If you’ve read Unfold’s post on how to approach investors, you’ll know that funding is something which you should attempt to preempt the need for wherever possible to give yourself time to set the foundations for successful bids in the future.
Below they’ve given a summary of the most common ways of gaining a capital injection for your business, as well as some tips on securing them from businesses with a track record of success in the investment and funding sphere:
This is the process of using your own, or very little, cash or capital to fund your business. We had to acknowledge this to begin with as it’s one of the most common methods of funding for brand-new businesses with most entrepreneurs kick-starting their business using their own savings. This is a great option as it lets you get started straight away, doesn’t involve giving away any share of your business and leaves you in complete control. The downside, of course, is that it eats into your own personal finances and limits your ability to grow and invest in your idea.
Equity financing (incl Crowdfunding & rewards-based)
This is a common choice for business expansion and involves raising capital through the sale of shares (or equity). There is no obligation to repay the money invested, however, you will have given away a % of your business which means you’ll have to deal with shareholders moving forwards.
There are several different types of investors that will look to buy equity, all applicable for different levels of business. Here are some of the main ones:
Angel investors – these are generally early stage, seed/first-round investors. They’re individuals with capital and business growth experience who invest in startups in exchange for equity. Angel investors can also represent something called a Family Office, whereby they manage a pool of family-owned money.
Angel networks/Syndicates – again, generally seed/first-round investors for early to mid stage ventures. Angel networks/syndicates are groups of semi-independent angels often specialising in specific sectors. They’re often more hands-off than completely independent angels.
Venture Capital funds – this is institutional investment, generally for series A rounds and beyond. These managed pools of funding are distributed to high-growth potential start-ups or scale-ups. Venture capital tends to come from investors, investment banks and other financial institutions.
Stories and advice from businesses who have achieved investor success…
We spoke to some of our clients and partners here at Unfold about their experiences fundraising. Here are some of their top tips for securing investment success.
Georgia Stewart, CEO of Tumelo on the businesses’ 2.5m seed investment:
Georgia Stewart’s investment success story with Tumelo is one which all startups can learn from. Tumelo has successfully attained over £2.5m in seed investment from angel investors.
Georgia’s advice for tech start-ups
- Talk to other founders you know about fundraising, get their advice.
- Create a fantastic business plan & pitch deck, practice your pitch out load to friends & family.
- Build a flexible financial model that you can a) send to investors and b) use yourself to test scenarios.
- Make friends with investors early and don’t directly ask them for investment, make them aware that you’re raising and give them a month time-frame to respond.
- Don’t let rejection letters stack up, analyse and learn from them
Georgia has written in detail about her experiences of securing investment – not one to be missed if you’re in the process of raising money, check it out, here.
Matt Franklin from Payaca on navigating the funding landscape:
Fundraising is one of the trickiest areas to navigate and it’s very hard to find good resources on how to approach it. People in fundraising aren’t always upfront with their intentions which can make it even harder to navigate, especially if you don’t have experience of raising money before.
I would also say that it’s really important to filter the feedback you get from investors. I’ve found that often tangential or anecdotal experience on the investor’s part gets applied to your business model and it won’t always fit. Being open to feedback is important, but making sure you listen to the right feedback is even more so!
I would recommend Bristol Private Equity Club (BPEC) on this topic too. They have a very broad set of experiences which has been really helpful for us, bringing in a wide array of resources and insight. We still need more of this in the South West though!
A view from the investor perspective
Ash Phillips, founder of Dffrnt and Angel Investor/mentor working through Ada Ventures.
I tend to look for deals that align with Ada Ventures’ core values, to ensure I can deliver deals that fit with the fund thesis.
My top tips for anyone looking to raise today is to build relationships, don’t be afraid of transparency, stick to your vision and always remember to have an “ask”.
Relationships are key in business and at a relatively early stage (Pre-seed to even Series A) an investment can be predicated on you & your team just as much as metrics (if not more so).
You must also find investors you’re willing to talk to all the time, about the good days and the bad days. It’s a marriage, so find people you’re happy to build with for years to come.
Your vision is your vision. Everyone has an opinion and you should stay open minded to hear their thoughts but you’ve undoubtedly thought about this problem/experience 1,000x longer than they ever have. Sure, take advice on, but stay true to that and build what you know should exist in the world.
Finally, remember that an investor should earn their place in your business just as much as you should earn their investment. It’s a two-way street. Too many startups see this as a ‘cap in hand’ experience. It shouldn’t be. If your company is as amazing as you believe it is, then people should fight to get involved. Ask people why they should be in if they want to invest, and if you want them in, then ask them to get involved. Nothing will happen without closing the sale.
Grants, R&D and loans
Investor funding isn’t the only way of financing your business growth, however. Government run grants, R&D schemes and loans can offer a fantastic opportunity for eligible businesses.
R&D finance or R&D tax credit loans – a type of debt for eligible companies to access R&D tax credit loans earlier, in the form of a secured loan.
Innovation grants – Grants available for emerging technologies and innovation.
R&D tax credits – the easiest form of government funding, particularly for tech startups. Companies can get up to 33% of their eligible R&D activity expenditure repaid to them by HMRC.
Regional growth funding – growth funding offered locally, often offering less than £1m
Small Business Research Initiative (SBRI) – small competition opening the public sector up to cutting edge technology
Business/startup loans – government backed financing – borrow up to £25,000 with 6% interest.
Granted Consultancy’s advice on the best opportunities available to tech businesses.
Granted Consultancy is a South-West based grant funding consultancy, with years worth of experience helping businesses win in the competitive grants landscape.
The UK is a world-leader in technology development, widely considered Europe’s leading country for global technology investment – £3bn has been invested through venture capital investment into the UK’s technology sector. In addition, the UK has the highest number of initial public offerings (IPOs) and more tech ‘unicorns’ created than anywhere else in Europe.
The technology sector underpins all sectors from financial services and high-value manufacturing to retail and agriculture. As a result, many of these sectors have specific ‘Tech’ industries, including FinTech, BioTech, EdTech, AgriTech, and CleanTech.
The technology sector is often the most attractive destination in any economy, due to its transformative effects on society, high-wealth job creation and ability to revolutionise the world we live in. This is no different for grant funders, with multi-millions invested in stimulating the development of innovative technology solutions.
UK and EU grant funders are looking for:
- Game-changing, disruptive and innovative ideas
- Novel new products, processes or services that are significantly ahead of others in the field
- Strong and deliverable business plan that addresses market potential and needs
- Team with the necessary skills and experience to run and complete the project successfully and on time
- Realistic management, mitigation and impact minimisation risk plans for the R&D project
- Sound, practical financial plans, and timelines that represent good value for money
- Clear, evidence-based plan to deliver significant economic impact, return on investment and growth through commercialisation, as soon as possible following project completion.
Many businesses may also be eligible for R&D tax credits.
We hope this has offered some valuable insider insight into the process of attaining investment and some of the other funding options which might be available to your business. Thankfully there are lots of options out there, albeit competitive ones.
Harry Cobbold is Managing Director at Unfold, a Bristol-based UX and digital development agency. Harry has lead numerous award-winning teams, delivering digital experiences that bring businesses closer to their users and drive better results. At Unfold he helps ambitious start-ups and scale-ups accelerate their business by simplifying their user experience and creating marketing-leading digital platforms.