One of the most important factors behind the success of every startup and scaleup is adequate funding. Without it, the business won’t be able to move to the next stage of its development. Fortunately, for businesses operating within the United Kingdom, there are plenty of support and UK startup funding options for a businesses with plans to grow. Here, we look at some of those options, as well as the importance of seeking sound legal advice throughout the funding process and the business lifecycle.
Government UK Startup Funding Options
When looking for business funding, the first place to look should be the UK government. The Department for Business and Trade currently has more than 130 grants and support programs specifically designed to foster innovation and encourage entrepreneurship. These initiatives include the Innovate UK grants, Research and Development (R&D) tax credits, and the Seed Enterprise Investment Scheme (SEIS). Many of these funding sources can provide crucial capital and resources to early-stage businesses.
Crowdfunding
Crowdfunding has become a very popular form of UK startup funding for businesses looking to raise capital. There are four main categories of crowdfunding:
Rewards-based – Investors receive gifts, or discounts in exchange for funding. Excellent for startups, as you can secure the funding before delivering the product or service.
Equity-based – As the name implies, backers become shareholders. Regulation has made the UK one of the world leaders in this form of crowdfunding.
Peer-to-peer lending – Investors receive their money back with interest, typically over a three to five year period.
Donation-based – Backers give out of belief in a project and typically receive no compensation, although prizes may be offered.
Good examples of platforms include Kickstarter, Indiegogo, and Crowdcube. Firms like these allow entrepreneurs to pitch their ideas to a wide audience and collect funds from individuals who believe in their vision. Crowdfunding can serve as a marketing tool, validating the concept while securing financial backing from early adopters and enthusiasts. However, it is important to choose the right platform for your business model.
Angel Investors and Venture Capital
Angel investors and venture capital firms play a vital role in funding start-ups and scale-ups in the UK. Angel investors are typically successful individuals who provide funding in exchange for equity in the company. On the other hand, venture capital firms are investment companies that manage funds from various sources and invest in high-growth potential businesses. Both options offer not only financial support but also valuable industry expertise and networking opportunities.
Business Loans and Grants
Traditional business loans from banks and financial institutions remain a common funding route for startups and scaleups. The UK government also supplies loans and grants through partners such as the British Business Bank. Businesses will usually have to have a solid business plan worked out with collateral and a good credit history to secure a loan, while grants can be incredibly competitive and come with very specific eligibility criteria. Again, good legal advice is needed before going down this route.
Peer to Peer Lending
Peer-to-peer (P2P) lending has experienced a significant surge in popularity among entrepreneurs and small business owners seeking alternative funding options for their startups or existing ventures, diverging from the conventional route of approaching a traditional bank for a loan. These individuals now turn to online platforms functioning as P2P marketplaces, facilitated by advanced financial technology, to directly connect borrowers with investors. This method effectively eliminates the need for intermediaries, such as financial institutions.
In the realm of P2P lending, investors create accounts and contribute funds that are subsequently allocated as loans. By participating in this process, investors aim to attain a higher return on their investment compared to what traditional savings accounts can provide. Conversely, borrowers, in most cases, benefit from securing loans at lower interest rates, making it a mutually advantageous arrangement.
Why get legal advice from an corporate law specialist?
Getting the right funding for your business means getting the right advice from the outset. Starting and growing a business can be fraught with many legal challenges, so it make sense getting in touch with a professional corporate and commercial law firm, such as JPP Law.
Some of the challenges you may encounter when getting funding include:
Intellectual property – Legal counsel can help safeguard valuable IP assets during the funding process, as well as advising on licensing or infringement issues.
Contractual agreements – Clearly when it comes to negotiating funding with new shareholders, complex legal contracts, known as shareholder agreements, are required outlining the rights of all parties. An experienced solicitor will may sure you avoid common pitfalls.
Regulatory compliance – There are many laws and regulations regarding fundraising activities. It’s vital you get sound legal advice you have all the licences and permits in place to avoid penalties.
Due diligence – When negotiating with potential investors, they will carry out due diligence on your business. A corporate solicitor can prepare the necessary documentation that will ensure transparency and build investor confidence in your business.
If you are looking for legal support and guidance on your UK funding options, use the booking form below to arrange a free introductory call with one of our business specialists, send us a message via our contact form or call +44 (0)20 3468 3064.
