The Ultimate Guide to Different UK Start-up & Scaleup Funding

The Ultimate Guide to Different UK Start-up & Scaleup Funding

The Ultimate Guide to Different UK Start-up & Scaleup Funding

Starting up or scale-up a business isn’t easy. Finance is one hurdle that some companies struggle to overcome. Without adequate finance, your company is limited in what it can do. If you’ve got your eyes set on starting or scaling a business in the UK, you need to know what funding options are available to you.

Access to capital is an issue every business will face at some stage in its development and growth. The good news is that there is a wide array of funding avenues for you to choose from. Whatever your business model is, there’s a funding opportunity out there that will work for you.

Our guide takes you through different start-up and scale-ups funding options available to businesses in the UK. We’re looking at each type of funding, who they’re aimed at, and the benefits of each.

  1. Bootstrapping for start-ups and scale-ups

If you’re starting a business, bootstrapping can be an option. This funding model focuses on keeping your finances lean and growing organically at a pace that works for you. The majority of start-ups work by bootstrapping, operating off the founder’s savings as the seed capital.

Are you limited in savings or cash? You can bootstrap your business by offering services that plug into your business, whether it’s consulting or design work.

If you’re planning on using the bootstrapping method, there are two things to keep in mind. You need to work out the minimum working capital you need each month and keep a tight eye on your books. You can’t afford to waste money when you’re on a bootstrap.

  1. Venture capital

You’ve likely heard about venture capital if you’ve landed on this article. It’s a private equity investment provided to small businesses and entrepreneurs who show potential for growth and development. Most venture capital is aimed at the fintech, technology and life science industries, but there are exceptions.

These third-party investors take on the financial risk related to your start-up or scale-up, with the hope of making a return on their investment.

If you’re planning to go down the venture capital route, you need to be ready for the competition. You’ll need to perfect your pitch, keeping it sharp and brief while showing your business’ potential. You want to research the venture capitalists and tailor your pitch to meet their interests while showing how they came to make a return on their investment.

You’ll settle on a ‘term sheet’ that sets out the amount each investor is prepared to invest in your company. You want to be thorough with your research, including having your business properly valuated so that you’re not giving away shares at a bottom-dollar price.

Before you jump into the world of venture capital, you want to do your research to understand the complexities behind it. There are hundreds of venture capital firms located across the UK, offering both start-up and scaleup funding. You want to research potential firms early on and plan accordingly.

  1. Incubators (start-up) and accelerators (scale-up)

While these two funding options are similar, they’re specifically designed for either start-up businesses or those looking to scale up. Incubators focus on businesses in their infancy, while accelerators are for businesses that have gotten on their feet but need some support.

This option is ideal for entrepreneurs who want more than just cash. These schemes usually provide mentoring and advice, along with occasional coworking spaces to help facilitate your operations. Accelerator fundings programs can be just as competitive as venture capital.

While incubators have their appeal, they’ll usually want an equity stake in your business before assisting you. Just like venture capital, some businesses specialise in both incubator and accelerator schemes.

Not every scheme is the same, so you want to research to find the best match for your business.

  1. Equity crowdfunding for scale-up

scale-upOne option is to raise capital by selling off shares in your company to individual investors without listing your company on the stock exchange. These investors will make a profit if your business proves to be a success or a loss on their investment if not.

The benefit of equity crowdfunding is that it provides an opportunity for you to get feedback from others linked to your business. You’ll also have a team of advocates willing to give credibility and exposure to your business.

  1. Debt financing

Don’t be immediately put off by the word ‘debt’. In some cases, debt financing is a better idea for your business. Depending on your business, it may be a more cost-effective option. Bank loans aren’t typically an option for start-ups as you need to be able to prove that your business has capital coming in, but it is an option for scale-up businesses.

As a start-up, you may be able to take out a short overdraft to help finance your start-up, but your debt financing options will be limited as a start-up.

  1. Government funding for scale-ups

While most businesses focus on looking at private funding options, don’t overlook government funding. There are multiple options available with a focus on regional and industrial development, including grants.

The one thing that can put entrepreneurs off applying for government funding is the application process. You can expect there to be strings attached to the funding and for the process to be long-winded and to take several months. Just like venture capital, government funding is competitive, and you want to present your business in the best light.

One form of government funding that start-ups and scale-ups can take advantage of is research and development tax credits. You may be able to claim up to 33% of what you spent on eligible research and development from HMRC, although this will come after your yearly accounts are made.

While access to capital can be a hurdle, it’s one that you can overcome. Whether you’re a start-up or an established business looking to scale up, there are multiple options available. You want to do your research and find the funding option that works best for your business needs.

Do you need an FD to help with your Private Equity fund raise?

If you need an experience senior financial professional with recent fund raising or scale up experience, then we can help, our candidates are skilled at forecast modelling and producing pitch decks that work and have raised funding for their clients.  Having the ability to pitch and convince funders to invest is necessary skill to close out funding rounds.

An existing and extensive network of contacts in the PE space is a real asset as it means more potential funding partners can be approached and an existing relationship combined with a proven track records is a great way to reach through to the decision makers involved.

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