There is no “right way” to raise investment for a business. Angels and venture capitalists (VCs), research grants, a wealthy uncle or plain old-fashioned revenue from customers – the most creative and persistent entrepreneurs forge their own path. In the current climate there are a myriad of routes to funding a business from idea to scale, so what kind of investment is right for you and your business?Now is a great time to be an entrepreneur raising capital in the UK. We have a very active seed market, lots of support and advice available for free, a fairly supportive press and a start-up community that has found its voice. There are also a variety of government-backed innovation grants, R&D tax credits and tax-efficient investment schemes including EIS and SEIS. Private sector lenders are also stepping up, with better invoice factoring options from the likes of MarketInvoice and peer-to-peer loans from Funding Circle and others.
So do we still need venture capital?Venture funding is not for everyone, or even for most. VCs are looking for a quite specific and rare kind of opportunity, and turn down hundreds of companies for everyone they invest in. To attract a VC, a business needs to be scalable and designed to grow quickly from the beginning. It needs to have the potential to grow by several orders of magnitude and become a category leader in a big market. Crucially, you have to be prepared to sell it some day, and believe that you can return your investors more than ten times their original stake. If your aim is to build a mid-sized profitable business, growing 5-10 per cent every year, venture probably isn’t the right route. Let’s assume you’re on the venture path. It’s you, your co-founder, a couple of Macbooks and a lot of flat whites – how do you get from there to world domination? Typical wisdom says you raise a little money from people you know to prove the concept, then a seed round from angels to launch and get some initial traction, and then you’re ready for your £2m Series A raise. I’m afraid it’s rarely that smooth. There are far more startups than there were five years ago, and a lot more sources of seed finance. Angels, exited founders, accelerators and a new generation of smaller, seed-focused VCs have enabled an explosion in the number of entrepreneurs getting funded. This is brilliant for the tech community and the UK economy. Read more about venture capital:
- The 10 biggest venture capital investments in British history
- Tech companies attracting record levels of venture capital funding
- Charting the development of a 15-year venture capital investment
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