Getting Started: How To Raise Capital For Your Startup

Having enough available capital is key to keeping your business running, particularly if you’re a startup. The last year in the UK saw 672,890 new companies starting up. However, a study of 101 businesses found that 29% failed because they were out of cash. 

There are many reasons why you might need to raise capital to keep your business running, particularly in the first few crucial years. However, finding the right type of capital funding is just as important as ensuring you get the exact amount you need. This article will outline the best type of investors for startups and how to approach them effectively. 

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Why would you need capital for your startup?

Whether you just have a great idea or a team of experienced colleagues who want to go it alone together, you’ll need some capital to get your business moving. Financing the first few years adequately is crucial, as 20% of businesses fail within the first year and 60% within three. 

This is because establishing your business means you have lots of outgoings without much income returning. Initial investments in equipment, team members and other unexpected costs all stack up and until you have a regular, reliable cash flow, it’ll be difficult to make your balance sheets add up. 

However, starting up isn’t the only reason you might need capital, you might also need extra finance to: 

  • Recruit new team members: whether you’ve just taken on a new client or need a specific skillset, capital can help you to pay new colleague salaries. 
  • Invest in new technology or equipment: increases in demand, the need for greater efficiencies or new business can mean you need new technologies and equipment.
  • Maintain cash flow: some invoices can have payment terms of 90 days or more, this can cause problems with cash flow if it’s not maintained correctly. 
  • Expand your business: research and development, emerging trends or new opportunities in other countries are all areas for investment. 

Whatever you need your capital for, finding the right type of investor is key to ensuring you get the best possible deal. 

What type of investors are best for startups?

As well as the usual business investment types, there are a few specialised grants and loans that new startups can apply for. 

Angel investors

If you’ve been praying for an investment, then an angel might be your answer. Angels are high net worth individuals who invest in small or medium-sized businesses in return for a share of equity in the organisation. 

If you’re trying to raise relatively small amounts of money quickly without putting in any structures or consulting board members, this is might be the best option. However, you need an extensive personal network to find an angel investor and won’t give you the experience of applying for official loans or grants. 

Venure capitalists

If you’ve been wondering how to raise venture capital for a startup, then you might be interested to know that it’s a similar process to finding an angel investor. However, instead of being individuals, venture capitalists tend to have the backing of a firm or significant resources, including experience in investing in mature businesses. 

Although venture capitalists tend to invest more money and bring useful advice and resources, they do tend to be more aggressive in the terms they set, asking for higher equity, shares or returns. It’s also key to find the right venture capitalists who are on the same page in terms of the direction of your business, the level of support they want to provide and their previous experience. 

Family and friends

Personal loans are one of the biggest investment funds for new startups, with 38% of new businesses reporting that they’ve raised money through their loved ones. Especially at the beginning of your business, getting a helping hand from your family and friends might be the best option. 

However, this type of investment runs the risk of mixing business with your personal life. Getting an agreement drawn up and accounting for every eventuality is recommended to ensure relationships don’t turn sour. 

An alternative to this may be using the wealth of a family office. These are private advisory firms that manage the wealth of ultra-high net worth individuals or families and can be a great option if you want a big investment on more casual terms. 

Business loans

One of the most straightforward ways of raising money is through a business loan or overdraft. To get this type of funding, you’ll need to go through different levels of application and security checks. You’ll likely need to present a business plan and present or interview to banking teams. 

However, it’s always worth having a chat with your bank to see what level of investment they could offer you. Building relationships with your account holders can help you to get beneficial terms, access to exclusive funds or advice in the future. 

Crowdfunding, incubators or grants

There are lots of startup specific funds out there. Business incubators or accelerators not only provide startups with financial investments, but other resources, such as workspaces or networking opportunities too. 

Certain tax relief ventures, such as Seed Enterprise Investment Schemes (SEIS) and Enterprise Investment Schemes (EIS) can also help you to access the investment and support you need. Alternatively, you can decide to raise funds yourself through crowdfunding. This might be particularly beneficial to businesses with a large customer base or social media following. 

How to find a startup investment

Whether you’re looking for an angel investor for startup capital or are applying for a special grant, there are a few key steps that each business should take to ensure you’re prepared: 

  • Get any questions answered: from ‘is startup capital taxable’ to ‘which loans am I most eligible for’, getting professional financial advice will help you to get ahead in your applications and investment fundraising. 
  • Build your business plan: if you don’t know what your business can offer investors, you won’t be able to convince them to part with their wealth. Set out your needs, including the level of funds, and what an investor can expect in return.
  • Research for potential investors; whether it’s looking at certain grants or investment resources, there are lots of helpful materials and organisations out there that can help you find the right investor. 
  • Start to create your own network: you never know who your connections know. Start investing in building your network and it will pay you back, both now and in the future. 
  • Make sure you’re certain before you sign: don’t just jump at the first offer. You need to be happy with the terms of any investment you’re getting involved in. Otherwise, it might come back to bite you later on. 

By being prepared and ensuring you’re completely happy with any agreement you sign, you’ll secure the right investment for your business and continue to grow.

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Your complete business toolkit

Rovva puts everything you need for your business in one place. From an accountancy helpline to a drop-in business lounge - we've got everything covered.