“You've to speculate to accumulate.”
It may be a tired saying, but its meaning holds true today. If you have a grand plan for your toy business but need more cash to make it happen, then you’re probably going to need investment, and you’re going to have to take a gamble in order to reap the rewards.
Over a third of the five million small and medium enterprises in the UK need external capital to help grow their business this year, according to a recent report for the Department of Business, Innovation and Skills by IFF Research. So how can they go about it?
From seed funding to grants and crowdsourcing, to private equity and venture capital firms, there’s a multitude of options available. We’ve broken our starters guide into several sections to explain the benefits and challenges of each.
This is generally finance raised for a new venture or start-up, whether it comes from an investor, bank, grant or even a family member. It’s ideal for first timers.
Shoreditch-based 3D printing doll start-up firm MakieLab secured $1.4 million in seed funding last year, led by early stage investors Lifeline Ventures and Sunstone Capital.
MakieLab founder and CEO Alice Taylor tells ToyNews how she did it: “It’s not easy. It can involve hundreds of pitches and some travelling abroad, too. So it’s not cheap, either. [Website] AngelList is super useful. Never pay to pitch. Do public pitches where you can, because it’ll train you to be brave.”
Kickstarter and crowdfunding websites are also another good way of acquiring initial funding (see ‘Crowdfunding’ later in this article).
But what if you’re already an established and fast-growing toy company?
PRIVATE EQUITY FUNDING
Trunki parent company Magmatic secured almost £3.92 million in funding this year, with Business Growth Fund (BGF) taking a minority stake in the children’s travel brand and a seat on the board.
It’s not the first time BGF has helped a toy company. Last year Air Swimmers supplier Wow Stuff received £4.8 million from the firm, which was formed in April 2011 following a Government initiative to help small and medium-sized UK businesses grow. How did Trunki attract its attention?
“We spent a lot of 2012 looking at where growth opportunities lie and where we wanted to take the brand,” says Trunki creator Rob Law MBE.
“We realised we’d require extra funds. We ran a process where we sent Trunkis out to 19 private equity houses, with a calling card in, to see if they were interested.
“12 entered the process and we did presentations to six that we felt were best suited to our requirements. Three crossed the line with offers that were in the ball park we were looking for. And we chose Business Growth Fund.
“The main thing that [could ’ve] put me off private equity is the demands on exit, or those who want to flip the business in three to five years for much larger profit. BGF are in it for the long run so we had them on our radar.”
Trunki worked with a corporate finance company to seek the investment, and will use the money on international expansion, new products, above-the-line marketing and developing the Trunki brand further. And Law wasn’t put off by the current economy.
“We found it’s a good time to get the investment, although the climate is bleak. We felt it was an attractive proposition. Once the deal was signed, the cash was in our bank the next day.”
GETTING A GRANT
There’s more to investment than million-pound sums for long-term growth; UK toy firms exhibiting at trade fairs abroad can now receive higher grants than ever before.
Funds of up to £1,500 per company are available to British exhibitors at the Spielwarenmesse Toy Fair in Nuremberg from UKTI (see ‘How to get funding for toy fairs’ for more information and contact details).
Casdon’s joint MD Phil Cassidy says: “The Government can offer plenty of advice on markets and opportunities – some of it you may have to pay for. However, small businesses should regard UKTI and the FCO network as a source of information and not somewhere to try and obtain business leads and contacts. They must travel to overseas markets themselves and keep going back for a number of years to gain any real return on investment.”
Wow Toys ships to 50 countries and its international sales outweigh UK sales. Founder Nadim Ednan-Laperouse tells ToyNews: “UKTI has been instrumental in helping us to attend trade fairs, where we meet buyers from around the world.”
Of course, you could ditch traditional funding methods entirely and embrace the digital world by pitching your product, service or idea to the masses online.
Websites like Kickstarter.com, Indiegogo.com and JumpOff.com allow companies to seek funding, usually by aiming to secure a set amount within a certain time frame.
If people like what they see, they can pledge money to make it happen. Several toys have been funded via Kickstarter, including plush creature Ubooly, plug and play sensors Atoms and multi-functional wooden toy Weerol, the latter of which is making its UK debut at the Distoy 2013 show, courtesy of Kids International Marketing.
“Kickstarter offers phenomenal exposure and market testing over traditional funding methods,” Weerol creator Derek Perkins tells ToyNews.
“The first thing anyone interested in trying Kickstarter should do is to spend time studying successful campaigns from the past year. See which video presentations draw you in and capture your attention. Emulate proven and successful techniques.
“Keep in mind Kickstarter is geared towards modern, high-end design. If you have any connections with media, bloggers and the like, I recommend coordinating the launch with the support of an article about you or your project linking to your campaign.
“The burst of early traffic to your Kickstarter page is a sure-fire way to build the early momentum necessary for a successful campaign.”
More information on Kickstarter can be found here: Can Kickstarter change the toy industry?
HOW TO GET FUNDING FOR TOY FAIRS
UK Trade & Investment (UKTI) can provide support for toy businesses taking part in overseas exhibitions – like the Spielwarenmesse in Nuremberg – between April 1st, 2013 and March 31st, 2015.
The grant level for European exhibitions is now £1,500. And if you want to exhibit at a show in a High Growth Market outside of Europe, then your firm could receive a grant of up to £3,000.
High Growth Markets include: Brazil, China, Colombia, Egypt, India, Indonesia, Malaysia, Mexico, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, Thailand, Turkey, UAE, Vietnam and Hong Kong.
Small firms are urged to contact their local International Trade Advisor (ITA) for financial advice and support.
Find your local advisor at bit.ly/12iXRPt.
For more on the UK pavilion and funding for the 2014 Nuremberg Toy Fair, contact Stuart Whitehill in the UKTI’s Overseas Fairs Division by calling 01564 784999, visiting www.ukti.gov.uk or emailing firstname.lastname@example.org
5 WAYS BTHA CAN SAVE YOU MONEY
It’s not just about raising cash, but saving it too. Being a member of the British Toy and Hobby Association can help you save more money on essential industry investments. Here are five reasons to join:
- Receive a Toy Fair discount of between 25 and 30 per cent depending on the type of stand you have.
- The subsidised safety consultancy service gives you 50 per cent off a consultation with a safety advisor.
- Save thousands of pounds on free access to BSI online standards.
- Get free access to the BTHA’s Toyograph, which helps companies comply with the new chemicals restrictions. This saves money on final product testing costs.
- Receive free guidance for toy safety, sustainability and responsible marketing.
To find out more about BTHA membership, contact email@example.com.