuring you are on top of the details including financial items and commercial strategy is important, both to the credit committee and potential investors
  • understanding the investor and that negative responses can mean different things so analysing feedback is important. This can help you find the right investor
  • going to market with early versions of your product can demonstrate product-market fit and commercial traction which is important to investors

To understand further areas of focus for the credit team, check out Pam’s blog for insider tips from a credit specialist.

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