Every entrepreneur, new or seasoned, goes through having to raise money at some point. Depending on which stage you are at with your business venture, you always have different options and therefore should consider a different strategy when it comes to pumping fresh cash into your business bank account.
Whether you’re at the stage of getting your first customers, or you’re intending to scale and grow your business, without a doubt you will first have to get some financing which you will most likely need for things like building a team towards a certain goal, experimenting with new marketing efforts, or simply paying rent for a new office. After all, you have to break some eggs to make an omelette, right?
So what are some possible funding sources for your business to get up and hit the ground running?
1. Receive Government Startup Grants 🏛️
Governments give a great deal of help when it comes to funding a business. From funding energy efficiency start-ups to disruptive solutions in supply chain management, there are hundreds of possible grant schemes that a business could apply for. However, attaining the ultimate goal of receiving a grant is no easy feat. For starters, you need to know which grant you are eligible to apply for.
One possible investor for your business is The UK government's UKRI (UK Research & Innovation) who hands out grants that total up to £3 billion per year. UKRI consists of 7 research councils that deal with science-oriented ventures, Research UK and Innovate UK. Innovate UK is an innovation-oriented body that gives out grants ranging between £25,000 and £10M. Whether it’s a newly founded business or a multi-national corporation, Innovate UK will grant funds for innovative projects in fields like emerging and enabling technologies, health and life sciences, infrastructure systems and manufacturing and materials. Applicants are given grants through yearly held innovation competitions with varying themes.
The European Union also offers specialised funds under 5 themes; regional & urban development, social inclusion and good governance, economic convergence for under-developed regions, agricultural/rural funds and maritime related projects. Much like in the UK, every programme has a different scope with yearly topics and themes.
💡Some Golden Rules to Take to Heart💡
In order to receive these grants, there are certain requirements you need to meet that are specific to the type of competition you will enter. Whichever scheme you will go with in your pursuit to scale your business, common rules and best-practices always apply. You need to read, learn and talk to people, making sure you have all points covered.
Gather as much information as possible – reach out to the institution who will be giving you the grant, as well as to other people who have already been through the process to get that particular grant, or one similar to the one you are applying for. The more people you talk to, the more insight you will gain on what to expect or how to prepare in order to receive the grant. Websites and documents outlining the grant requirements give you only so much, whereas what is hidden in between the lines is often grasped by talking to others who have already been through the process.
Make sure your business plan is bulletproof – not just for a grant in particular, but for any type of fund raising that you will be doing you need to write a business plan so you are able to show that you understand the needs of your business to people who are interested in investing in your business. If your business is already trading, you should also include things like checks and balances, loans you've already taken out and other cash flow related activity you have recorded.
Have a plan for after receiving the grant – because they will be asking you about it! How are you going to use the money? In both your business plan and grant application, is it crystal clear in what area of business expansion you are going to use the money? Make sure you have a clear use for the money - hiring more developers, purchasing new equipment to increase output and so on. Try to crunch some numbers and be prepared to show how your spending of the grant will increase the numbers for your business.
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2. Apply for Start-up Business Loans 🏁
The UK government also backs small businesses that were founded within the last 24 months, under a business loan scheme which grants entrepreneurs between £500 and £25,000 as an unsecured personal loan. Led by startuploans.co.uk, a government backed not-for-profit organisation; applicants pay an interest rate of 6% per year when paying back their loans, with the possibility of opting into a 5-year repayment plan.
At an average loan pay-out of £7,200 per applicant, this type of loan might look like it’s not worth the effort for a one-man-operation. However, the scheme allows for a collective loan of £100,000 per business with all owners/partners of a business being allowed to apply individually.
Startuploans also helps with your application, business plan mentoring, free templates and guides. Plus, they won’t charge you a single dime for it! Upon getting approval for a loan, your business will be instantly paired with a mentor who will guide you for 12 months, all free of charge - talk about cutting costs!
3. Find Angel Investors 😇
Have you listed your company on AngelList yet? An angel investor might actually be looking for a company like yours to invest in! The term angel investor actually goes as far back as early 20th century and was used to describe wealthy enthusiasts of stage productions who would finance Broadway shows in New York City. The term nowadays is generally used for people who invest in promising early-stage businesses.
Every entrepreneur knows more or less how important it is to tap into their professional network. It’s sometimes not the know-how that counts, but the know-who! Most angel investors are serial entrepreneurs who have had success in their careers through their own ventures and have gone down the route of funding other entrepreneurs with business solutions, services or technologies that they believe in. It isn’t uncommon to see that an angel investor will repeatedly fund the same types of businesses, like gaming, blockchain technology or supply-chain solutions.
Apart from tapping into your network of related businesses, listing your company on start-up directories, you can also look out for companies in the same field as yours, which have already received funding from an angel investor. A little research goes a long way! For instance, if you hear of other projects receiving investments in the same niche as you, it would probably be a good idea to reach out to that business and get some contact information.
Pitching events can also be found on websites like Eventbrite or meetup.com, where entrepreneurs will come together with their business ideas and do a short presentation of their business plan - and guess who the audience is at these events: angel investors!
4. Go Crowdfunding! 🎉
Nowadays, most age-old concepts have a bit of a decentralisation/ crowdsourcing twist to them – business investments included! Surely you’ve heard of websites like Kickstarter or Indiegogo. If you haven’t, the idea is simply having your future customers invest in your business venture from the onset – by giving them either discounts on your yet-to-be-released product or service; or by giving them equity in your business in exchange for cash.
So many options, but which one is for me? 🤔
Although the general idea being the same (early-stage product, but multiple interested early-adopters), and most crowdfunding platforms hosting a wide array of companies with either products or services, an in-depth look could give you an advantage when choosing one platform over the other as they offer different funding schemes. Just because there are more popular websites that you’ve likely heard of already doesn’t mean this is the most suitable type of crowdfunding scheme for your particular business.
Being the most famous of crowdfunding platforms, both these companies are going head to head in terms of their offer and the type of projects they attract. Kickstarter helped raise over $600M in 2017 alone, with around 5,000 active campaigns at any given time – whereas with Indiegogo the number of active campaigns rises to 7,000.
What differs is the way they approach fundraising and some minor details that make a difference in terms of the type of business you have. For example; Kickstarter doesn’t offer a flexible funding scheme where you could keep a part of the pledges paid out to your project - it's all or none; unlike Indiegogo, where you could end up with some cash even though your project didn’t make it to your target of fundraising. Indiegogo is also available in nearly 250 countries, but Kickstarter is only available in 18 countries. Kickstarter certainly has more monthly visitors though, more than double that of Indiegogo - at nearly 30 million per month.
Seedrs is another type of crowdfunding website where businesses are able to give out equity in return for cash from micro-investors. Investors are made up of users that have signed up on the website. There are three types of campaigns that investors can sign up for: equity campaigns, which give out equity at as low as £10 or €10 per share; funding campaigns, which let users diversify between different fund raising businesses and invest in more than one company; or convertible campaigns which work on a tier system where early investors get more shares.
As for businesses, they are only subject to a 6.5% fee of the overall money raised and a one-time completion fee.
There are many types of businesses that offer equity on Seedrs, from bakeries to doorbells. And remember, Revolut too is a Seedrs alumni :)
5. Invoice Financing and Factoring 📊
Invoice financing is a way for companies with a steady cashflow to receive liquid funds. With this type of financing, cash funds are received in return for unpaid contracts from the customers of the company. Debt owed to you is shown as collateral to receive funds before actually collecting the debt. The calculation of how much you can actually receive in cash depends on the volume of your sales ledger and the average yearly turnover of your company.
With invoice financing, businesses are in control of their own sales ledger and simply show pending payments as proof that they are indeed able to pay back the funds they will be receiving. Depending on the volume of liquidity you need, different fee schedules apply. Most pay-outs are between 75 and 85 percent of your total sales ledger value.
Another type of invoice financing is invoice factoring where the company that you will be borrowing from takes care of the sales ledger too and receives the payments directly from your customers. Depending on the type of business you have, this might be less than favourable, as your customers will be paying out to a third party for debt collection.
So there you have it. Depending on the type of company you run and the maturity of your business – there are in fact a handful of ways to pump more cash into your business bank account.
Whether you’ve just quit your day-job and want to take a walk on the entrepreneurial side, or you’ve already got hundreds of customers, one thing is certain - you need to spend money to make money!