Where can I get funding for my startup business?

You have a great idea for a product or service that’s going to bring some value into the world. But you know you need money to help get your startup idea off the ground. Where do you look and how does this work in practice?

In this post, we’ll see how your startup can get funded.

What do I need to supply to get startup funding?

Because your new business has no background or credit history of its own, it’s essential that you put together a solid business plan that sets out the problem your business is going to solve and how you’re going to do it.

Potential investors will want to know how much money you need, how you intend to use it and how you can give them a return on their investment. You’ll increase the chances of an investor opening their wallet to you by clearly expressing:

why the investor should invest in you, and
what the investor will get out of it.

As the saying goes, “people invest in people”. Even though your plans should include figures to show that your business case that stacks up, your potential investors also need to build trust in you and your team. Investors will want to hear your clear take on the problem your business solves and why you came up with your idea. You and the plan both need to be credible.

Investors need to feel confident that their investment is going to be repaid, so paint a picture of a sales/exit strategy that benefits everyone involved.

All of this may seem unfamiliar territory. After all, you might be trying to build an app, create a popup restaurant or imagine some other new product or service. Your skills lie in doing that thing, not in writing business plans or considering finance options and exit strategies.

Rather than muddling your way through in the hope of convincing an investor to part with their cash, it’s often wise to seek help when putting together the plans for your startup.

We’re used to talking with startups and positioning their new businesses in a way that appeals to potential investors. We can make introductions to relevant finance providers and industry contacts. Get in touch if you need a hand.

Before you look for investment

Aside from building a solid business plan, what else should you do to give your startup the best chance of receiving funding?

Our best advice is to do as much as possible by using your own personal funds. That might also involve borrowing from family and friends. It’s never easy to ask for money, but this is a more realistic early route than approaching a bank and expecting them to support a new business with no credit history.

Self-funding, including earnings from work you do in separate jobs, will show investors your commitment to your idea. After all, why should they take a chance on you unless you’ve shown the willingness to take a risk first?

Those early funds can also be crucial in helping you build a prototype of your idea. If you can create something to show to potential investors, that will be far more convincing than an idea on paper.

If your plan is to sell a physical product, could you get a model built? If it’s an app, could you make a video showing what it might do? If you’re creating a restaurant, could you develop a menu and some sample dishes?

There’s another important point to consider while you’re getting ready to pitch your idea to the world. The last thing you want is to share your plan before you’ve protected your intellectual property (IP) and investigated any relevant copyright issues.

Failing to do this means that your idea could be used without you getting any of the credit. Take the necessary steps to protect your startup before seeking investment or go to market.

Where can startups look for investment?

Let’s say you’ve developed your business plan and have put your own funds into getting some form of prototype ready.

Having reached the limits of what you can do by yourself, you now want to secure some funding to grow your startup business. Here are some routes to investigate.

Business Gateway

Business Gateway is known for offering courses on how to get started and improve your business.

It can act as a stepping stone to accessing funds to help your startup. Though you won’t receive any money directly from Business Gateway, you can make connections with relevant organisations who may be able to help with investment.

For example, promising new companies in Scotland may pass through Business Gateway and be referred to Scottish Enterprise, who in turn can help with access to government-backed grants.

Business Gateway can also advise you about research and development grants and other routes to access funds to support your startup.

European funding

Startups can benefit from loans of up to £25,000 via the Scottish Growth Scheme, a £500 million package of financial support for Scottish businesses from the Scottish Government and the European Regional Development Fund. This fund isn’t tied to the UK’s status as a member of the EU (in other words, it’s not affected by Brexit).

At Henderson Loggie, we’ve successfully helped clients raise debt finance through Business Loans Scotland (https://www.bls.scot/), but these funds can also be accessed through:

DSL Business Finance Ltd
Business & Enterprise Scotland Ltd
Techstart Ventures
Foresight Group

As you might expect, accessing funds like this isn’t just a simple case of filling in a form, so it’s best to talk to a competent professional partner who can help. We make introductions like this for many of our startup clients, so get in touch if you’d like to discuss this further.

Debt funding of up to £100,000 is available for more established businesses, so these loans aren’t just for startups.

Business angels

Most of the business angel networks in Scotland will be registered with LINC, the Scottish Angel Capital Association, and details of their investment preferences and appetites can be found on the LINC website (https://lincscot.co.uk/). Look up the “business angels” who are interested in your field. They have their own websites that allow you to submit your plans.

Such submissions generally go to a gatekeeper who then filters the applications and proposes the most relevant and interesting plans at the angel investor meetings. Your plan needs to be attractive enough to survive the selection process and be offered up in front of the investors. It can help to have talked to one or more of the angels directly in advance and have them champion your plan. Meetings might take place every few weeks or months, so you may need to be patient. In most cases, significant investments are unlikely to be arranged quickly.

Business introductions

Your accountants are likely to have their own network of high-net worth individuals. In our case, we often make introductions between our startup clients and our network of clients who have expressed an interest in making such investments.

To give our startup clients the best chance of securing the funding they need, we help them brush up their business plans to make them “investor ready” before passing them on to their potential future business partners.

Also, our network includes bankers, lawyers and other professional service providers, so we can often make introductions that help startups with the other tasks associated with doing business.

Does my UK location affect my potential for startup funding?

Your location usually isn’t relevant to whether you can secure funding for your startup.

However, when it comes to local authority-backed grants, the funding process can differ a little across the UK.

Regional Selective Assistance grants, for example, depend on your postcode. In areas with low employment, Scottish Enterprise may offer a grant based on your business employing staff. The extent of such a grant depends on the area you’re in and number of employees you take on.

Schemes like this are based on your business making a financial outlay and then recouping some of your costs – so you still need the funds to spend in the first instance.

How true is the Dragons’ Den version of startup funding?

The good news is that the reality of dealing with investors is less adversarial than what we see on TV. What works on an entertainment show doesn’t always reflect the truth of business.

If you meet with a potential investor, it’s safe to say that they’re already interested in working with you. The difficult part is getting them into the room to begin with.

So, the challenge is to get on their radar. Getting a startup funding deal over the line is more about good research and preparation than it is about a face-to-face battle of wits.

How are startup funds paid?

Even if you’ve made a winning case, remember that any investors in your startup will need a legal agreement before a penny is exchanged.

Your business plan should include details on what you’re offering to investors and this will form the basis of negotiations over the investment structure such as how many shares their money gets them and how many seats they’ll occupy on your board.

With this information clear, agreed and legally binding, your investors will deposit money into your business bank account. Remember that there should be no doubt about what the money will be used for and how long it’s expected to last.

Investors don’t want surprises. Do everything you can to uphold your side of the agreement.

Let’s sum up

Running a startup isn’t easy and neither is securing funding to help it grow.

Potential investors need convincing before they loosen their purse strings. Our best advice is to build a robust business plan that stands up to their close inspection.

Start small and do what you can with your own funds first, including creating a prototype of your product or service to build your credibility and help give investors confidence in your work.

Be clear on what problem you’re going to fix and let the investors buy into you as much as they do the business itself. Approach Business Gateway and look for business angels who can make referrals to the right groups, and keep in mind that some startups may be able to access government-backed grants.

Finally, speak with the people who can put your plans in order and give you the best chance of connecting with the investors who can help make your startup a success.

Or if you have any questions please get in touch using the form below. We look forward to chatting with you.