14 Ways to Fund Your Startup That Isn’t Venture Capital
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Capital.
The most essential element when it comes to building your startup. Without it, you can’t operate and grow.
Today many startups find themselves in a difficult position amid a challenging VC fundraising climate.
Due to the economic downturn, VCs are tightening their belts. Their priorities shifted from finding new investment opportunities to keeping their current portfolio companies afloat.
For companies planning to raise their Series A in 6 months, it means they have to stretch their runway for longer than expected.
“If your plan is to raise money in the next 6–12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan.”- Y Combinator
The fight for survival has begun.
VCs are getting cautious. Their expectations are growing while their investment rate is slowing down.
Previously, if your company was performing well, you didn’t have problems attracting capital. Now, your fundraising experience will be more challenging.
As a result, startups struggle to fund their business. They go into a survival mode and look for financing opportunities outside familiar options.
Luckily, the VCs are not the only ones to save the day. There are multiple ways to fund your startup, so let’s have a look.
#1 R&D tax credits
What is it?
Research and development (R&D) tax credits are a governmental incentive that rewards UK companies for investing in innovation. It can serve as a valuable source of cash for startups to further drive innovation, hire talents and ensure sustainable growth of the company.
Am I able to get it?
R&D is relevant for any sector — it can occur anywhere from cybersecurity to cosmetics to renewables. If you are a limited company in the UK subject to Corporate Tax that performs R&D activities and spends money on these projects, you can qualify for R&D tax credits.
How much can I get?
The amount of the R&D tax credit is calculated based on your R&D expenditure. Startups can claim up to 33% of the amounts they spent. For most startups, an average claim is worth around £55,000.
Is it dilutive?
It’s a non-dilutive funding type.
How long will it take?
Claimer can take over the entire process for you. If you’re due a tax credit or a refund, you will get paid 1–5 weeks later.
How do I do it?
You can offload your R&D claim to tax experts at Claimer. This will allow you to save time and focus on your business. We build your claim and handle all communication with HMRC — all you need to do is import your information. You can start your application here.
#2 Innovate UK Smart Grant
What is it?
Innovate UK is an innovation agency that provides capital and support to organisations to encourage the development of cutting-edge ideas. Innovate UK offers several schemes to fund innovation. Smart Grant is a flagship initiative that finances projects with the potential to disrupt the market and strengthen the UK economy.
Am I able to get it?
Smart Grant is an industry-agnostic program. To be eligible to apply, you must be a UK-registered business working on an innovative idea that can bring a quick economic return to the country. They accept applications from any area of technology. Here are more details on the eligibility criteria.
How much can I get?
The Smart Grant program invests up to £25 million in total.
Is it dilutive?
This is a non-dilutive type of funding. The main advantage of this financing method is that you don’t have to pay it back.
How long will it take?
The currently opened competition closes on July 27th, 2022, at 11:00 am. Applicants will be notified on September 30th, 2022.
How do I do it?
To participate in this funding competition, you have to provide project details, answer application questions, and estimate your project costs. You can find more information and start your application here.
#3 Innovate UK Fast Start funding
What is it?
Fast Start is a new series of grants from Innovate UK. The goal of this program is to give small businesses the opportunity to grow, support their innovative ideas, and boost the UK economy.
Am I able to get it?
This program supports businesses that aim to solve big challenges. The grants are available for innovations in the following areas of technology:
● advanced materials and manufacturing
● artificial intelligence, digital and advanced computing
● bioinformatics and genomics
● engineering biology
● electronics, photonics, and quantum
● energy and environment technologies
● robotics and smart machine
These grants will only be accessible to companies that haven’t received Innovate UK funding before.
How much can I get?
Innovate UK invests up to £30 million in total, up to £50,000 for each grant.
Is it dilutive?
This financing option is a grant, so it’s non-dilutive, and you don’t have to pay it back.
How long will it take?
The competition will be open between July 11th and 27th, 2022.
How do I do it?
To get this funding, you must demonstrate that you have an innovative idea, have the capacity to deliver this project, and require public funding. The application consists of 3 sections: project details, application questions, and finances. Here’s how you can apply.
