Your 101 Guide to Startup Funding

If you’ve just Googled “How do I fund my startup?”, you’re not alone. Securing startup funding is central to beginning your new business journey. You’ve done your research, you know your product and you know the problem you’re hoping to fix in your market. You’re at a pivotal stage where your nice-to-have daydream has evolved into a reality-to-be. Here’s a rundown of your options.

Naturally, you’ll want to know everything about how to get startup funding in the UK, the types of startup funding available to you and any secret hacks you might be missing.

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How to fund your startup

There are five main ways you can secure startup funding.

Bootstrapping

Bootstrapping is when you use your own funds to get your business started. It’s a term that used to describe the unachievable task of pulling yourself up by your own bootstrap, but now it’s become synonymous with doing something remarkable without any help.

While there’s less research on bootstrapped startups in the UK, it's reported that 80% of startups are bootstrapped by their founders in this way in the US, with most founders having around $10,000 to kick things off. Famous bootstrapped businesses include GoPro, Facebook and Dell Computers, all of which began their humble beginnings with their founder’s own cash.

Having said that, just because you start with your own money, it doesn’t close the door on welcoming investments further down the line.

Crowdfunding

While crowdfunding might seem like a new and exciting trend, it dates back to Shakespeare’s time. People would fund the playwright’s rent and living wages in return for first glances at manuscripts and tickets to shows. More recently, the base upon which the Statue of Liberty stands in New York was the first-ever advertised crowdfunding project. It was a gift from France with nothing to stand upright on.

Today, crowdfunding platforms like Kickstarter, Indiegogo, Patreon and GoFundMe help businesses call for cash from the masses. Campaigns are usually full of buzz, novelty and the excitement of what could happen if startups achieved their targets.

Different types of crowdfunding include:

• Donation-based crowdfunding, which means the donor gets nothing back other than a feel-good factor.
• Equity crowdfunding, which means the investor will buy a share of your business with their cash.
• Rewards-based crowdfunding, which means the supporter gets an exclusive perk (like Shakespeare’s manuscript or cool merchandise).
• Debt-based crowdfunding, which means the investor will earn interest on the money they’ve given you.

Hybrid models, which are a blend of two or more of the above, are also popular among startup campaigns.

A top tip to note is that shorter, more urgent crowdfunding campaigns that run for 20 to 40 days tend to do best.

Angel investors

Angel investors are individuals who have enough capital to play around with. To qualify, they’ll need to have a net worth of $1 million and make $200,000 a year. They tend to be risk-takers and can offer you a wealth of experience, consultative power and business acumen.

They usually operate on an equity-funding model, expecting shares in return for their cash and advice, often asking for a 20 to 50% stake in your business.

Venture capitalists

Of all your options, this tends to be the most idyllic for entrepreneurs. Venture capitalists (also known as VCs) are companies that invest in startups. They can provide big sums of cash, plenty of advice and a news-worthy prestige. Attaining VC backing means your business has potential – at least in the eyes of your investors.

Your first task is finding out which VCs will want to back your business. Head to sites like Crunchbase to see the full funding round details of your competitors, or other startups in similar industries (tech, travel, or finance etc.).

In 2018, there were said to be 234 active UK venture capital firms, and in the first half of 2019, London tech startups alone attracted £2.6 billion in funding – proving there’s plenty of cash to get your hands on.

FFF

An acronym for the confidants surrounding you – friends, families and fools – the latter referring to anyone brave enough to invest in an idea on the back of a napkin. Turning to the Bank of Mum and Dad won’t usually rope in a new decision maker or a demand for control, so you’ll have free reign to spend the money as you see fit.

They’ll do a great job of boosting company morale and supporting your successes, though this will often be because they fancy getting some of their money back. When considering your options, it’s important to remember the downsides to merging work life and personal life.

The stages of startup funding

Your startup funding usually happens in a sequence; starting with a seed round (usually inclusive of bootstrapping and FFF), potentially followed by support from an angel investor (and FFF again), then venture capitalists (which contribute to several sequential rounds listed as A, B, C, D and onwards).

Next, startups gearing towards an initial public offering (IPO) or those growing to be bought by bigger businesses will look at mezzanine financing and bridge loans for a six to 12 month period. And if an IPO is on the cards, the startup would then sell stocks to the public and get listed on the stock exchange.

Getting help from the Government

The Government is also keen to help entrepreneurs kickstart their businesses, offering startup loans from £500 and £25,000. You’ll also get free guidance and support on how to write your business plan, alongside the potential of free mentoring.

It’s an unsecured personal loan rather than a business loan, which you can repay over a period of one to five years at a fixed interest rate of 6% per year.