If you have just started out then the answer is more often than not ‘yes, you do’. A typical startup’s growth curve starts at zero and soon takes a dive as money is spent on setting up. Only then can sales start to happen and the growth curve starts to climb back to zero and, hopefully, well above it. You can fund a small business with your own funds, otherwise known as bootstrapping but progress will be slow. For the rest, you'll need investment capital to kickstart your journey. This helps to support business essentials like staff, product development, intellectual property, and marketing. Without these, most companies won’t go anywhere.
“As long as six to ten months overall, from deciding you need funding to actually getting the money,” says Tony Brookes, whose UK-based analytics startup didici1 has already secured early investment and is on the road to the next round of funding. “Of course, it could take much longer. You might be pitching to an investment broker, then pitching to the investor – upwards of three or four different meetings. It can take time. But that’s understandable. You’re about to be given a lot of someone else’s money.” Which sounds great, but: “You aren’t entitled to someone else’s money. You have to earn it.” So, how do you get this all-important cash? Here are your options:
How to get business funding
Bootstrapping – ‘pulling yourself up by the bootstraps’ – is hugely popular because you answer to no one but yourself. You retain 100% control of your business and you don’t owe an investor or a loan provider any money. Despite perceptions, 80% of successful firms are built this way, using their own money. The average startup capital is just US$10k.
Give me an example: Tough Mudder, the outdoor obstacle course and race company. The founders put up US$7k of their own money and built a global multimillion-dollar business by selling tickets in advance and investing the money into their obstacle course layouts. Word of mouth did the rest.
Best for: Any startup. As long as you have the cash.
Crowdfunding sites help you gain (usually small) cash investments from all over the world. The most famous examples are usually unique or niche consumer products that larger businesses might consider too risky. There are global companies that started on crowdfunding sites - popular sites include Kickstarter, IndieGoGo, Patreon, AngelList and GoFundMe.
Give me an example: Cards Against Humanity, the card game with a twisted sense of humor, gained US$15k in funding through Kickstarter and ultimately built a multimillion-dollar business.
Best for: “Smaller investments or riskier ideas,” says didici founder Tony Brookes.
The old-fashioned approach. Bank loans charge interest, so you’ll be paying back more than you borrowed – but if your business is successful, this might not be a problem. Interest charges mean the bank doesn’t take equity in your business. A huge benefit if you want to retain 100% control of your business. Banks have even higher standards than most angel investors, so make sure you’ve dotted every i and crossed every t. A solid business plan is essential. For a better understanding of how to create a water-tight business plan, take a look at our comprehensive guide.
Give me an example: Although it’s fallen out of fashion, some big names – like Starbucks and The Body Shop – started out with a loan.
Best for: Proven businesses or one-person operations with low overheads are the most likely to be successful when applying for a bank loan.
Seeding investment puts cash into fledgling businesses in the hope that they will later grow and deliver results. Despite being known as ‘family and friends investment’, this doesn’t mean professional investors, equity funds and your bank can’t also get involved. Whoever they are, they will be expecting something in return. This could be a share of the business, which they could sell at a later time for a profit, assuming the company has grown beyond the point at which they invested.
Best for: Ambitious early-stage startups.
In early 2021, Talkshoplive2, a livestream social-shopping network, used seed funding to help it meet increasing demand from merchants and customers, and expand its global reach. The company has enjoyed rapid growth amidst the pandemic-triggered e-commerce boom.
Angel investors can come along at the seeding stage, or slightly later in the early life of your business. Typically, an angel investor is an individual that puts up their own funds, not a group or venture capital firm (who control pooled funds). They come in all shapes and sizes – from your own family members to high net worth individuals or retired CEOs. You can also search online for angel investment networking groups and organizations in your area.
In 2004, entrepreneur and investor Peter Thiel invested US$500k of his own money into Facebook in return for a 10.2% stake in what is now a global company with revenues in excess of US$70bn3.
Best for: Startups of any age.
Time for the big guns. Although few small businesses actually require any kind of venture capital investment, startups who want to take over the world will be on the lookout for seven-figure sums, or even more. In 2019, the venture industry had ploughed US$136.5bn into US-based companies, while there were 252 deals of over US$100m4. A business’s funding stages are labeled Series A, Series B, etc. – depending on which stage they are at – and you can find out where to find investors here.
Give me an example: One of the darlings of the European startup scene, Deliveroo, has recently secured its Series F funding. Eight VCs together invested US$385m.
1. You’re never entitled to investment – you have to earn it. Build trust at every stage
2. Start at the end and work back – what’s your exit strategy? Work back from there. Whatever you do, don’t put unrealistic values on your business
3. Always look to work with like-minded investors – the investor needs to share your vision for the company
4. Look and act like the business you want to be – ensure all your documents are neatly and consistently formatted, and know what systems, i.e. CRM platforms, etc. you intend to use
5. Be receptive to feedback and suggestions – you don’t have to do what they say, but they have experience you might benefit from