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
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
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
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
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
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 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.
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 MHA 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.
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.
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
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
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
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.
To chat with us about how we help connect our startup clients with potential investors, get in touch now.