#4 Horizon Europe funding
What is it?
Horizon Europe is an EU program that aims to support ground-breaking research and innovation.
Am I able to get it?
The funding is available for UK-based businesses that demonstrate excellent research and respond to challenges like food security, climate change, or healthcare. Your project has the potential to boost growth in sectors like manufacturing, biotechnology, materials, nanotechnology, space, information, and communication.
How much can I get?
The program has a budget of €95,5 billion.
Is it dilutive?
This is non-dilutive funding.
How long will it take?
The process may take up to 8 months from application closing to the signing of the grant.
How do I do it?
If you’re planning to apply for this funding, you can get guidance and help from the UK government to get the most out of Horizon Europe. Here you can find your National Contact Point (NCP) — a team appointed by the UK government to give you advice and support you throughout the process, including proposal preparation and application stages. Their service is free to use.
#5 Leveraging customer capital
What is it?
Another way to finance your business is to leverage revenues from your customers. It’s the most self-reliant way to get cash without the need to apply for grants or involve third-party investors.
Am I able to get it?
Any company, regardless of the business model, can boost its revenues. All you need is to be willing to adapt and open up new avenues for money inflow.
How much can I get?
The amount you get depends on the initiatives you implement and your timeline. If you’re looking for money short-term, expect to get somewhere between £1,000 and £50,000.
Is it dilutive?
It’s non-dilutive capital that originates from new revenues through your customers.
How long will it take?
Leveraging your customer capital might take 1 to 6 months if you’re looking for short-term cash.
How do I do it?
There are several ways to generate short-term revenue.
Reconsider your pricing strategy. Is there a way to incentivise your customers to pay upfront? It can be a discount or a prolonged service period in exchange for their money today. Also, repackaging your products or services and launching one-off or bulk offers can drive your sales up.
Implement customer referral schemes. Incentivising client referrals instead of acquiring new customers yourself can help you reach new crowds more efficiently and cost-effectively. You can also try creating brand advocates to help you attract new audiences and strengthen your brand.
Adjust your business model. You can approach your (potential) clients with new offers, such as sharing your expertise through workshops or providing consulting services. It’s a temporary solution to a challenging financial situation that can generate money and knowledge about your customers you can leverage in product development.
#6 Revenue-based financing
What is it?
Revenue-based financing (RBF) is an alternative funding option that offers fast cash and doesn’t require giving up ownership. It allows founders to get capital in return for a certain percentage of future sales.
Am I able to get it?
Revenue-based financing works best for subscription-based business models, e-commerce, or software-as-a-service (SaaS) businesses. Your company needs to have recurring revenue (6+ months of revenue history) to turn it into capital for further growth. Some providers also require you to have 3 months of runway and ARR between $250k — $100M+.
How much can I get?
The amount can go up to $20M. Most RBF services charge a 5–20% fee on the amount you borrowed.
Is it dilutive?
This approach helps founders retain control over their business without diluting the equity.
How long will it take?
For different platforms, the process takes between 24 and 72 hours.
How do I do it?
You can instantly get cash through Pipe — a platform that provides quick access to on-demand capital. Pipe’s platform offers capital to any businesses (not only SaaS companies) with predictable revenue streams. There are also other platforms like Capchase and Clearco.
#7 Credit line
What is it?
Some startups can advance their digital store revenues or video games tax relief (VGTR) refund and get on-demand capital. Funding platforms such as Sugar, Braavo, and Pollen VC unlock the value in your AR and provide you with a credit line based on your monthly revenues.
Am I able to get it?
If your company plays in the gaming or mobile app fields, you can consider getting capital through a credit line. You’re eligible if you’re in business for 6+ months with monthly revenue of over $10k (over $25k for Pollen VC) and have live apps on the App Store or other digital stores.
How much can I get?
Loans amounts vary and can go up to $10 million. The service fee ranges between 1% and 10% depending on the platform and the amount you borrow.
Is it dilutive?
A credit line is a non-dilutive source of capital that allows you to retain full control. It needs to be paid back within a certain time frame.
How long will it take?
As fast as 24 hours.
How do I do it?
All you need to do is create an account on the platform of your choice, fill out an application form, and provide the details about your business — no personal guarantees are required. If you’re eligible, you’ll receive an offer shortly. Here you can start your application with Sugar, Braavo, or Pollen VC.
#8 Startup loans
What is it?
Loans are an attractive financing alternative for those who don’t want to give up equity. A Startup Loansprogram allows startups to borrow money from the government. Together with the capital, they offer 12 months of free mentoring and support.
Am I able to get it?
The loan is available to UK-based businesses that have been trading for less than three years. Companies involved in gambling and betting activities, banking & money transfer service, property investment, chemical manufacture, and charities are excluded.
How much can I get?
Businesses can borrow up to £25,000 with a fixed interest rate of 6% per annum. You need to repay the loan over 1–5 years. The average loan amount is £7,200.
Is it dilutive?
This is a non-dilutive funding type.
How long will it take?
Depending on your preparation level, it can take anywhere between 2 weeks and 3 months.
How do I do it?
For your application, you’ll be required to submit your business plan and cash flow forecast. Prepare it in advance to accelerate the process. You can register for a Startup Loan here. The registration process involves sharing a few personal details and an eligibility check before proceeding to a loan application.
#9 Bank loans
What is it?
Companies can get a business loan from mainstream lenders such as banks. They are more willing to give you money if you present your assets as collateral, e.g., machinery, equipment, or real estate. In case you have no assets, you may get capital with an unsecured loan, which is typically more expensive.
Am I able to get it?
Bank loans are mostly suited for companies with a consistent cash flow and a good credit rating.
How much can I get?
You can get between £1,000 and £500,000 with a bank loan.
Is it dilutive?
A bank loan is a non-dilutive financing alternative, which might be expensive to pay back for many early-stage businesses.
How long will it take?
The application and approval process might take weeks or months until you’ve received the money.
How do I do it?
Check out available business loan options from bank lenders and choose the one with the most favourable terms and conditions for you. Consider any fees, penalties, and charges before making a decision.
#10 Peer-to-peer lending
What is it?
If banks are not an option, peer-to-peer lending, or debt crowdfunding, can be your workaround. It is an emerging way of financing where individual lenders provide cash to startups. Companies can raise money through platforms like Funding Circle, Zopa, Crowdstacker, FOLK 2 FOLK, or Lending Works.
Am I able to get it?
Companies whose credit rating or cash flow is not sufficient for banks. Also, it’s a great option for startups looking for quick access to cash.
How much can I get?
Through P2P lending, companies can get between £1,000 and £50,000.
Is it dilutive?
P2P lending is a non-dilutive financing alternative.
How long will it take?
Peer-to-peer lending platforms are quicker to consider your requests than traditional lenders. However, the process might still take several days to a few weeks.
How do I do it?
Select the platform of your choice and register there. You will be required to submit financial records along with the details of any existing debt before you’ve got a loan.
#11 Venture lending
What is it?
Venture lending is a type of debt financing provided to companies by banks and non-bank lenders. Venture debt can be an alternative to venture capital that prevents further dilution of equity.
Am I able to get it?
This way of financing is typically available to venture-backed startups that have completed one or two rounds of VC fundraising. It is mostly suitable for businesses with no positive cash flow or significant assets.
How much can I get?
Loan sizes and types can vary depending on the scale of your business and the equity raised to date. Typically startups can get 30% of the total amount raised in the last round.
Is it dilutive?
As a rule, a venture loan is a non-dilutive type of capital. However, lenders receive warrants that allow them to buy equity to compensate for the high risk.
How long will it take?
The process usually takes up to 6 weeks.
How do I do it?
Approach venture debt providers to enquire about the possibility of financing. Prepare the balance sheets and monthly income statements to demonstrate your startup’s financial health to the lenders.
#12 Business angels
What is it?
Angel investors are wealthy individuals looking for investment opportunities in exchange for a share of your company. They are often risk-takers willing to invest in earlier-stage projects than VCs. Besides, many business angels are entrepreneurs who have successfully founded a business of their own. They are willing to share their experience and serve as mentors to you and your team.
Am I able to get it?
Any startup willing to fundraise and give up equity can get funding from business angels.
How much can I get?
Angel investors are perfect for securing your seed funding. As the money comes from one individual, the amounts are typically lower than you would get from a venture capital fund. Investment amounts vary significantly and can range between £10,000 and £500,000.
Is it dilutive?
Getting capital from angel investors implies giving away the shares of your company.
How long will it take?
Although the process might be faster and more efficient than with VCs, it still takes time for a potential investor to examine your company’s background. Thus, it can last a few weeks to several months until you’ve got funds from business angels.
How do I do it?
You can find financial investors through a personal network, at startup events and conferences, or in places like AngelList or UK Business Angels Association (UKBAA).
#13 Family offices
What is it?
Family offices are private wealth management firms that ‘manage’ the wealth of one or several families. They are also the underdogs of the startup funding ecosystem. They have potential, but they are not the founders’ first choice. And given the current climate, this might be an opportunity for family offices to step up their game.
Am I able to get it?
Since the goal of family offices is to grow one family’s assets and transfer them across generations, they are looking for the potential to multiply their investments. Also, they are more likely to invest when your business matches the industry where the wealth originally comes from.
How much can I get?
Family offices can cover any round from seed to Series B. The amount highly depends on the size of the family office and can range from a hundred thousand to several million.
But family offices aren’t the magic bullet for all. Many are still likely to restrain from risky investments. Look for those that are eager to act and take the lead.
Is it dilutive?
This is a dilutive type of financing.
How long will it take?
Unlike VCs, family offices can afford to move fast. They have more liberty to make decisions regarding where and how to invest as they don’t answer to outside investors. It can significantly accelerate decision-making and help avoid lengthy due diligence processes, which is more relevant when time is of the essence for startups seeking funding. The process typically takes from a few weeks to a couple of months.
How do I do it?
Family offices come in all shapes and sizes. Reach out to them and ask about their expectations and the level of involvement and support. Consider which network they have and which synergies you can get from this partnership. Opt for the one you feel is the right fit for you.
#14 Strategic partnership
What is it?
Strategic partnerships are one thing entrepreneurs often overlook. Corporations can help you expand your reach, provide you with necessary resources, and shorten your time to market.
Corporate Venture Capital (CVC) is gaining popularity as a strategic financing method. They have the money, but they lack the know-how. And what is a better way to foster innovation than to cooperate with a startup?
Big corporations are willing to invest in startups for multiple reasons.
For one, they need innovation to stay competitive, push new products to the market, and improve their services. Developing it in-house would be costly and inefficient. Moreover, they are not as laser-focused on their investment return as VCs often are. This makes them a great source of capital when VCs are out of the game.
Am I able to get it?
Similar to business angels and venture capital funds, CVCs invest in startups in all stages. CVC investments can provide you with a testing ground for your products if you’re targeting the B2B segment.
Keep in mind that their terms can be restrictive. They might try to request exclusivity and prevent you from working with competitors. They know you’re under pressure to extend your cash runway, and if you’re knocking at their door, they have the upper hand.
How much can I get?
CVC investments are likely to match or outbid the amount of capital you would get from VC. Depending on the arrangement with the corporation, the amount can vary from £100,000 to a few million.
Is it dilutive?
This is dilutive funding as you sell a part of your company to a corporation.
How long will it take?
The process might take from a few months to a year.
How do I do it?
Consider which corporations would yield the most synergies with your startup before you outreach. You can meet potential investors at conferences and events or ask your professional network for relevant connections.
Conclusion
While VCs are a popular way to secure funding for your startup, it’s not the only way. There are a variety of alternative sources of capital that can help founders fund their businesses. You can opt for government grants, R&D tax credits, strategic partnerships, loans, or financing your company with the help of your friends. But each of them has pros and cons.
Choosing which route to take depends on the specifics of your company, where you are now, and what your goals are. There is no right or wrong — you need to decide for yourself what you are willing to give up in exchange for the capital you are looking for. Identifying the best type of funding for your company is essential for your success and sustainable growth.
