Alternative Sources Of Funding
What are alternative sources of funding?
Not many early-stage founders realize how many avenues next to traditional equity funding they can follow. From grants, awards and subsidies, through crowdfunding, R&D tax credits factoring and invoice factoring, to startup loans and bank loans, convertible loans and credit cards, friends and family, and, finally, client revenues. In this post, I will focus on equity-free funding sources for tech-focused startups and scaleups.
If your project is research and development heavy, I would recommend looking at grants from InnovateUK, one of the funding bodies my company GrantTree frequently works with. You will have to have some capital readily available to cash-flow your project though (be it an investment, personal savings or even loans) as nearly all of InnovateUK’s competition calls are match funded.
If your venture is health/bio science-related consider applying for funding through charitable Trusts, such as the Wellcome Trust. With £13bn at its disposal (and about £600m invested every year), the Wellcome Trust is the largest non-governmental source of funding for biomedical research that supports organisations as well as individual researchers.
If you are an IP-based business, make sure to maximise your return on R&D tax credits by working with someone who is aware of the latest changes in the HMRC legislation. You can normally recover up to 33% of all the in-house costs related to R&D and around 15% of any subcontracted labour that took place in the last two completed financial years. At GrantTree we also offer loans against future R&D tax credit claims - up to 9 months before the claim is due. These can often act as bridging loans.
Startup loans, a subsidiary of British Business Bank, is a great scheme since it plugs a serious funding gap amongst very early-stage startups, virtually unfundable by investors. The average loan size is £6k but you can borrow anything from £500 to £25k based on your business plan and financial projections.
If you have blue-chip clients whom you invoice on a regular basis, it’s worth looking into invoice factoring, supplied by companies such as MarketInvoice. For e-commerce and online businesses, a viable option is revenue-based financing, such as Clearco. This type of fixed fee debt finance turns your MRR into ARR.
This list of equity-free funding sources is by no means exhaustive but will hopefully be a good starting point to consider when looking at alternative funding options. Even if you are raising money from angels or VCs it could still make a lot of sense to supplement your growth budget with some of the options listed above.