How to go about funding?
Now we’ve gone through some of the key steps in taking your business idea and making it a reality, the next thing to consider is how it’s development and growth is going to be financed. There are a number of different approaches to this and it really depends on the type of business you are creating and the stage which it is at.
The best part is that being a university student or recent grad means that there are even more funding options then there would otherwise be! So for this blog, we’ll go through all the fund- raising methods currently available as well as provide links to investment opportunities and competitions.
To begin with, we’ll look at three broad methods for funding and then list all the available options for each funding level.
This is, perhaps, the easiest funding to access and where every entrepreneur starts: self- funding! In the early stages of starting up your own business, it can be difficult to convince people to invest in something which is largely just an idea for a business with little traction and no product or service to show. As a result of this, you will have to use any personal funds or get funding from family and friends to help you get your idea off the ground. The benefits to this are that friends and family are usually very willing to help and there are far fewer formalities to go through compared to with later fundraising methods.
For later fundraising methods, debt funding is another viable option. As suggested by the name, debt funding involves the raising of funds which you effectively borrow and have to pay back. The debt that is incurred has to be returned whether or not the business is successful, but there are a number of different schemes for startups which offer preferable rates.
This form of funding is often synonymously referred to as “investment” in everyday conversations. When you hear of businesses gaining investment, whether it be on Dragon’s Den or a Silicon Valley startup raising, the investment which is injected into the business is exchanged for equity - this being shares in the business. In short, this means giving away a percentage of ownership of your business (anywhere between 1 - 100%) in exchange for money in return.
This form of funding can also be broken down into broad areas depending on the stage which the business is at:
This investment round often takes place prior to approaching institutional investors. The investment occurs when the business is still in the early development stages and the financing is used to create an (MVP) minimum viable product.
Investors involved: Family; friends; university grant programmes
Investment range: Anywhere up to the region of £150,000
A Seed Round follows this, with the business using it to raise a small investment round to allow them to get the business to a point where they can start generating revenue. In raising this round of money, not only can it accelerate the growth of the business, but it also proves traction and can persuade larger investors to invest in the business.
Investors involved: High net-worth individuals (Angel Investors); university investment programmes
Investment range: Between £500,000 and £1.5million
This is the first round of “Big Money” which you’ll raise for your business. Generally, this is where you will be looking to raise in the millions. At this stage, the business will have been generating revenue and demonstrating clear traction.
Investors involved: Angel investors; venture capitalists (VC’s)
Investment range: Between £2million and £10million
Series B and C
Following the first venture round, the business will have grown considerably in terms of its revenue which it has generated and the number of customers which it has. Series B and C can be used to further accelerate this growth.
Investors involved: Venture capitalists; private equity firms; hedge/investment funds
Investment range: £5million+
When starting up your business though it is likely that for the first year or two, you will only be raising at pre-seed and seed levels. For this reason, we’ve provided a whole list of links in the Google Doc linked below detailing where you can get investment! Remember, more and more universities are setting up their own enterprise schemes and funds so be sure to check what they offer, as this could be some of the easiest funding you get, whether it be a grant or investment in the business.
Here are some other useful links regarding funding: