What you need to know about raising funds before funding a start-up
Funding a start-up requires a different strategy to raising funds for a growing business. A growing company will be looking for steady, stable expansion opportunities, and have a proven track record of success. However, investors in a start-up need a higher risk tolerance. A new company looking to achieve rapid growth comes with a higher level of risk, as investors must trust in the forecasts of a business plan, rather than proven success. For this reason, crowdfunding through a platform such as GoFundMe can be an ideal solution. As the pool of investors is larger, the risk for each individual investor becomes smaller.
Ideas on how to raise money to start a business
We’ve compiled a list of some of the most popular and effective strategies to raise funds for a start-up in the UK. Which strategy is right for you will depend on various factors, including your business model, the volume of funds required, how quickly the money needs to be raised, and more. These ideas can provide inspiration for raising funds for a business and could be the helping hand you need to get that new company off the ground.
1. Crowdfunding for business
Crowdfunding sites like GoFundMe have become increasingly popular with investors, entrepreneurs, and the general public in recent years. They’re easy to set up, and if you can communicate your passion in your fundraiser description, you may be able to attract business funding from people all over the world. You can share your fundraiser on social media to generate more interest.
Moreover, you can ask friends and family to contribute to your crowdfunding efforts or borrow from them directly. People you know are often the best and safest way to raise money. Not only will they be more open to your proposal, but they have also likely seen your effort and dedication. GoFundMe makes it simple for friends and investors both to contribute to your start-up fund. Pebble Smartwatch and BrewDog are two examples of businesses that have used crowdfunding to great success.
2. Small business angel investors
Angel investors are high-net-worth individuals who may be willing to provide business finance support for start-ups in exchange for ownership equity or convertible debt. Typically, angel investors look for companies that have large potential for rapid growth. Many of today’s biggest tech companies, including Yahoo and Google, initially got off the ground with business funding from angel investors.
3. Self-funding (Bootstrapping)
If you don’t want to give up any form of ownership or independence, bootstrapping is likely the best option to raise money for a business. Bootstrapping is when you rely on your personal financial resources to set up a business. This may mean pulling from your savings or taking out a mortgage on your assets. The main advantage of bootstrapping is that you don’t have to give up your independence or ownership rights. However, not everyone has the financial resources to fund a business. There is also the risk that if your business fails, you could lose your personal assets.
4. Venture capitalists
Like angel investors, venture capitalists provide capital to start-ups, early-stage, and emerging companies that show high growth potential. The difference is that they generally provide business finance support that can have higher rates of return instead of taking a share of the company. However, some may take an ownership share of the company, and many have specialist industry areas they prefer to invest in. Leading venture capital firms focused on early-stage start-ups include Arch Venture Partners (healthcare and life sciences), GGV Capital (technology innovation), and Benchmark (infrastructure and enterprise software).
5. Microloans
There are numerous microloan options for those looking at raising funds for a business for growth or expansion. Loans remain a core option for businesses because they usually come with fewer strings attached, shorter payment periods, and in some cases, medium to low-interest rates.
6. Small Business Administration (SBA)
Government programs are a channel worth investigating if you’re asking yourself how to raise funds for business growth. You can turn to the SBA grants programs, but keep in mind that they are highly competitive. Another way of raising money for a business through government assistance is through SBA lending. However, it’s important to note that interest rates are slightly higher than most banks.
Ideas on how to raise funds for a business that is growing
An established business looking to expand may find a wider pool of investors and business funding opportunities. As the company has already proven it can be successful, these types of investment are seen as lower risk. If you’re looking for how to raise money for business growth, explore the following options:
7. Purchase order financing
Purchase order financing is perfect for businesses that have large product orders coming in regularly but not enough cash to cover the production of products until the payment from the customer comes through. How it works is that a purchase order financing company will pay your supplier the cost to produce the product. When the product is made and shipped to your customer, your business then invoices the customer and receives payment. That payment is then used to pay back the purchase order financing company. While it’s not always the most affordable way for business financing, it is a viable option for those who aren’t able to qualify for cheaper financing to fulfil an order. Examples would include manufacturing businesses using PFO to cover the cost of raw materials, and e-commerce businesses needing help with the additional costs of seasonal demand.
8. Contests
Business contests can be a great way to secure business funding because the prize money comes with very few conditions, if any at all. Contests usually encourage creative businesses or social enterprises to take part. As an example, in 2024, a West Midlands-based tech startup called Inicio AI won £1.35 million in the One to Win pitch competition in the Tech Awards sector of Birmingham Tech Week, beating 140 applicants, and completing the funding round required for the next stage of growth.
9. Pre-ordering
Borrow a page from big names in tech and offer customers the option to pre-order products before they launch or hit the shelves. By generating buzz about a soon-to-be launched product, companies can encourage customers to pay either the full purchase price, or a deposit, to ensure they’re among the first to receive that product once it’s available. Not only does this raise the business funding needed to fulfil these orders, but it also offers companies a way to gauge the demand for their product. The Pebble Time smartwatch is a good example of this – the company used a combination of crowdfunding and pre-orders to generate interest and the money needed to launch its new product, without the need to take on business loans.
10. Strategic partners and suppliers
Strategic partners can assist a business as it grows, by creating mutually beneficial opportunities. Strategic partners come in many forms, from suppliers to distributors, and even customers. While it may not be direct funding, getting credit from your supply chain can help provide business finance support that supplements your budget until your business is in a good place financially.
11. Business incubator programmes
Business incubators are programmes created to provide new businesses access to the resources they require to grow. Incubators benefit businesses more than just financially. They also offer mentorship, network establishment, and relevant entrepreneurship training. Examples of services a business incubator could provide include access to a pool of angel investors for seed funding, low-cost office space and meeting facilities, administrative support, and networking opportunities.
Best practices for raising money for a business
Always practice due diligence
No matter what form of fundraising you do, always make sure you practice due diligence to make sure you are not getting the raw end of the deal. This is especially so with financing, venture capitalists, or angel investors.
Ensure that bookkeeping is organized
Always make sure to do proper bookkeeping, whether you’re a small business or bootstrapping. The first thing financial lenders or investors look at is whether a company’s books are in order.
Fine-tune your business pitch
Refine your value proposition in your business pitch. Donors and investors want to know your impact, and how their money will help you achieve it. Make sure to showcase the things that make your business unique.
Creativity is the best key for fundraising
Get creative with your fundraising efforts. Like in a business deal negotiation, it’s about much more than simply asking for a check. Likewise, think outside of the box when exploring fundraising options.
Share your enthusiasm
Express your passion and get your audience excited, especially when crowdfunding.
Raising money for your business with GoFundMe
When looking at how to raise money for a business, it’s important to explore all the available options. As outlined above, there are multiple avenues a business could go down when trying to fundraise. What works for one company may not work for another, but there is likely a solution out there for any type of business.
Whether looking for business financing for a start-up, or raising funds for growing an established enterprise, thinking outside the box can help. Business crowdfunding is increasingly becoming one of the most popular choices. With sites like GoFundMe, setting up a fundraiser is fast and simple. Once the fundraiser has gone live, it’s also easy to share it widely across social media and other platforms to increase brand awareness and attract more investors.