I am quite biased towards crowdfunding. It’s a fact. I love it! But it’s not always the best solution to fund an idea, project or company, as we discussed in the post When not to do a crowdfunding campaign. In this article, we’ll look at other types of finance that you should definitely explore before launching your crowdfunding campaign.
So let’s explore other types of finance:
- Personal savings, family and friends: this is perhaps the most typical way to start-up a business. You can treat the money borrowed as equity, a grant or a (usually very low interest) loan. Either way, it’s perhaps the most advantageous source of finance for your startup, so make sure to explore this route first.
- Grants: usually from local, national or European institutions. They are quite specific and will only fund projects that match tight selection criteria. A good starting point is talking to your representative of your Local Enterprise Partnership (you can find your LEP here). You can also check with your local Borough Council, as several of them offer small business grants. For example, my local borough, Reigate and Banstead, provide up to £1,000 to local businesses with a quite straightforward application process. Finally, the Entrepreneur Handbook website has also an interesting list of grants.
- Competitions: Some business competitions have prize money that will help you get started or scaling up. It’s worth checking local competitions, such as the ones from my local council Reigate and Banstead and national wide ones such as the ones listed in the Entrepreneur Handbook.
Competitions: great for the money and validation! - Loans: Aside from high street and online banks, some government-backed resources worth checking are Startup Loans, British Bank. Another interesting player operating in the crowdlending space is Funding Circle, that offers very attractive interest rates. Loans are typically backed with your collateral (equipment, vehicles…) but there are ‘ethical lenders’, such as and the Fredericks Foundation, that are more flexible.
- Bonds: According to the Investopedia, a bond is a type of fixed income loan by which a government or company finances a project or ongoing operations. The bonds provide fixed or variable, periodic payments of interest plus the return of the capital investment at the end of the term. Some innovative firms like Mijnfunding are democratising the emission of bonds by providing an online platform to start-ups and scale-ups to issue their own bonds. It technically becomes a type of lending crowdfunding (in the past, I’ve written about the different types of crowdfunding).
- Leasing and renting: if you have an asset-heavy business it’s worth considering leasing the equipment you need. Usually, the manufacturer of the equipment will have a deal with a financing company. Even if all you want is a van, it might be worth considering leasing or renting it, as the upfront costs are much lower and you’ll be covered in terms of insurance, repairs and road tax.
You don’t need to own a bike. You can rent one! - Invoice financing: if you have suppliers that demand short-term payments and creditworthy but slow-paying clients, your cash flow will be under stress. Invoice finance can be a way to bridge that gap. There’s plenty of suppliers, such as iwoca.
- Accelerators and incubators: Aside from a curated programme to accelerate your company, office space and other perks, accelerators and incubators often offer investment, sometimes in exchange for equity. Beauhurst has written the definitive guide on this topic, called Accelerating the UK (registration required), and I don’t have much to add.
- Angel Investment: it’s another attractive source of finance for early stage, scalable businesses. The money invested is in exchange for equity. I have written several articles on Angel Investment on the Enterprise Nation blog (see below). I will be updating this post with the links. A great first port of call to find Angel Investors is the UKBAA’s investor directory.
- Venture Capital: VC firms will fund and mentor startups and scale-ups. They are either backed by limited partners or by big companies, as it is the case for Unilever Ventures. For London based companies, the Tech London directory is a great start. These funds require rapid growth and it’s interesting to see more and more companies rejecting VC investment or even buying back shares from them.
- Private equity: usually for the more mature companies, a private equity firm will typically want to control the company bought, with more than 50% of the equity. There are generally more risk-averse thank VC’s and will invest in proven business models in consolidated industries.
As you can see, there are many types of finance that can serve as alternatives to my beloved crowdfunding. I do have experience in quite a few of them, so don’t hesitate to contact me with any questions or comments.
Related content
Posts on Enterprise Nation’s blog on Angel Investment by yours truly:
Seven reasons to seek business angel investment
Leave a Reply