Illustration for Tomorrow's Global business special report by Huntley Muir
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Even by the hyperbolic standards of Silicon Valley, the declaration by Stewart Butterfield, founder of the messaging software business Slack, stood out.

“This is the best time to raise money ever,” he said, last April. “It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians.”

It would be easy to dismiss his comments as top-of-the-cycle baloney. Late-stage start-ups like Slack were indeed pulling in money from venture capital funds last spring on a scale and at valuations that were unprecedented: Mr Butterfield’s company had raised $160m. But in the months since, the financing environment for these so-called unicorns, private companies valued at more than $1bn, has cooled substantially.

In a wider sense, however, Mr Butterfield is right. Entrepreneurs eager to build tomorrow’s global business have a broader range of funding sources to choose from than ever before, for almost every stage of their company’s growth. A little frothiness may come out of some markets, but the structural changes of the past few years remain in place and there is likely to be more progress.

What are the drivers? In an era of moderate economic growth and perpetually low interest rates, investors on the debt and equity sides of the capital structure need to find fast-growing businesses as ferociously as entrepreneurs desire capital. New investment vehicles and structures, from crowdsourcing platforms to listed funds, are being used to bring the two sides together.

Local and national governments, meanwhile, need to spur employment and are trying to create entrepreneurial hubs on the Silicon Valley model. Internationally, governments are working together to improve and expand the functioning of capital markets, such as through the EU’s plan for a capital markets union which it hopes will boost securitisation of loans and attract new money for financing growing businesses.

European leaders are looking with some envy at the depth of US capital markets and the panoply of investment structures that channel money to small and medium-sized or growing companies. These include collateralised loan obligations, which are debt-funded pools of bank loans, and business development companies, or BDCs, which can be private or publicly listed vehicles investing in small business loans or equity. These have grown tenfold in the past decade to $64bn.

Even without regulatory help or government sponsorship, investors and entrepreneurs are finding each other. AngelList, a five-year-old US website that brings together individual investors and start-ups in need of seed funding, has spawned a wave of copycats including DealShare, a platform from the UK Business Angels Association, which aims to tap and expand the UK’s £1.5bn angel investment market. A consequence of the millennial generation’s interest in working for and founding start-up companies, is that those who achieve modest wealth are well-positioned to act as angels to individuals who follow in their footsteps.

These appear to be generational changes, although enthusiasm for angel investing will be tested if there is a prolonged contraction in the venture capital world. That contraction was in evidence late last year in the wake of disappointing flotations of start-up tech companies such as Square, Jack Dorsey’s payments company. CB Insights, the venture capital and angel investment data provider, recorded a sudden drop in activity in the fourth quarter, just 1,743 fundraising deals globally compared with 2,008 in the previous three months, for the worst quarterly total since early 2013. For now, the downturn in fundraising activity is most pronounced among unicorns, whose valuations arguably got carried away relative to public market prices.

Perhaps the biggest structural change in capital raising for tomorrow’s global businesses is due to technological innovation. A wave of invention has resulted in a raft of new investment platforms. It has shaken up traditional bank financing, too.

The rapid growth of interest in fintech— financial technology companies — “has the potential to become a game changer for small businesses”, Michael Koenitzer and Giancarlo Bruno of the World Economic Forum wrote in a report last year. “Because fintech solutions are efficient and effective at lower scale, small businesses will be one of the main beneficiaries of its disruptive power.”

From 2013 to 2014, funding for fintech companies quadrupled to more than $12bn, the WEF report said, and it could be as much as $30bn this year. That means new products “tailored to the needs of small businesses”, says the report. “These include marketplace [peer-to-peer] lending, merchant and e-commerce finance, invoice finance, online supply-chain finance and online trade finance.”

There has been a blizzard of innovation. Kansas City-based C2FO, a platform for working capital finance, has won accolades in the past year, including being named to the KPMG/H2 Ventures FinTech 100 list of most interesting start-ups. The length of time it takes a big customer to pay an invoice can be a matter of life and death for a small, growing company; C2FO is a venue where a start-up can be paid immediately by a third party, which collects from the customer at a later point. Another KPMG favourite is New Zealand-based accounting software company Xero, which has integrated its technology with that of National Australia Bank, allowing the bank to make a quicker and deeper dive into a company’s finances to try to make loan approvals easier.

Not all these innovative products, practices and platforms will prove successful, but enough will do so that more innovators will follow in their wake, says Jeremy Anderson, chairman of KPMG’s global financial services practice. When it comes to expanding financing, the options for tomorrow’s global businesses are only likely to grow, regardless of cyclical blips, he adds. “There are certainly many more channels, it is certainly easier, and the good news is, the cat is out of the bag.”

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