Starting a business is no small feat, but getting the right funding to fuel that dream can feel like stepping into an unknown. You might be wondering how to get the ball rolling, what options are available, and how you can secure the capital you need to turn your startup into a success. Well, it’s time to dive into the world of startup funding and discover how you can make the best decisions for your business.
As a founder, you’re juggling a lot – from perfecting your pitch to getting your product just right. But securing the right funding can be the thing that either propels your business forward or holds it back. The good news is that there are numerous avenues for UK startups to explore when looking for the perfect mix of capital.
The Power of Equity investment: More than just cash
One of the most common forms of startup funding is equity investing, where you raise money by selling shares in your business. This means investors – from angels to venture capitalists – come onboard, providing you with the cash needed to grow. In return, they gain ownership in the company.
This might sound like a great option, and it can be, especially when you’re in the early stages when other sources of capital, particular loans, may not be on offer. Equity investment allows you to scale your business without the pressure of monthly repayments. But, let’s be real, there’s a trade-off. You’re giving away a slice of your business, and with that comes the risk of losing some control.
That said, venture capitalists or angel investors often come with more than just money. They bring valuable experience and an extensive network that could open doors to partnerships, additional funding, and even guidance on how to build a successful company. This kind of backing is essential, particularly when you’re looking to grow fast or need additional expertise to scale.
Want to know what angel investors look for in startups? Find out more in our blog here
Grant Funding: Free Money for Your Business?
Imagine being able to get funding without giving away ownership or taking on debt. Sounds like a dream, right? That’s where grant funding comes in. Available through government bodies, charities, and certain organisations, grants are non-dilutive – meaning you don’t have to part with any equity, nor do you take on debt with interest repayments. You get the money you need to expand or launch, without the strings attached.
So, how do you find the right grants? There are several resources in the UK that can point you in the right direction.
- Innovate UK: They offer funding opportunities for businesses working on cutting-edge innovations. If your business falls into that category, this could be a great starting point.
- Grant Finder: An easy-to-use online database that’s packed with options from various grant providers.
- The Prince’s Trust: If you’re a young entrepreneur between 18-30, The Prince’s Trust has grants that could help you get your business off the ground.
But don’t be fooled into thinking that grants are easy to come by. The process can be competitive, and applying requires careful attention to detail. Plus, there will be reporting requirements attached which can be time consuming. But if you manage to secure grant funding, it’s an excellent way to grow your business without worrying about repayments or giving up ownership.
Want to see our full list of grant funding providers? Review our list of resources here
Debt Financing and Leverage: A Balancing Act
For some, the idea of debt financing can feel a little scary – after all, it’s money you need to pay back with interest. But here’s the thing: debt can actually be a helpful tool if used wisely. By taking on debt, you retain full ownership of your company. There’s no giving up shares or bringing in outside investors.
Of course, there’s always risk involved, and it’s important to assess whether your business is in a position to handle loan repayments. One of the ways you can use debt strategically is through debt leverage. It’s all about using borrowed money to fuel growth and generate higher returns than you’d see otherwise.
For instance, if you have an idea for expanding into a new market but don’t have the cash upfront, debt financing could provide the capital you need to make it happen. But don’t just dive in blindly – you need to have a clear financial forecast, a strong plan for generating revenue, and an understanding of your repayment timeline.
Modelling and Scenario Planning: Predicting the Unpredictable
No one can predict the future, and if anyone tells you they can, take it with a pinch of salt. But what you can do is plan for different scenarios and understand how different circumstances could impact your financial trajectory. Scenario planning helps you assess potential outcomes based on different variables, such as slower growth, new competitors, or unexpected challenges.
By creating financial models that account for various “what-ifs,” you’re not only better prepared for uncertainty, but you’re also showing potential investors that you have a plan for any situation. Investors love this because it demonstrates a strong understanding of your business and the market. It also helps them see how you’ll manage risk, and that you’re thinking beyond the immediate future.
Imagine you’re forecasting growth, but you’re not just predicting a simple increase in revenue. You’re breaking it down – where is that growth coming from? Is it a new product line? Expanding your customer base? Maybe increasing your margins through better pricing strategies? Investors want to see more than just percentages – they want to know what drives the numbers. This insight into your growth strategy adds credibility to your pitch.
Where to Find the Right Funding
Now that you understand your funding options, it’s worth thinking about where you can actually find the funds you seek:
- Angel Investors: A great option for early-stage startups. These investors typically invest their own money and are more willing to take on the risk of funding a pre-revenue business or one with early traction. Angel investors will want to see a credible exit strategy, as it gives them confidence that they’ll eventually see a return on their investment.
- Angel Networks: These networks or syndicates are groups of angel investors who pool their resources together to fund startups. They provide a great way to access larger sums of money, as well as a collaborative group of experienced investors.
- Banks are traditionally the place to look for debt finance. However, if you are an early-stage business (and have less than two years trading history) many banks will struggle to lend you money. Instead look at Startup Loans and Venture debt as alternative sources of debt.
- Debt Financing Platforms: Another option for debt finance is to look at platforms like Funding Circle and Ratesetter that connect businesses with lenders willing to provide unsecured loans.Be careful to check the terms of the loan to ensure you can comply with any conditions – and that you can afford the repayments!
- Venture Capitalists: If you’re beyond the startup phase and looking to scale quickly, venture capital could be a source of funding. These investors usually come in when your business shows significant potential for growth, and they can help you get to the next level.Be aware they are investing other people’s money (which forms a fund) and so they will be required to deliver a compelling return on the investment. This brings expectations about the speed and extent of the growth you will need to deliver in the business
Want a step-by-step guide for finding the right funding? Take a look at our guide
Putting It All Together
As you can probably see, there’s no one-size-fits-all approach to funding your startup. It all depends on your stage, your growth plans, and how much control you want to retain. But by understanding your options – whether it’s equity investment, grants, or debt – you can choose the path that best suits your business.
The key is to plan ahead, create clear financial models, and understand what drives your growth. It really helps to have a clear vision of where your business is heading too! With the right funding mix, your startup can thrive, and dreams become reality.
If you are wondering if you business is ready to attract funding, answer 20 quick questions to find out.
About the author
Hatty Fawcett, Founder of Focused For Business, is on a mission to make it faster and fairer for start-up founders and business owners to raise equity investment, particularly when they are doing so for the first or second time.
Reports show that gender, ethnicity and geographical location can all be barriers to accessing funding, with less funding going to female founders, ethnically diverse founders and startups based outside of London. Hatty and the team at Focused For Business believe investment should be available to everyone, and that the process shouldn’t be over complicated or unnecessarily time consuming.
Hatty, has a strong track record in supporting start-ups and raising investment. She has worked in three startups, raised equity investment for her former business (a marketplace) and also managed some of the investments Kelly Hoppen made when she appeared on the TV show “Dragons Den”. This experience gives Hatty a unique perspective when it comes to raising investment and the ability to see funding from both sides of “the fence”.
Hatty and the Focused For Business team run the Funding Accelerator programme which has raised over £22 million for businesses that have graduated from the programme, over £10 million of which was raised in the last 12 months. Join a free Funding Strategy Workshop to find out more.
Hatty’s unique perspective on start-up funding, and the work she does to level the playing field when raising equity investment, has resulted in her being a finalist in the Great British Entrepreneur Awards in 2023, and being recognised as Adviser of the Year twice (in 2022 and 2024) by Enterprise Nation.
