In the UK equity fundraising has so many options that it can be difficult to decide which one is best for your business.
Let me share some thoughts on the different types of investors to help you identify which might be best for you.
Crowdfunding
Crowdfunding is now a mainstream potential source of investment and great for brand building.
You’ll typically need to secure a significant percentage of the funds before you go live on a platform and if you fail to gain traction, your round may be unpublished.
HNW Private investors
Private investors are high net worth individuals, typically investing £5,000- £250,000 per deal of their own capital. If they invest via groups (‘networks’ or ‘syndicates’), the deal size can be larger.
Angel investors are ideal for businesses from seed to series A, raising from £100k to £5m.
Enterprise Investment Scheme (S/EIS)
Private investors can either invest directly into early-stage companies and get tax relief, or they can invest in one of a number of independently managed S/EIS funds.
SEIS funds focus upon start-ups seeking their first round of investment of up to £150,000 (as per SEIS conditions). EIS funds invest in EIS qualifying businesses. They only invest in 1% of the proposals they receive.
As well as S/EIS funds there are Venture Capital Trusts (VCTs). These are another tax-efficient vehicle for investors to invest into private companies, though they tend to be highly risk-averse.
Corporate venturing
With corporate venturing large corporations invest in start-ups in order to develop innovative services or products typically within their core industry.
The advantage of corporate venturing is that you can benefit from investment, buying power and trade introductions as well as operational, strategic and marketing support
The disadvantage of corporate venturing is that it could limit your exit opportunities e.g., organisations by which you could be acquired.
Family Offices
Family Offices (FOs) manage the wealth of an Ultra High-Net-Worth individual (UHNW) or family.
Some FOs have a general investment strategy and invest £1m to £10m in profitable companies with a turnover of at least £2m from any sector.
Family offices can be difficult to gain access to and, as with funds, the competition for their cash is high. They may ask for a large or even controlling stake in the business.
Government-supported funds
There are several initiatives supported directly and indirectly by the UK government via the British Business Bank.
Enterprise Capital Funds (ECFs) There are 20+ government-supported ECFs. Each has its own criteria but usually invest £500,000-£2m in established growth companies which are profitable, or nearly so.
Inevitably new initiatives are being launched and existing initiatives terminated. You’ll find up-to-date information at the British Business Bank.
Enterprise funds
There are three regional funds supported by the European Union using funding from the European Regional Development Fund (ERDF): Northern Powerhouse Investment Fund (NPIF), The Midlands Engine Investment Fund (MEIF), and The Cornwall & Isles of Scilly Investment Fund (CIOSIF). It is anticipated that they’ll continue to be supported by the UK government via the British Business Bank once EU funding ceases.
Additionally, British Business Investments, a commercial subsidiary of the British Business Bank, launched the Regional Angels Programme to help reduce UK regional imbalances in accessing early stage equity finance for smaller businesses.
University seed funds
Many universities have seed funds affiliated to their technology transfer programmes and focus on areas such as technology invention and innovation.
As an example, SETsquared is an enterprise partnership and collaboration between the five leading research-led UK universities (Surrey, Southampton, Exeter, Bristol, Bath). It is ranked as the Global No.1 Business Incubator.
Fund Managers
As well as the S/EIS funds there are many fund managers managing the funds of private investors.
Most funds, other than those listed above, tend to invest in established, profitable companies rather than early-stage ventures. There are hundreds of funds in the UK.
Funds charge fees so understand the total cost of the capital injection before signing up.
As mentioned, this is a complex arena. To give yourself the best chance of success, we always recommend working with an experienced professional advisor.
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