Setting up a business can be a hugely exciting adventure, but finding the funding to make it a success can be one of the most challenging bits. So, we’ve broken down the options for entrepreneurs and gone back to basics with the ABCs of raising early-stage capital.
A is for Angels:
Angels are high net-worth individuals who invest money and/or considerable amounts of time and expertise in young companies in exchange for equity. Often, business angels invest in companies they are familiar with through previous experience or interests. Historically angels were one of the many sources of capital for seed-stage businesses, but increasingly they are focusing on post-revenue, operating companies (between 2% and 3% of angel investments in the UK are true seed investments).
B is for Bootstrapping:
If co-founders can successfully start a business without having to rely on external sources of funding, that is great. But, it can be difficult to sustain. To do this, founders often have to work second jobs to keep the lights on, which gives them less time to focus on their startup. That tends to mean building the business more slowly than when you have external capital in hand. In many cases that’s absolutely fine, but if you’re working in a fast-paced, innovative field, it can significantly impact your chances of success.
C is for the Crowds:
Crowdfunding is a broad term used describing the collective cooperation of people – including friends, family and total strangers – who pool their money and other resources together to support efforts or initiatives. Asking the crowd to support startups has many benefits beyond the capital. They can offer validation of your idea, market your brand, test your beta and provide invaluable market research or advice. But bear in mind that the legal issues around raising capital from the public can be tricky when there is investment involved, so it’s important that you use a regulated intermediary (like Seedrs!) rather than risk violating FSA rules by doing it on your own.