We often hear about start-ups raising funding, funding rounds, finding investment, it seems to be a firm part of early business life but is it? Does every start-up need to access investment funding?
Quick answer no – there’s more than one way to ‘fund’ your startup but what I would say is there is ‘no easy way’
Having now run several businesses accessing funding has not (as yet) been part of those journeys: I am a bootstrapper and for the uninitiated, this means I’m essentially funding things myself.
There are downsides to this – it can slow down the growth of your business as you may not always have the funds to invest and there are risks as your personal finance is tied up in the success of your business. If things don’t work out or your business doesn’t make money you are spending your own money for no return basically. There are huge positives too though, You are in full control and if your business takes off then all of the returns are yours.
That’s just my experience, accessing funding can and does work for millions of businesses, here are just a few of the options and why they might work for you and your start-up.
Angel Investment
Here an individual or group of people provides funding in exchange for a share in your business. The risk or downside here is obvious – you don’t have 100% control but the positives are that aside from the cash injection into your business, angel investors will also often provide experience and guidance as your business grows. If you pick wiser, you get more than the money on the table, you get experienced hands to guide the ship as you move your business from the pre-revenue stage to becoming a profitable business.
Venture Capital
VC investors make large investments into businesses in exchange for equity in the business. Their objective is to help the business grow quickly so they see a return on investment quickly. It’s not for all start-ups, you have to be able to demonstrate high growth potential and if you can’t you’re unlikely to succeed in securing VC investment. If you secure VC investment, you’ll be able to make some big decisions about your business and create some rapid growth. The downside is you’ll likely hand over a sizeable chunk of your business to be able to access this type of funding. VC funding often comes with a board position for the fund handing over the cash so expect a lot more external input on how you run the business and a lot of extra layers of accountability. You will no longer have exclusive control over the direction of the business.
Private Equity
Similar to Venture Capital investment, it’s high risk on the side of the investor and requires a start-up with high growth potential. Private Equity investors are often looking for big returns such as the business being able to go public, be acquired and pay back their investment with interest. The stakes here are high on the side of the founder, the investment is there but so is the pressure to scale and provide that return on investment. At this level a 10x return on investment and financial penalties for not hitting growth targets is par for the course..
Incubators & Accelerators
Less high stakes than other options, these are programmes designed to help your start-up scale and grow. They often provide mentoring and business advice in return for a small investment and some equity in your business. The positives are there is less pressure in terms of high growth and lots of advice on hand including training and access to experts. The downside? The application process can be long and tough. You also hand over some equity meaning you no longer own 100% of the shares in your business.
So why go for funding?
The cash boost to your business is obvious but what else does funding allow you to do?
Seed Funding is the first ‘round’ of funding for a business and can help you to
Carry out product research
Invest in marketing and business development
Invest in expertise in particular areas
Launch your product
Further funding can allow you to:
Expand your products and services
Bring in more customers and create more sales
Develop a long-term plan for growth
This is usually referred to as Series A funding, Businesses can also apply for Series B funding which can cover:
Talent
Sales & Marketing
Marketing
Tech Development
Customer Service
Funding rounds may continue beyond this but most companies will stop at round D or E having hit their earlier growth goals and taking the next step such as being acquired.
Can you do all this without funding?
For the start-up just considering funding, multiple rounds and indeed any investment into the business can seem a long way away, You may not feel ready yet and you may also wonder if you can achieve growth without getting investors involved – the answer is yes. We’ve all seen the statistics that 90% of start-ups fail but only 29% of these were because they ran out of cash.
Our experience is growth is possible without investment but generally, it will be slower.
It is achievable, just recently we saw a business in our space that had grown organically over five years and was acquired for £1.5 million – it is possible.
Is funding for you? Do you need more guidance? We can connect you with experts who can help, check out the links below or get in touch.
Found this helpful? Please let us know!