The good news is that there has been a huge increase in funding options for startups. However, not all routes might be available, or right, for you. Here are some factors our founders kept in mind when evaluating their funding options:
- Valuation - Most, but not all, funding options take equity in return. Giving up too much equity early on risks leaving you insufficiently motivated to drive through years of graft.
- Efficiency - Fundraising is incredibly attention-consuming, and almost always stifles business momentum. The less time spent fundraising or worrying about runway, the better. So, bigger, fewer fundraising rounds with investors who can follow on are helpful.
- Non-financial support - Most startups are not just cash constrained, they are also expertise, network and capability constrained. Finding an investor with relevant sector experience and contacts can help fill those early gaps.
- Personal fit - We strongly believe that personal fit is an absolute must – you need to trust your investors and feel they are accessible.
Startup funding options
- Small business grants – Often provide funding at no cost, particularly if your business has a social mission or is addressing a disadvantaged market. If you are taking on a grant that does have a cost, make sure you can afford any repayments.
- Friends & family – A good option if you’re lucky enough to have friends and family who can fund you. Investing within the government’s Seed EIS (SEIS) scheme minimises the risks if things go wrong (preventing awkward family gatherings!). This scheme will make the investment proposition more attractive to friends and family.
- Crowdfunding – Funding from a large number of smaller donors in return for products-in-kind or equity – generally delivered through a website. Obviously, all experiences are different, but many crowdfunding founders we’ve come across have had to drum up >50% of the raise themselves, and then use the site to coordinate the ‘process’ of the fundraise. Fundraising amounts can vary widely.
- Angel investors – Usually a wealthy individual who can often also provide advice and support, particularly if they have direct experience in your sector. The size of investment from this route varies greatly, as do the levels of non financial support they offer.
- Incubators & accelerators – Run highly structured 3-6 month programmes for startups, providing office space, management training, networking events, mentorship and funding. They can be government-led, corporate ventures, or even startup businesses themselves. There are varying views on the differences between incubators and accelerators, with some saying that incubators offer co-working space and sometimes don’t take equity.
- Venture capital – Provide larger funding amounts than many other options, in exchange for equity shares.
To find out more about funding your startup, check out some other Freston Ventures articles: