There are plenty of investment options out there, but you need to make sure you choose the funding structure that suits you and your business. Obtaining the right support can let you realise your dreams, but you’ll have to give up at least a portion of your equity, and perhaps some control of your business.
Typically wealthy individuals and successful entrepreneurs, they often invest in unofficial groups or syndicates. Typically investing £25k-250k each, they will receive ordinary shares in your company in return for their investment, and will want some real input into the business, often taking a (shared) seat on the board. Of course, with their experience, they can provide valuable business experience and advice, having once started from scratch, just like you, and can provide mentorship and access to their network of contacts as well.
This involves funding from VCs in investment rounds (Series A, Series B, etc.). Each round will offer different terms to investors, with earlier investors taking more risk for more return. VCs typically invest between £1million and £10million per investment round, and look to take between 5%- 20% of the share capital of the company.
Venture lenders may allow you to borrow for the short or long term, at more favourable rates than you will get from other lenders. They will want to take security over your assets or IP in return. The terms of the borrowing will often have an ‘equity kicker’, whereby the lender has an option to purchase shares in the company at a set price in the future.
These will typically be established corporate bodies, who have set up a separate investment fund. The investors will of course be interested in pure investment return, but will often have other strategic reasons for investment – they may have an eye on getting first refusal to buy a disruptive start-up in their market, or may want to gain some control over entities which have become vital in their supply chain. They may be great partners if you’re looking for an early exit, but may restrict your plans in the future.