The UK early stage ecosystem is well developed with many options for early stage companies to consider. This post examines the alternatives and provides some insight as to the significance of selecting any funding source. The alternatives given below can be used in combination to establish the company. Later funding rounds, if required, are usually financed by venture capital funds. Many organisations are increasingly using online systems to manage their investor networks and process deals, this can shorten the time it take to close a round. The most recent of which is the UK Business Angels Member Hub and DealShare platforms.
SEIS & EIS:
These are tax efficient schemes promoted by the UK Government to direct funds into early stage companies with a view to supporting the UK economy. Since EIS was launched in 1993-94, over 32,000 individual companies have received investment through the scheme, and over £20 billion of funds have been raised. The related SEIS scheme provides around £190m to around 2,300 seed stage companies each year. Together these schemes provide over £2bn to early stage companies, a significant sources of funds to around 4,000 companies a year. Tax driven investments can be accessed directly from individuals, through angel networks and also through a small number of SEIS/EIS funds. See related posts on SEIS/EIS for more details.
Individuals typically invest in companies that qualify for SEIS and EIS tax relief since this both gives tax relief on invested funds and can improve returns in both a positive and negative outcome. If possible source potential angel investors from your network or from individuals that can add value to the company by mentoring or providing industry expertise and connections.
Angel networks are formal and informal networks of individuals that facilitate syndicate investments in early stage companies. The UK Business Angels Association (UKBAA) operates a web site that provides an extensive members directory and a range of tools and advice for entrepreneurs looking for an angel network investment. A number of angel networks (AN) and syndicates (SYN) are also listed on Foundry Exchange here.
There are an increasing number of online networks which can be used to access potential investors. The best known are Gust and AngelList which assist in connecting companies and investors. As with Crowdfunding sites it is best to use these sites to help complete a round, particularly if you have already secured investors who regularly back startup companies and so have a following. A list of the key online networks is available on Foundry Exchange here.
Incubators & Accelerators:
Incubators and accelerators are an established part of the early stage ecosystem and can provide a very effective starting point for most companies. They provide a range of services from bench space to mentoring programmes, and in some instances seed finance in exchange for equity. The more established providers such as Techstars, Wayra and Seedcamp can provide a significant level of validation and going through these programmes will help with gaining access to the later stage funding market. A list of the key incubators and accelerators is available on Foundry Exchange here.
Early stage funds:
There are many early stage funds which typically leverage SEIS/EIS and some syndicate networks which look like funds. Typically these funds are orientated towards the fund raising process and may do little to assist beyond financing. Some of the more well know names include AngelsCube, Dreamstake, Forward Partners, Hoxton Ventures, Jenson Funding Partners and Parkwalk Advisors. Forward Partners and AngelsCube in particular provide operational assistance to their portfolio companies. A full list is available on Foundry Exchange here.
Crowdfunding is a fast growing sources of early stage funds, again leveraging SEIS/EIS tax schemes to motivate investors. Typically crowdfunding works best for companies that have already sourced a majority of the round and are in operating in a consumer sector. As such, this can be a quick route to filling out a round but it at the risk of a large investor base. Popular crowdfunding sites include Crowdcube, Seedrs and SyndicateRoom. In addition, there are a number of syndicates that use online platforms that are similar to public crowdfunding sites to raise funds from the syndicate. Qventures is such a operation focused on raising later stage rounds from a network of HNWI. A full list is available on Foundry Exchange here.
Coworking facilities can provide an effective workplace solution for early stage companies and can help to maintain an entrepreneurial atmosphere. Coworking London provides a directory of many of the capital’s shared work-spaces, incubators and accelerators.
Funding your company through a series of financing rounds takes time and planning. Use the many resources on Foundry Exchange to plan a funding strategy suitable for your company.