How to fund a new business

When it comes to starting a business, having an amazing idea is only half the battle. To actually get a business off the ground requires patience, resilience and of course, capital.

Check out these top startups currently hiring in the UK.

To secure said capital you’ll need to have devised a business plan, value proposition and asked yourself questions like: ‘How will my business generate revenue?’ ‘How many employees will I need?’ ‘How am I different to competitors?’

Funding your startup can seem like an insurmountable obstacle but there may be more options available to you than you think.

Read on for our top funding tips.

Learn more about growing your startup.

Save, and fund it yourself

Save, and fund it yourself

Depending on your personal circumstances saving up and funding your business yourself can be a great option.

For one it means there’s less risk involved as you only stand to lose what you put in. For another, you maintain autonomy over the direction of your business.

The obvious downside here is that it may take a long time to build up enough funds, meaning you have to stay in your job and are unable to give your business your undivided attention.

Personal loan, overdraft, credit card

Personal loan, overdraft, credit card

Another way to fund a new venture is to procure a business loan or credit card. This won’t necessarily be what’s used to hire employees or rent a space but for smaller business expenses such as laptops or phone bills.

This can be a quick way to inject some cash into your startup but carries the risk of damaging your personal credit rating if you fail to make repayments.

There will also be a relatively low limit to what you can borrow.

It can make your idea feasible, but you may rack up debts, and you will have the same problems with scalability and credibility that a purely self-funded startup will have.

Friends and family

Friends and family

Your friends and family may be another possible source of financial support when you’re starting out.

This has the obvious benefits of more favourable interest rates and repayment structures but comes with the risk of blurring the lines of personal and professional relationships.

If you decide to turn to your nearest and dearest for investment be sure to set out clear boundaries from the offset: What role (if any) will they play in business decisions? How long before they can expect to see any money back?

Crowdfunding

Crowdfunding

Best suited to products or projects that serve a social purpose such as charities or the arts, crowdfunding is a relatively easy way to raise funds from multiple sources.

Platforms like Kickstarter and Indiegogo allow you to promote your idea to a wide audience of potential backers and convince them it’s a worthwhile investment.

These sites usually require a set target figure and deadline to be put in place but the pledges themselves aren’t fixed. They can range from £1 to over £1000, depending on the platform and project.

If you fail to reach your target the pledged funds will either be returned to the investors or put towards your business anyway, again depending on which site you use.

Other crowdfunding platforms are geared towards specific industries or locations. For example, Medstartr caters for people trying to fund or invest in projects related to the medical industry while Patreon hosts projects lead by creatives such as recording an album or creating a new podcast.

Whether you go down the reward, donation or equity route will determine whether or not investors will get a return on their pledge.

Partnerships

Partnerships

Partner with a provider who will accept payment in services or goods rather than capital.

For example, you may offer your product in exchange for office or advertising space, or legal and accounting advice.

Partnerships have the added advantage of expanding your network and building relationships with people who have the potential to further your business. You may meet future clients, hires or even investors through the connections made with partners.

Incubator and accelerators

Incubator and accelerators

Depending on what stage your business is at, you may be a good fit for an incubator programme.

Incubators and accelerators are designed to kickstart growth for high potential startups, providing guidance as well as financial support.

Each will vary in terms of offerings but a coworking space, mentorship, workshops, community events and access to angel investors or venture capitalists are common features.

Duration of the programmes varies significantly from one to the other. Top UK based incubators for tech startups include Seedcamp, Level39 and Innovation Warehouse.

Look for government grants

Look for government grants

There will be a number of business grants available from your local authority or government scheme.

Most grants are awarded on the basis of generating employment and boosting the economy. A good place to start when seeking government finance is to check out Innovate UK and research the types of funding you may be eligible for.

Competition for these grants will be fierce but they have the advantage of not having to give away part of your business in return for funds.

Be prepared for lots of administration and potentially lengthy waiting times.

VC funding

VC funding

VCs are professional investors who fund startups in return for a stake in the business.

The amount of money on offer from venture capitalists will be significantly more than could be secured from a bank loan or personal backer but carries the risk of diluting your vision and authority over your business.

This is not necessarily a bad thing, venture capitalists can offer a wealth of knowledge given their expansive portfolio and experience of accelerating startups.

Offer services for services or equity

Offer services for services or equity

At the junction between self-funding and being backed is this kind of exchange.

A kind of free incubator value exchange - the opportunity to work with other organisations, without money changing hands.

As long as you can work for free, you can offer your nascent services to established organisation in return for office space, legal help or marketing collateral.

A good old contra in which both parties benefit from the deal, but also form relationships that may lead to future collaboration.

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