The UK: why it’s the perfect place for your startup and 7 ways to find funding
Chances are that the thought of a startup company concocts images of modern offices in summery Silicon Valley and not the dynamic and drizzly landscape of the UK. However, maybe it should…
The UK is a superb place for business, with the country even topping Forbes’ ‘Top Countries for Business’ list in 2018, and with over 5,377 startups, the UK is a particularly glowing hub in the startup industry. In fact, the UK has the third highest startup effort rate in the world (via firstsiteguide.com). There’s no lack of funds to support these businesses either: so far in 2021 UK startups have raised a total of €17.2 billion from Venture Capital funds. This is a new record for the country, which raised over €14 billion last year in 2020 (via sifted.eu).
The tech scene in the startup industry is thriving, too. In fact, around £4 billion of the €14 billion was invested in UK tech startups within the first six months of 2020, even despite the economic damage caused by the ongoing Coronavirus pandemic (via growth businesses.co.uk).
This blog explores why the UK is a great country to found and grow a startup business. It then lists seven common ways how funding startup businesses can be achieved in the UK.
Why is the UK a thriving hub for startups?
Whilst it’s true that major events such as Brexit could give the impression the UK is no desirable place to found a startup, there are many reasons why the UK is in fact a great country for your startup to call home. Here are our top three reasons:
London!
Our capital city was voted by 200 top US tech executives as the best city in Europe for tech startups (via cityam.com). It’s home to a vast array of current and future industry experts and is widely considered to be one of the banking capitals of the world. It’s also hugely international and boasts an expansive community of startup founders and funding investors such as seed capital investors, VCs, and even Angels (more on that later).
Startup costs and time
The cost of founding a startup can be extortionate, but here in the UK the average startup budgets only £5000 to launch (via tide.co). This makes it the fourth cheapest country in the world to launch a business, just behind Ukraine (via rovva.com). In terms of how long it takes founders to launch a business, in the UK this can be done in under an hour using the government portal. It only costs £12, too!
The government support
Another influential reason why the UK is a thriving hub for startups is the government initiatives that both encourage and make it easier for investors to finance capital in startup companies. Schemes such as the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are great examples of how Venture Capitalists are incited to invest in UK-based startups. You can read more about them here.
Where in the UK is best to found my startup?
So, the UK startup scene is vibrant and booming, but where in the UK is best for your startup?
There’s no doubt that London is the heart of the UK startup industry. According to beauhurst.com, is currently home to around 263 (80%) of all UK-based VC investment funds. Around 15 VC funds are based in the north-west of England and only 2 are present in Northern Ireland. Scotland is home to 13 VC funds, whereas Wales has no traditional VC funds (as of 2019). However, it is possible to find funding from the Development Bank of Wales, which is dedicated to investing in Welsh businesses.
However, it is worth noting that the geographical location of your startup company could influence the source of your funding. Whilst 70% of all deals made by UK-based VCs involve investing into UK-based startup companies, a surprising 57% of those deals invest in businesses that are also based in London.
Further to this, Northern Irish VC funds have only announced deals with North Ireland-based businesses (via beauhurst.com). This shows that investors for startups are highly likely to look to secure deals with startups within their close proximity and could mean you should think carefully about where in the UK to start your business.
7 ways to get startup funding in the UK
Funding a startup can be a difficult process regardless of the country it’s located in. There are, however, several ways in the UK to gain funding to grow your startup into a successful business. Here are our top seven ways to score startup funding in the UK.
Regional funding from local boroughs
In the UK it is often possible for small businesses to find regional-based funding from their borough’s local government. This funding, which can be in either business loan or government grant form, intends to grow local businesses and stimulate the local economy. For example, between £1,500 and £10,000 with a maximum intervention rate of 30% is available for businesses based in Derbyshire and Nottinghamshire thanks to the D2N2 Capital Growth Fund.
The UK government’s Startup Loan scheme
The Startup Loan scheme is a government initiative that was launched in 2021 with the aim at invigorating entrepreneurship in the UK. It comprises a personal loan of between £500 and £25,000 and has a fixed interest rate at 6% per annum. It can be repaid over one to five years. To qualify for this loan, startup founders must submit a detailed business plan and a cash-flow forecast. This is to prove that the startup can afford the agreed monthly repayments. Startups successful at securing this loan will also be paired with a business mentor for the first 12 months of the agreement.
Innovation Grant
Although innovation grants are highly competitive, these funding sources are aimed at stimulating growth in tech startups. Funding with the Innovation Grant can help to turn an innovative tech-based business idea into a successful business venture. As well as money, startups that receive the Innovation Grant will be well-regarded in the eyes of VCs and Angels, who often highly appreciate this external stamp of approval.
Crowdfunding
If you don’t ask, you don’t get, and sometimes asking outright is the best way to go. Online crowdfunding is not just a great way to raise capital to invest in businesses at the earliest stages, but also a perfect opportunity to market them. Platforms such as Kickstarter and Indiegogo are popular in the UK for startups selling products since they can guarantee a certain number of sales once the product launches. Alternatively, startup business owners can use online crowdfunding platforms such as Seedrs and Crowdcube to seek funding from potential investors rather than customers, but this means the investor will also secure equity in the company.
Peer-to-peer business loans
Peer-to-peer loans, commonly referred to as P2P loans, are similar to crowdfunding but, whereas crowdfunds are not repayable, P2P loans must be paid back. Only becoming popular over the last decade or so, P2P is a relatively new concept in the industry. Funding Circle, the first P2P lender to launch here in the UK, was only launched in 2010. It directly connects small businesses with investors and provides them with unsecured business loans of up to £500,000.
Friends and family
For startup founders with no or little proven track record as a business owner, securing funding from traditional sources could often prove tricky. This is where finding funding from ‘Friends, Family, and Fools’ could be helpful to grow your business. The benefits of this method are that friends and families may be more flexible with repayments and less interested in performing background checks.
However, this form of funding is less likely to provide large amounts of capital (depending on your contacts, of course!). Most importantly, those seeking capital from friends and family should always bear in mind that this is one of the riskiest forms of investment in terms of your personal life and could have a detrimental effect on your relationships. Additionally, friends and family may request that you return their money, which professional investors do not do.
Always remember to never accept funding from friends and family who cannot afford to get that money back and do not fully understand the risks they are undertaking when investing their money in your startup business.
VC/Angel funding
As of 2019, there were 327 active VC funds in the UK. Since 2011, these VC investment funds have participated in over 3,700 deals investing around £20 billion in 2,500 high-growth UK-based companies (via beauhurst.com). There is also no shortage of Angels here in the UK, either, with the UK Business Angels Association reporting a membership total of 650.
Whilst it is possible to approach VCs and Angels directly, employing the help of a startup advisor is often the best way of making contact. Startup consultants can help businesses secure funding, whether they’re at the seed stage or already medium-sized. Here at 7startup, we can help you prepare for and seek funding to start scaling up your startup. We can even welcome you into our expansive network of trusted VCs and Angels to help you find the right investor for your business.
Summary
The startup industry in the UK is booming and looks set to continue to do so even despite the impact COVID-19 has had on the economy and other sectors. For startup founders looking to increase the chance of success of their business by seeking funding from external sources, there are many paths in the UK they can take to achieve this. Popular examples include securing funding from government grants and loans such as the Startup Loan scheme
Convinced the UK is the perfect place to grow your business, but unsure of where to begin seeking funding? Why not come and say hi to our expert startup consultants and we can help your brilliant idea flourish into a prosperous business.
This story was originally published on 7startup.vc
