Starting a new business is always an ambitious endeavour for everyone. However, this is truer for those operating in regional areas. One of the biggest challenges faced by those in less urbanised areas is securing funding. This article will take you through five challenges that startups encounter when seeking financial support in regional New Zealand.
1. Limited Access to Venture Capital
One of the major challenges faced by regional New Zealand startups is the limited access to venture capital. Venture capital is usually concentrated in urban centres. The limited presence of venture capital firms outside major cities poses a significant challenge for startups seeking investment in smaller communities.
The repercussions of such limited access are multifaceted. For example, a lack of funding inhibits the growth and development of innovative ideas and businesses in regional areas. More specifically, a lack of funding hinders a startup’s ability to:
- scale operations;
- conduct research and development; and
- logistically bring goods or services to their market.
Importantly, the lack of venture capital funding in smaller communities leads to a cycle; without sufficient investment opportunities, regional investors may be cautious about allocating funding to regional startups out of concerns that these ventures are not viable. This creates a difficult cycle for startups to break out of and position themselves as worthy investment opportunities.
2. Banking Challenges
Banking institutions in more regional areas may adopt more conservative lending practices, making it difficult for startups to secure traditional loans. Banks often assess the risk associated with lending to new businesses. As a result, regional startups may naturally face greater scrutiny due to factors like a smaller market and limited access to resources.
One way to overcome these challenges is to have a legal professional assist you with understanding the terms of different loan agreements. Such a professional can also assist with structuring a business proposal to showcase the business’ potential while being aligned with its financial capabilities.
Continue reading this article below the form3. Limited Angel Investor Presence
Angel investors play a critical role in startups, particularly in the early stages where mentorship is needed. However, regional areas will lack a network of angel investors, making it challenging for startups to find such people willing to invest in their ventures.
One way to overcome these challenges is to adequately prepare for such a funding opportunity. For example, it can be helpful to have agreements prepared that outline investor protections and clear exit strategies. Preparation is key to encouraging investors to take a chance on your startup.
4. Government Funding Disparities
Another key challenge for regional startups is that government funding initiatives often focus on metropolitan areas. While these initiatives do not explicitly exclude regional participation, a lack of consideration for the unique challenges regional New Zealand businesses face contributes to a funding gap. Therefore, it is important to participate in lobbying efforts to influence the development of government funding programs that focus on regional participation.
5. Limited Access to Networking Opportunities
The importance of networking cannot be underestimated. Networking is vital for startups to connect with potential:
- investors;
- mentors; and
- collaborators.
However, regional startups face additional challenges in this area due to a smaller pool of industry professionals and limited networking events.
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Key Takeaways
Startup funding challenges in regional New Zealand are multifaceted and cover a broad spectrum of difficulties. Collaboration between businesses and policymakers is important to develop a more supportive environment for startups across the country. Some of the key funding challenges faced by regional New Zealand include:
- limited access to venture capital;
- banking challenges;
- limited angel investor presence;
- government funding disparities; and
- limited access to networking opportunities.
If you need assistance understanding and addressing the unique challenges faced by your regional startup, you can contact our experienced startup lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page.
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