Raising Investment: From Family and Friends to VCs

We explore the different types of funding available to UK entrepreneurs

Author

Steven Williams
January 25, 2024

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Raising Investment: From Family and Friends to Venture Capital 

Starting a new business venture can be an exciting and rewarding experience, but it also comes with its own set of challenges, including securing the funding you need to get your idea off the ground. With so many options available to you, it can be difficult to know where to start. This week we will explore the different types of funding available to UK entrepreneurs, helping you to make an informed decision about which route is best for your business.

Friends and Family

If you are just starting out and have limited resources, friends and family can be a great place to turn to for your first raise. These individuals are often the most likely to believe in you and your vision, and they may be more flexible when it comes to setting terms. However, it's important to remember that you are putting their capital at risk, so make sure you are both clear on the potential risks involved.

Raise level: Typically between a few hundred pounds to £50,000.

Angel Investors

Angel Investors can play a key role in getting your business up and running, as they have the experience and expertise to identify which businesses are likely to take off. They may also be able to provide valuable advice and support to help you succeed.

Raise level: Typically between £25,000 to £1,000,000.

Crowdfunding

Crowdfunding is a popular method of raising capital for new business ventures, where small amounts of money from a large number of individuals are combined to finance the project. There are two main types of crowdfunding: equity and rewards-based crowdfunding.

Equity Crowdfunding

Equity crowdfunding allows startups and early-stage companies to offer shares to potential investors in exchange for money. Each investor is then entitled to a stake in the company proportional to their investment. It is recommended that at least 40% of the minimum target is pre-committed from angel investors before going public on the platform. This puts the business in the best position to successfully raise.

Raise level: Typically between £250,000 to £2,000,000.

Rewards-based Crowdfunding

Rewards-based crowdfunding is similar to equity crowdfunding, but instead of equity, the company offers a reward or perk in exchange for investment. These rewards can include discounted products, branded merchandise or event tickets.

Raise level: Typically between £5,000 to £2,000,000.

Venture Capital

Venture Capital (VC) is a form of investment that is given to startups in exchange for equity in the company. VC firms are often professional investors working on behalf of organisations, universities, or high-net-worth individuals. They are known for investing in riskier ventures with high potential for growth and scalability. VC firms tend to invest in businesses in specific sectors, geographies, stages, sizes, or niches. In general, it is expected that you will be raising 18-24 months of cash in a VC fundraise.

Raise level: Typically between £500,000 to £5,000,000+.

Debt Funding

Debt funding is a loan to a new company that must be repaid with interest within a specific timeframe. This form of fundraising has the benefit of allowing the owner to retain control without giving away any equity in the business. However, both debt funding and equity funding can be combined in a single raise, for example, 25% of the investment is raised via debt and the remaining 75% via equity.

There are several funding options available to entrepreneurs looking to raise capital for their start-up ventures. From seeking support from friends and family to turning to angel investors, crowdfunding, venture capital, or debt funding, the choice of funding will largely depend on the stage of the business, the type of industry, and the amount of capital required.

It is important to thoroughly research and understand each type of funding to determine what best fits your needs and goals. Regardless of which funding route you take, the key to success is to have a strong and well-executed business plan, as well as a clear understanding of the terms and conditions of each type of funding.

Remember, the goal is to find the right balance between raising the necessary capital and retaining control over your business.

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