So you’re an entrepreneur with a great idea for a start-up. Your business plan is all set and you’re ready to launch. But you need funding to get your business off the ground, and you’re not sure where to find it or who to go to. Never fear, you’ve come to the right place — and you’re not the only one looking for solutions.
Many new company founders need startup capital to launch their business, and it’s common to look for external financing. To help filter your options and choose what kind of financing would be best for you, here are some of the main funding sources available to entrepreneurs.
Bootstrapping means being resourceful and fending for yourself. This kind of self-financing means launching your start-up with minimal resources and without calling on external investors. These are entrepreneurs that pay for their initial costs themselves until the company is generating enough of its own revenue to ensure growth. You may decide to do this if you don’t have personal guarantees or an extensive network, but many people choose to go it alone because they want to maintain control of their business, without any help or outside investment. Make sure that your business is profitable and that your company’s revenue covers expenses. There are plenty of companies that have found success this way: big names like Apple, Facebook and Microsoft used bootstrapping in the beginning, and it seems to have worked out well for them!
#2 Friends and Family
The idea here is to call on your friends and family to invest capital in your business to help you get started. It’s estimated that 25-30% of entrepreneurs seek this kind of funding when starting their businesses. People who know you are often the first ones to believe in you and want you to succeed on your entrepreneurial journey, so it’s relatively easy to convince them to open their wallets. But you need to be careful when borrowing money from people close to you as it could become a source of conflict. If your business fails and you can’t repay your debts, you risk ruining your relationships. Make sure these donors are well-informed about their investment beforehand, and write down your agreements with them.
#3 Crowdfunding platforms
You don’t have your own funds, wealthy friends or rich uncles? There’s still hope. Crowdfunding can be an excellent way to finance your business and test your ideas. By putting your start-up on a crowdfunding platform, you can show your projects to potential investors. You can also raise awareness of your company to the public at large and test their appetite for your product or service. There are hundreds of crowdfunding platforms out there, but you’ll need to choose wisely to find the right audience. Here are some of the best-known platforms:
- Kickstarter: The largest crowdfunding platform for creative projects in the world.
- Indiegogo: The first of the American crowdfunding platforms
- GoFundMe: presented as the most reliable on the market, GoFundMe has already earned entrepreneurs more than £4 billion.
- Crowdcube: A UK-based crowdfunding platform. 89% of businesses that have used Crowdcube to fundraise are still trading today.
#4 Angel investors
Angel investors are interested in new start-ups and helping entrepreneurs develop their initiatives so they can stand on their own two feet. Their investments can be tens of thousands to hundreds of thousands of pounds, even millions. On average, it’s estimated that new businesses receive around £300,000 from these investors. Angel investors want to make profit by investing in business with strong growth potential, so you need to convince them that your idea is solid by demonstrating an understanding of the market and your target clients. You’ll need to show them a robust, coherent business plan that can inspire them and persuade them to invest. To learn more, check out the UK Angels Investment Network’s website.
#5 Venture capital
Venture capital allows innovative start-ups with a strong growth potential to raise additional funds. VC firms, unlike private investors, provide seed funding. But they’re usually looking to make very large investments, and getting large shares in the company in return. For smaller investments, there’s also micro venture capital. VCs invest in new start-ups all the time. More than money, the most important thing they have to offer an entrepreneur is their expertise. If you’re not sure where to start, try this list of venture capital firms in the UK.
Last but not least, banks are a traditional source of financing, but it’s usually more difficult to obtain. They usually need a credit history and want the loans to be asset-backed. If you have a solid business plan and good guarantees, it will be easier to convince the bank to offer you a loan. Many banks work hand-in-hand with start-ups to help them grow. Banks in the UK have a variety of offers just for start-ups. One of the benefits of using a bank is that you can benefit from useful services and advice. If your personal resources are limited, check out microcredit, a system that gives new businesses access to loans when traditional banks turn them down.
Before launching your business, look into all the options carefully to figure out which one suits you best and talk to other entrepreneurs about their own experience with each of these approaches.