Sometimes starting your own company may require more capital than you expect. I recently went to a Virgin Start-Up conference, hosted by Andy Fishburn (Head of Investment for Virgin StartUp) to hear about the range of funding options available for entrepreneurs. Below are some of the top sources of funding you may be able to secure for your dream business or venture.
Bootstrapping means starting a business without any external funding. This is quite possibly the best way to start-up a company because it puts you into a completely different mind-set about spending money. You’ll also be entirely focused on the business execution without the pressure of repayments.
When Jeff Bezos started up Amazon in 1994 in a garage, he didn’t have enough money to buy a desk. So Jeff used 2nd hand doors and turned them into desks by attaching metal brackets and cutting holes in each corner. At Amazon today they still use door-desks to symbolise a way of thinking.
“It’s very important at Amazon.com to make sure that we’re spending money on things that matter to customers” Said Bezos, 34. “There is a culture of self-reliance. (With the low-tech desks) … we can save a lot of money.”
- Bank Loan
The most traditional way of receiving funds for starting a company is to get a loan. The advantage of going straight to the bank is that debt funding does not dilute your ownership of the company.
If you have been a creditworthy customer, your manager should favour your application. However, it is best that you do not visit your own chosen bank first as your bank manager really is your best possibility and you wouldn’t want to blow the opportunity. Therefore, it might be a good idea to visit other less ideal banks first to practise your speech or try other methods below.
- Venture Capitalist
It can be a great idea to use a venture capitalist as they will be able to give you a wealth of experience and advice to help you and your company become successful. Venture capitalists are usually well-connected individuals in the business community and this can be tremendously beneficial for you to develop your company.
However, it is very important that you find the right venture capitalist to invest in your company. The wrong venture capitalist could provide none of the extra benefits, other than taking a large share of the company for a sizeable sum of money. Whereas you can achieve the same amount of funding through equity crowdfunding at a smaller share of the company given away.
Three platforms that I recommend using to finding the right investor are:
- UK Angle Investment Network
- Angel List
- Networking Events
- Equity Crowdfunding
One alternative way of raising money is Equity Crowdfunding. This uses the power of the internet to pool together lots of very small amounts of money from individuals to make a sizeable sum which can then be invested in small firms to help them grow. It is also highly likely that the investors who buy shares in your business will have a long-term interest in the company’s success and sustainability. Therefore, it’s likely that they will become advocates and promote your company.
There is no maximum amount you can raise on crowdfunding websites like Crowdcube.com and Seedrs.com. However, for Crowdcube, in order to receive the investment, you have to secure the full amount they seek by the deadline. If you managed to receive pledges from some investors but not the full amount, you will not receive any of it. Fundraising fees for Crowdcube is 5% and Seedrs starts from 3.75%
- Reward-Based Crowdfunding
Another way you get funding is reward-based crowdfunding. Reward-based crowdfunding is asking your customers to invest in your company for some type of incentive back in return.
Rowan Gormley, co-found of Naked Wines was launched in 2008. His unique business model uses the concept of reward-based crowdfunding. Naked Wines recommends it customers to become an ‘angel’ for discounts on purchasing wine, a free bottle every month, exclusive wines and invites to exclusive tastings. Today, Naked Wines has over 50,000 ‘angel’ customers, who pay £20 month. This fund equals to £1 million a month, which helps Naked Wines fund new wine and winemakers. 2 years after its launch the firm turned over £10 million.
- Grant Funding
You may be able to get a grant depending largely on the nature of your business, operational model and location. The benefit of a grant is that you will not need to pay the money back and you will not lose any control of the business (equity). However, it can be difficult to be awarded a grant due to high levels of competition. Also the application for a grant can be very time-consuming. Examples of grants include Innovation Vouchers and a Smart Grant which offers SMEs research and development support.
An overdraft is one the most convenient ways to receive extra funding, however this option should only be used for short-term financing needs. You will need to make sure that you arrange a meeting with your bank manager to arrange an overdraft limit. In most cases, interest is charged at a normal rate.
- Friends and Family
This can be an important and easy source of finance for a start-up company. The only real problem is that most people who receive investment from friends and family probably shouldn’t. This is because family and friends are usually inexperienced in investment matters and therefore, it is a good idea to think about using a formal agreement.
Ultimately, make sure that you show your commitment to the start-up and show it’s more than a hobby and you’re not just looking for a handout or donation. If the company becomes successful, you’ll be sharing it with those closest to you which can also be very rewarding.
I just want to thank Andy Fishburn (Head of Investment for Virgin Start-Up) for hosting and Matthew McLarty for organising the event at Oxford Innovation Centre.
I am currently a 2nd year student studying Accounting and Finance at Kent Business School. I was born and raised in Godalming, Surrey.
My main interest is Start-up Businesses as I want to create my own business in the future. In my spare time I like to read about News and Politics, as well as Boxing and Formula 1. Fitness has contributed to my commitment to reaching goals as I have been going to the gym for the past 4 years. I also like to create products/solutions and I have also been stock trading for the past year.