An injection of funding can turbo-charge the growth of any start-up.
Investments in young businesses have declined in recent years, but great businesses ideas still attract capital.
GPTZero – a ChatGPT detection tool – recently attracted $3.5 million in seed funding.
But what’s the best way to get funding for your business?
This blog outlines the six ways that UK companies can get start-up business funding and take their business to new heights.
Hooray helps start-ups and SMEs source the most attractive employee benefits at the right price. While capital investment counts for a lot, so does a happy and productive workforce. For free advice, call our friendly award-winning team on 01273 222805 or drop us an email at hello@hoorayinsurance.co.uk.
6 ways to get start-up business funding
1. Angel Investors
What is it?
Angel Investors are typically single investors seeking investment opportunities, using their own net worth as funds and acting privately to finance both start-ups and SMEs. In exchange for start-up business funding, angel investors will want equity of your company. Angel investors may take a hands-on approach, providing practical guidance and advice to help your business get off the ground – but this is not always the case.
Pros:
- Favourable terms
- No expectation of money back if the business idea fails
- Often want to help and see small businesses succeed
Cons:
- Give up a share of your company and future profits
- Potential surrender of control over development of the product
- Required to give a seat on the board or equivalent
2. Peer-to-peer lending
What is it?
Peer-to-Peer lending (P2P) enables businesses to receive loans from other individuals or groups, cutting out the traditional middle man (banks!). P2P online lending platforms allow businesses to make a loan request to a world of potential investors (if they pass credit checks). These websites connect borrows to investors directly, setting their own rates, terms and conditions whilst finally enabling the transactions themselves.
Pros:
- Faster application process
- Flexible loan terms
- Default rates are higher than in traditional funding
- Applicants with good credit can get lower interest rates than comparable bank rates
Cons:
- Applicants with a bad credit score will attract higher interest rate
- Sites can charge loan origination fees, late fees, bounced-payment fees
- Riskier option than banks/saving accounts
- Regulations are less strict making it a potentially riskier proposition than traditional routes
3. Crowdfunding
What is it?
Crowdfunding is finance sourced from a large group of people who each contribute small amounts. While some crowdfunding sites are aimed at creators and individuals, a number of business-orientated platforms are also available, including Kickstarter, Fundable and SeedInvest.
Pros:
- Can raise anything from hundreds of pounds to millions of pounds.
- Provides an open forum for anyone to pitch an idea
- Individuals and businesses can grow their audiences whilst receiving funding
- A variety of borrowing options available
Cons:
- Possible damage to a company’s reputation – can often be seen as a ‘last resort’
- Fees associated with crowdfunding sites
- Can take a lot of time and energy to promote your idea via social media and other marketing channels in order to create interest.
- Transparency can have downsides: increased speculation about company progress and a threat of idea being stolen/copied (make sure copyright and intellectual property rights are in place!)
4. Accelerators and incubators
What is it?
Accelerators and incubators are forms of investment dedicated to providing advice, mentoring, and funding to early stage businesses.
Accelerators are designed for businesses which already have made a solid foundation to build upon (i.e. the product or service has already launched). Incubators are aimed at companies still in the product development phase – needing assistance to get the business and concept off the ground.
Pros:
- Widens funding opportunities through connections with Angel Investors/Venture Capitalists
- Access to an entrepreneurial community including a network of alumni and experts
- Receive experienced mentorship
- Access to resources, such as office space, meeting rooms and even specialist equipment
- Acceptance into an incubator or accelerator programme can provide extra credibility to the business
- Access to structured learning programmes relevant to the business
Cons:
- Membership fees and equity stakes can become expensive
- Strict eligibility requirements making it not accessible to all
- Very competitive – not all companies will be accepted into the programme/once in the programme, companies will be competing with other companies
- Lengthy application process
- Time-consuming process taking away from start-ups focusing on other aspects of business
5. Government grants
What is it?
Some businesses are lucky enough to qualify for government grants offered both locally and nationally. The government offer over 100 grants to small businesses across the UK, typically to social enterprises and environmental initiatives.
Pros:
- Non-repayable donation
- Widely available across all industries
- Boosts the credibility of businesses
- Use the grant as a benchmark to apply for more funding in the future
Cons:
- Often complex with lots of processes and stages
- Each grant will have its own requirements and criteria, making applications lengthy
6. Venture capital
What is it?
Venture Capital is an investment fund given to high growth potential companies from wealthy individuals or dedicated investment companies. As the company grows so does the value of Venture Capital ownership stakes. VCs also offer business expertise and contacts, on top of the financial funding.
Pros:
- Build faster compared to using revenue/founders’ savings
- High-risk companies can access funding
- No repayments needed
- No cash flow disruption
- Get hands-on and expert support
- Networking opportunities
- Guidance and mentorship
Cons:
- Loss of equity in the business
- Can take a long time finding the right deal
- No turning back on investment
- The founders’ ownership stake reduced
- Funds released based on performance levels
Further reading: What is Venture Capital? A simple guide for start-ups.
Finding the right path to successful business!
Start-up business funding can really accelerate growth and see your vision become reality. It’s essential to take your time and consider all the options carefully, and get expert advice where possible.
But success isn’t just about investment. It’s also about having a motivated team of people to drive your business forward!
At Hooray Health & Protection, we specialise in helping start-ups and SMEs find the perfect employee benefits and health protection plans to support their staff and business. Our friendly team of experts take the time to listen to your specific needs and answer any questions. We supply our clients with the best quotes and deals in the UK market, getting you the best value possible.
Contact us at hello@hoorayinsurance.co.uk or call 01273 222805 for FREE no-obligation advice and support.