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Fast-growing firms are the engine of the UK’s economic growth. That’s probably why a record £3bn of equity investment was poured in during the first half of 2017 – up some 74.7 per cent on the previous half-year. The average deal was worth more than £5.5m.
The government is doing its bit to boost successful startups in the UK. Hence the introduction of tax incentives for investment in early-stage businesses in the UK, in the form of the EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme).
But raising finance can be a minefield for entrepreneurs who are constantly trying to grow their business and fight off competition. Enter the ‘Routes to Finance’ report by London & Partners, the Mayor of London’s promotional agency.
The report, which outlines everything you need to know about business finance for start-ups, draws on the expertise of the mentors from London & Partners’ VC Club and its Business Growth Programme, who help London’s early-stage businesses unlock their potential and overcome growth barriers.
Here are the key steps in the funding journey:
- Bootstrapping: Initial funding to get a business off the ground. Bootstrapping usually involves relatively small amounts, from sources close to the entrepreneur: friends and family, personal savings, current account overdrafts, etc.
- Seed: Early-stage funding invested in return for an equity stake. As with bootstrapping, seed finance may come from friends and family. But it generally involves more formal arrangements with angel investors, venture capital funds or crowdfunding platforms.
- Debt finance:Funds loaned in return for interest rather than equity, usually by financial institutions (mostly banks). Debt finance may convert to small amounts of equity once repaid.
- Crowdfunding: Typically early-stage funding, invested by a large number of individuals and institutions in return for equity, via a dedicated online platform.
- Angel investment: Finance from private individuals, usually given in exchange for equity, but sometimes loaned as convertible debt.
- Series A, B and C: Successive rounds of significant, later-stage equity funding, aimed at accelerating the development of a business from start-up stage to maturity.
- Acquisition: Selling a business to a larger concern, so as to access not just capital, but often new customers and markets.
- Initial Public Offering (IPO): The first sale of shares in a business to the general public, conducted over a securities exchange.