Whether you’re launching a startup, or scaling it internationally, having enough cash will be fundamental to the success of your business. Here at Goodwille we have been helping clients to launch their business into the UK market, many of whom have recently raised funds to support their international expansion. We have summarised below the most common ways through which startups & scaleups raise funds to support their future projects.
BOOT STRAPPING / PERSONAL SAVINGS
When bootstrapping you build your company with nothing but personal savings, cash from the first sales, monthly income or a personal loan – you do not get any support from other investors and stakeholders. This funding model is preferred among many early stage start-ups, as you do not have to give away any part of your business in exchange for money. With bootstrapping you remain in control of your business and can make decisions on your own while you learn as you go.
Often start-ups seek external funding so they can scale and grow faster, compared to only using their personal savings. If you choose to bootstrap your company, you might scale and grow at a slower pace, than if you had received help from angel investor or a venture capital firm. Bootstrapping can be a lot of hard work – you are likely to be unable to afford additional resources, whilst having to quickly develop revenue streams early on to support your future expansion.
ANGEL INVESTORS / PRIVATE INVESTORS
Angel investors are wealthy individuals, who have often launched a successful business of their own, and they are usually looking to invest in start-ups at their earliest stages in exchange for a piece of the business. The angel investors connect with start-ups through business/industry seminars, word of mouth, referrals from investment organisations, online business forums or local events. If there is a shared interest, the angel investor will organise due diligence on the company by speaking to the founders. After a verbal agreement is in place, a contract or term sheet will be drawn, with the agreed terms on investment and everything that goes with it. When the agreement has been created and signed, the deal is officially closed, which means the investment funds will be released for the company`s use.
Most angel investors are entrepreneurs and will have plenty of business knowledge and experience to share, whilst often making another cash investment in the company later on in the company`s journey. However, as a company, you must be prepared to give up some of your equity for this investment. There is also a chance of getting an inexperienced angel investor, who gives you poor advice or wants to become too involved in your business.
Crowdfunding allows businesses to raise funds from both individuals and organisations who invest in different crowdfunding projects, for a slice of the future profit. Compared to other funding methods, crowdfunding invites multiple investors to participate and contribute to the business. If a company is looking for this type of funding, they will have to post details of their business or idea on a crowdfunding website, such as crowdcube.
Crowdfunding campaigns/pitches online are a unique opportunity to draw interest and awareness to your company, service or product. From a company`s point of view, the crowdfunding way requires a lot of work, promotion and attention when it comes to making a successful campaign.
A crowdfunding campaign offers a great way to test people’s reaction on your product or idea – if people want to invest in it, it is usually a good sign! Pitching your idea is likely to give you feedback and guidance on how to improve it further. It’s worth remembering that failure to reach your funding target can result in you not receiving any money, and can be damaging to your reputation.
VENTURE CAPITAL FIRMS
Nearly every start-up success story involves a venture capitalist. This form of investment is for innovative, early-stage businesses with a high growth potential. The VC funding is rarer than some of the other funding forms, as this funding is usually only possible for companies that are expanding quickly. Or, for companies who already have had a round of seed funding from angel investors. Some of the pros of having a VC on your further journey as a company includes:
- The money is yours to keep – you have no obligation to pay back the VC funds.
- A VC can help your company qrow quickly and take it to the next level.
- VC`s have a huge network and can help you connect with other business leaders who can help your business become more profitable.
- It is likely that your company gets increased publicity & exposure.
As mentioned before there will always be some cons along with the pros. Here are some of the cons of having a VC join your company:
- The VC funds own a stake in your company
- It is potential that your company is not ready to grow and you accept outside funding too fast! If you scale too early and use your funding incorrectly, your start-up may end up failing.
- Funds get released on a performance schedule – The VC firm funds are released gradually as the startup hits specific milestones.
It is important that you find a venture capitalist firm that aligns with your companies’ values in order so make it a successful collaboration.
SERIES OF FUNDING
The venture capital firms do also participate in series of funding such as A, B and C. Here is an overview of the different series:
Series A – In Series A funding, the venture capitalist investors are looking for companies with good ideas, but also a strong strategy for turning the idea into a money generating business. Some angel investors do also invest at this stage, but they have much less influence in this type of funding round compared to the seed funding stage (stage prior).
Series B – In Series B funding, the companies are past the development stage, and it is all about taking the company to the next level. These companies have already gone through seed and Series A funding rounds and have proven to their investors that they are ready for a larger scale. The Series B funding is like Series A when it comes to the processes, but the difference is the addition of new venture capital firms that concentrate in a later-stage investing.
Series C – In Series C funding, the companies are usually already successful. These businesses are looking for further funding, so they can develop new products or expand to other markets. Series C funding is concentrating on scaling the company and making it grow as quickly and successfully as possible. As the company already has proven its success at this stage, more investors typically invest. This means that in Series C groups like hedge funds, investment banks or private equity firms accompany the other types of investors mentioned before. Commonly, Series C is a company`s end of external equity funding.
Goodwille have been helping companies of all sizes from around the world to successfully expand their business into the UK. These businesses have often raised funds through some of the world’s leading VC’s, including the likes of Creandum, Northzone & Viking Ventures to scale internationally.
To find out more about how Goodwille can help you successfully launch your business in the UK please do not hesitate to get in touch.