10 ways to secure funding for your tech business

So you have yourself a brilliant business idea and you’re ready to finally hand in that notice that you’ve just been dying to deliver to your overbearing boss. Now what? Quite often with a business idea, there’s quite a bit to think about in order to take it off the ground; from a flashy new website to hiring a tech team to build the product. All of which requires money.

Whether it’s a quaint antipodean café nestled in the backstreets of Bristol or the Uber of all apps ready to go global, most founders do require at least a little bit of funding to help turn the vision into reality.  The good news is, there are quite a few options when it comes to securing funding for your business. Keep reading on for HdE GROUP’s guide on where to turn to when looking for funding.

1. Begin with Bootstrapping

When first getting started, many founders use the good old “bootstrapping” technique, which is perhaps the most risk-averse way to start your business. This basically refers to financing your business by gathering any personal funds you can find, typically including ransacking your savings account and credit cards. 

While this is the safest approach to starting your business in terms of avoiding extensive loans and monthly repayments, if you’re looking to scale your business quickly, it can be more beneficial to bring in outside sources of funding.

2. Friends and family loans

While asking friends and family for money may seem like a bit of an awkward scenario, leaning on those closest to you is a great step to make before sourcing external loans from outside sources. Your supportive loved ones are much less likely to demand high-interest rates, and while Great Aunt Edith may not be in a position to finance your whole business model, she might be willing enough to lend you a few grand to knock you up a fabulous website.

This is not to say this approach to funding can come without its drawbacks. Mixing family and friends with business and finance can sometimes lead to sticky situations. To avoid this, present to them your business plan and give them time to think about it, ensure you are clear and upfront with your requirements and plans on paying the loan back, discuss ‘what-if’ scenarios such as what would happen if the business fails and finally, make sure you put the terms of any agreement in writing.

3. Take out a business loan or overdraft

If your business is likely to have a fluctuating income, taking out a bank overdraft may be a sensible option to provide flexible cash flow and fund working capital. For instance, the cash you need to cover any potential delays between paying suppliers and receiving payments from customers.

Many of the UK’s major banks offer good overdraft packages to startups, charging interest only on the amount overdrawn. However, it’s important to be aware that interest rates on overdrafts are often above base rates, with overdraft amounts repayable on demand in many cases. 

4. Crowdfunding

In today’s digital era, funding is perhaps easier than ever before. The power of the internet allows budding entrepreneurs to share their ideas with the whole world in a simple click, and that’s exactly where the crowdfunding model comes in. 

Crowdfunding platforms enable individuals to pitch their great business ideas to a community of investors or just people who are willing to invest their money in a cause they feel passionate about or see real potential in.

Crowdfunding sites such as Kickstarter or Crowdcube, are also a great way to scope out the popularity of your idea before investing heavily in something which may not actually be the winning idea you first thought it would be.

5. Seek Angel Investment

This method of funding is hugely beneficial for early-stage startups who want to scale fast. Angel investors refer to individuals with a high net worth, who have the ability to provide young businesses with a significant amount of capital. This investment is typically given in exchange for some equity in the startup. 

Sourcing funding through angel investors also provides the benefit of accessing valuable mentorship alongside capital. In addition to this, unlike venture capital firms, angel investors often don’t require immediate returns on investment and understand this may take some time. 

6. Seek Venture Capital for your startup

Many startups seeking funds often turn to venture capital (VC) firms. These firms are managed by professionals who have a keen eye for seeking out businesses with great potential. VC’s will provide that much-needed capital, but also much more than this, in the form of strategic assistance, introductions to potential customers, business partners, employees, and much more.

While there are copious amounts of pros to seeking the assistance of VCs, you must also consider the cons. For instance, since you’re giving up a large part of your business to the investors, you tend to lose control of things you used to have a full say on. Furthermore, VCs tend to seek more established businesses with proven levels of stability, which may not be the case for many fledgeling startups.

7. Government programmes and grants

Today, there are countless types of grants available specifically to help small business get off the ground. 

Many of the funding opportunities from grants are based on a specific location or sector, or put aside for a certain part of a business, like job creation or making eco-friendly changes.

Last year during the midst of the Coronavirus outbreak, the UK government committed a further £1bn funding to support startups during this unprecedented period.

However, at times the hardest part is both finding these grants and subsequently completing the often long and arduous application process. 

8. Peer-to-peer loans

This form of lending has become a vital resource for many UK startups and small-to-medium sized businesses,  matching businesses in need of capital with approved and trusted investors looking to lend.

The way peer-to-peer platforms such as Funding Circle or Zopa work is pretty simple: they connect creditworthy businesses looking for finance with people and organisations with money to lend.  The benefits of this form of funding are mainly associated with the better rates both borrowers and lenders receive in comparison to alternative lending techniques. It’s also a much faster setup than traditional bank loans.

9. Asset finance

This flexible form of finance enables small businesses to get hold of any equipment, property, and inventory they need in order to operate, trade, and grow their business without having to take out unsecured sources of credit. It works in the same way as a mortgage in that you borrow money against an existing possession, and if you can’t meet the payments, then this asset is repossessed.

It’s particularly well-catered to startups and SMEs who are battling with rising costs and cashflow, as asset finance helps spread purchases into a manageable size. 

10. Seeking Funds from Business Incubators and Accelerators

 Business Incubators help founders to create their business offering or idea and fine-tune it to the market requirement, and is better tailored to those businesses in the most nascent stages. Incubators help in the form of mentoring, networking introductions and providing resources (including capital) to the business owner.

Accelerators typically work with startups that have already demonstrated rapid growth and a minimum viable product (MVP). They’re often given a small seed investment and paired with mentors from the accelerator’s valuable network circle.

Whichever industry you are in, sourcing the money required to get your business started can be an overwhelming journey. While securing funding can be the hardest part, it’s also the most rewarding. From working hard to meet your personal saving goal, finally getting a loan approved, or finding a group of credible investors who believe in your dream enough to lend you capital — the hard work will always be worth it.