This involves raising capital from a large pool of people, including friends and family, and it’s a great way to gauge public interest in your product, service and business.
Where your business involves goods, you may raise funds through consumer-based crowdfunding (ie raising capital by pre-selling your product to those interested).
If your business involves providing a service, you may raise funds through equity crowdfunding. This entails giving investors shares in return for their investment. Since the return for their investment is tied to your business’ success, they'll be motivated to see through your startups’ success.
Generally, large banks would be reluctant to issue loans to new businesses however, private lenders, such as Funding Circle, are willing to assist new companies. As with typical loans, you’ll have to repay the sum borrowed with interest.
Angel investors are high net worth individuals that seek to invest in new businesses at an early stage in return for equity. They tend to already have successful businesses and are well-versed in the industries they’re investing in. They can also bring in resources since they tend to be well-connected.
These investors usually join together to form angel investors networks. Pitching your business to a network may be beneficial since it introduces the business to various investors at once. Even if the network then decides not to invest in your business, you may attract a specific investor.
Venture capital firms
Venture capital firms invest in new businesses with strong long-term growth potential in exchange for a stake in the business. They’ll usually be asked to be on the board of directors. Their goal is to make high-risk investments for very high returns by way of an acquisition or an Initial Public Offering (IPO).
It can be challenging to persuade these firms to invest in your business unless you can show that your product is a product-market fit. Hence, it may be wise to raise capital via other means before applying for venture capital funding (eg funding from angel investors or crowdfunding).
Similar to engaging angel investors, these firms can introduce you to their network and other opportunities such as partnerships. They can also offer guidance in crucial areas including recruitment, marketing, financial management and legal matters.
Government schemes and loans
There are a series of government initiatives to help fund new businesses. The main ones are:
- The Seed Enterprise Investment Scheme (SEIS)
- Start up loan
- The Enterprise Investment Scheme (EIS)
The SEIS and EIS are both government initiatives that incentivise investors to invest in new businesses by offering them tax relief. The SEIS is suitable for companies at an early stage while the EIS is appropriate for established companies. For more information, read SEIS and EIS.
The Start up loan is a personal loan from the government. If successful, you’ll also receive help writing your business plan and free mentorship for up to 12 months.
For further information on the government's efforts to help fund businesses, use the Business finance and support finder.
Small business grants
Various grants are available to startups, such as:
Use the Business finance and support finder and select ‘grants’ to find out more options available for your business.
Incubators are programmes that assist you in business development. This can include providing early-stage investments, office space, and mentorship. Before applying, you should make sure that the programme caters to the industry you’re seeking to enter.
These programmes can also help grow your network as you'll be surrounded by other ambitious entrepreneurs that are growing their businesses.