Startup funding 101 – How to fund a startup in London

Startup funding 101 – How to fund a startup in London

Raising capital is one of the biggest challenges London startups face. Funding will get your startup off the ground, then get it from point A to point B and ultimately shape the trajectory of your business. From convincing family members for an initial loan to negotiating a term sheet with an investor, there are multiple financing options, but choosing the right one will depend on many factors. What stage your startup is at, what funding method makes the most sense for your business models, current economic trends, location and a host of other variables.

According to Crunchbase data for 2019 the UK took first place in terms of fundraising deal volume, with 1,425 deals totalling $14.31 billion, representing 40% of all European funding for the year. Among those 1,425 deals, the largest venture funding round went to London’s OneWeb, which raised $1.25 billion in March 2019 in a round led by Softbank. Availability for funding in London is one of the best, and that is why the favourite place for founders to start their company is also London, as stated in Startup Heatmap Europe’s report for 2019.

From London to the rest of the world, here are 8 startup fundraising methods used at different stages of a startup’s life to turn the idea into reality.

 

Engage the earliest founders: The three Fs – Friends, Family and Fools

You have an idea, possibly a working prototype and the business is in its nascent phase and you need initial capital to get things moving. The three Fs may be a good source of early capital and it is the most popular route for very early-stage startups. The inner circle is often the best safe test market, however, be aware of the risk of bringing the issues of money into any personal relationship.

Dip into your personal savings

Believe it or not, many of today’s biggest companies like Airbnb, Apple and Facebook came from humble origins of being financed primarily by their own founders. In the end, if you don’t trust in yourself, who would? Investors will definitely see it as a good sign.

Working with an angel investor

Angels are called angels for good reason. The wealthy, business-savvy individuals are great assets not just because of the cash they bring along, but because they also have the expertise, connections and can open doors. The UK Angel Investment Network would be a good place to start.

Startup Pitch Competitions in London

Pitching competitions enable startups to showcase their business and gain early exposure and attention from entrepreneurs, investors, business leaders and the media. Over the years, competitions have become so popular that even the Mayor of London has introduced one, looking for smart business ideas to make London cleaner and greener. If cleantech is not really your deal, check out Rising Stars 2.0, the UK’s most exciting competition for innovative, early-stage tech companies, designed to take your business to the next level.

Accelerators Programs in London

An accelerator can play a key element in a startup’s journey. Acceleration programs are based on focused, time-windowed curriculum where startups receive mentorship, education, and networking resources. Some offer funding as well, while others do not. The capital may not come in seven digits, but the mentorship and support can be a real game changer. For startups in London seeking a structured approach to rapid growth, here are a few London accelerators that may be a good fit: Techstars, Seedcamp, Wayra, Founders Factory, and Collider.

You have a well-formed product concept and a plan for bringing it to market, and you need additional capital to move from this early conceptual phase towards a product.

Crowdfunding for London startups

Crowdfunding has gained momentum over the last decade, with different platforms such as Kickstarter, GoFundMe and Indiegogo becoming increasingly popular among startups. This funding route gives the possibility to pitch your product to people around the world and if they like it, they will donate money to see this happen. On the other hand, there is equity or investment-based crowdfunding through which supporters turn into shareholders in the startup, by allowing them to purchase small stakes of equity. London-based Seedrs is among the most popular funding platforms of this type, holding the record for the largest equity crowdfunding round in 2017 with Revolut raising £3.9 million.

The Government handbook on subsidies, grants and initiatives

The UK Government has been making a major push to establish London as the European Tech Hub and have therefore introduced various types of financial assistance to startups working on groundbreaking inventions with commercial potential. To start with, the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are two government programs that have been created to incentivise investment into innovative startups through significant tax breaks. Then there is the Start Up Loans scheme, which offers loans of up to £25,000 at a fixed interest rate of six percent per annum for new business ideas and a range of funding competitions are also offered by Innovate UK. For more mature startups, a better option would be the London Co-Investment Fund (LCIF), which co-invests in seed rounds of between £250,000 and £1m, targeting innovative tech, digital and science businesses.

Venture Capital for London Startups

Big investments from VC funds are often viewed as a benchmark of success for a startup. If the startup partners up with experienced institutional investors, at the right stage, with the right vision, success is highly likely. So once you make it through the initial pre-seed and/or seed round, and you are slowly progressing towards Series A to B, C and beyond, here are our suggestions for the VC funds you need to get in touch with.

If by some lucky chance you have skipped the funding stages before and you are shooting straight for the institutional investors, Seedcamp is your primary target. Seedcamp is often described as the Y Combinator of Europe, an investment fund that backs pre-seed and seed stage startups, with a portfolio of over 300 startups to date.

Moving forward, if you have figured out your product and identified your market, then a Series A investment would help you launch it. Index Ventures helped launched TransferWire, Passion Capital helped launch Monzo, Balderton Capital made Revolut a reality and so on. The VC funds active at this stage include Atomico, Accel, Notion Capital, Mosaic Ventures, Blossom Ventures and Initial Capital.

A Series B funding round is all about scaling and taking the business to the next level. The product, business model and market are well defined, and the capital is needed to reach more people quickly. Northzone was the one who made Spotify the go-to-place for music streaming, DN Capital helped convince everyone to buy a used car through Auto1 and Hummingbird Ventures changed the face of delivery by investing in Deliveroo. Other notable VC funds include Index Ventures, Advent Venture Partners, DN Capital, Eight Roads Ventures, Felix Capital and Hummingbird Ventures.

Series C, D, E and beyond have one motto: fast growth. At this point, private equity firms and investment banks join the funding as lead investors, with the participation of large venture capital firms. Examples include Babylon Health closing a $550 million round of Series C funding, the money transfer service WorldRemit raising $175 million of Series D funding and Amazon leading a $575 million Series G funding round in Deliveroo.

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