Growing your start-up – what types of funding are there?

You have a brilliant idea, a great strategy and have just got your fledgling business off the ground. However, you need a little investment to move your business forward; which type of investor should you choose?

As Cambridge and Milton Keynes are both leading tech hubs in the UK, this scenario is not uncommon. There are plenty of opportunities for a start-up company to get funding from a variety of sources. Business owners would be wise to consider carefully what type of funding is best for them and the associated pros and cons.

Banks

Possibly the most familiar choice, banks will provide a loan and usually secure it against any collateral that you or your business possesses.  Banks often have networks which you can call upon and you may have more choice in how to run your company than the alternatives.

However, banks have generally been more cautious since the financial crisis. You will need, at the very least, market analysis, proof of concept and a solid business plan; it is likely that the bank will require more than this.

Angel Investing

Angels are individuals with a significant amount of capital looking to accelerate start-ups in exchange for part ownership and control of the company. A famous example would be Dragons’ Den and you could expect a similar amount of grilling on your idea, your business plan and the figures.

If carefully chosen, you could gain an experienced business partner with a useful network. However, the Angel will take a stake in your business and you will therefore need to be open to their influence and suggestions if the relationship is to work.

Venture Capital Startup Funding

Much like Angels, venture capital firms seek out new opportunities with high and long term growth potential. They will have access to much larger funds and networks to assist you with your business’ growth.

However, also like Angels, they will take a stake in the business and are probably going to have a major part to play in big decisions for your business.

Equity Crowdfunding

Various online platforms allow members of the public or small groups to invest in a start-up for a small part of the business (usually this is shares in a company).

Unlike Angels and Venture Capital, most crowdfunding investors will not be able to provide support or access to professional networks. However, you could have more control over your business and, if successful, it may be a good way to initially advertise your idea.

This is a brief summary of only some of the types of funding available. One key consideration to all types of funding is ensuring that you have an understanding of the risks involved, particularly the contents of any agreements and any legal formalities.

For further help or advice, please contact Eoin Longworth or 01234 270600, or email elongworth@woodfines.co.uk.

–  Eoin Longworth