Startup Funding in the UKbrought to you by

There are a lot of options to get business support and your startup funded in the UK and the numbers are constantly growing. From investors to crowdfunding, tax breaks to grants, the landscape of startup funding in the UK can be somewhat bewildering even to those of us who are deeply embedded within it.

The goal of this pack is to bring some clarity and a few helpful starting points if you are considering starting a new venture in the UK.

We wish you the best of luck!

Team GrantTree

Table of Contents

1. National Business Advice Services 2. Regional Business Advice Services 3. Grant Funding Schemes (Non Innovate UK

and non H2020/EU Grants) 4. SMART Grants 5. Loans 6. Startup Loans 7. Crowdfunding and Alternative Funding 8. Angel Investors 9. Accelerators and Incubators 10. VC funding 11. Should you get funding at all?

GOVERNMENT RESOURCES

National Business Advice Services

Advice regarding grant funding and HMRC’s R&D Tax Credits is always free here at GrantTree. There are also a number of national organisations out there who can help you with advice regarding other aspects of your business’s development.

UK Government. To set up a business in the UK you’ll need to consider aspects like registration, licensing, national insurance and tax for employees, setting up a bank account and a number of other legal and administrative elements, for which the UK Government’s how to set up a business pages are an excellent place to start.

Be it a franchise, a sole trader arrangement or a partnership, Startups.co.uk offer advice on hiring and firing, tax, funding options, doing business abroad, marketing, sales and more. Startups.co.uk also run the UK Startup Awards.

Regional Business Advice Services

The 39 LEPs in England are run as a voluntary partnerships between local authorities and businesses. Set up by the department for Business Innovation and Skills in 2011, their broad remit if to lead the development of local economic priorities in terms of growth and job creation. Each LEP has a strategic economic plan stretching to 2020 which aims to improve the socioeconomic conditions of their region through addressing inhibitors to business like infrastructure and lack of work space. They also seek to exploit regional economic clusters that exist in a region to maximise growth.

Your local council or Chambers of Commerce are an excellent source of local business relevant information. As well as general advice, they’ll also help you understand the boxes you’ll have to tick from a health and safety/general regulatory standpoint.

Grant Funding Schemes (Non Innovate UK and non H2020/EU Grants)

We at GrantTree facilitate both HMRC Tax Credits and grants that look to derisk, and/or accelerate the bringing to market of new and innovative technology. However if you’re not in a high-tech sector, don’t worry - there is still some help for you out there.

The Prince’s Trust are keen to help young entrepreneurs aged 13 to 30 looking to get ahead with an idea, business or a bit of training. They can even help you with elements like clothing to look smart for an interview.

With their Development Awards, The Prince’s Trust may be able to help you fund: • items like tools or equipment for a job or qualification e.g. hairdressing kit,

carpentry tools, chef's whites or interview clothes • course or license fees e.g. CSCS card (construction) or SIA license (security) • childcare costs to help single parents access short term education • transport to a new job until first pay cheque • “Will it Work” grants are also available to get your business started through their

Enterprise Programme

With their Development Awards, The Prince’s Trust will not be able to fund: • costs over £500 or everyday living expenses such as rent or bills • retrospective grants • gap year or overseas projects • medical treatment • costs associated with NVQ Level 4, HNC, HND, degree or post-grad courses or

courses of an equivalent level • Business Start Ups (If you're interested in starting your own business, please

see their Enterprise Programme)

SMART Grants

Proof of Market

A grant of up to £25k for 60% of the costs of a project lasting up to 9 months which will assess a product, process or services’ commercial viability.

Proof of Concept

A grant of up to £100k for 60% of the costs of a project lasting up to 18 months which tests the technical feasibility or builds prototypes of products, processes or services.

Development of Prototype

A grant of up to £250k for 35% to 45% of the costs for medium and small/micro enterprises respectively, for a project lasting up to 3 years which develops and tests pre-commercial prototypes of products, processes or services.

How much can you get?

The amounts you can apply for depend on the project you are proposing and which stream it is appropriate for, but we recommend planning your budget to achieve your goals rather than maximise the funding as you’ll have to provide evidence of your spend..

All Smart funding is paid quarterly in arrears, so you’ll have to have enough liquidity to ensure that the first few months’ invoices can be paid before you submit your return.

If finances are tight, and at the early stages of the product development we know that’s often the case, Proof of Market and Proof of Concept grants offer the opportunity to receive a lump sum payment of 20% of the grant amount at the beginning of the project, to a maximum of £10k in the case of the latter stream.

What are the funding bodies looking for?

Projects not companies Work that is in the future Well planned projects with defined outcomes A large and growing market Evidence of the ability to match the funding

Priority Areas 2015/16:

Space / Built Environment / Energy Agriculture and Food / High Value Manufacturing Digital Economy / Urban Living Transport / Health and Care / Biosciences Advanced Materials / Electronics, Sensors & Photonics Emerging Technologies / Resource Efficiency Information and Communication Technologies

Basic requirements

Smart grants are part of an open call, meaning that any innovative product, process or services development projects will be considered. It is worth highlighting though that software projects have to meet an increasingly high bar for funding and will only be considered it involves significant technical development (engineering) that produces at least a step change impact on how computers and other devices are programmed or used.

A great application is one which is looking to the future of your development cycle as work you’ve already undertaken will not be funded. There’s clear guidance on eligible costs via the Innovate UK website, but keep your costs to direct and indirect development and testing costs.

COMMERCIAL ROUTES

Loans Borrowing ‘commercially’ is an attractive option to many entrepreneurs who don’t want to give away equity in their businesses to an angel, or undergo the rigmarole of grant funding. Although it does come with a cost, and often the security of an asset, it is an option that shouldn’t be ignored. All major banks offer business loan services so we recommend shopping around to get the best deal. Comparison webpages like MoneySupermarket and money.co.uk can also be useful sources to assess the market and benchmark your options.

However, let's face it, most bank won’t loan money to a startup - at least not when they need it. The businesses below all provide some for of debt financing to startups. Your mileage may vary, but it is likely that at least one of them will consider loaning you money when a bank would not even give you the time of day.

Silicon Valley Bank SVB has been in the UK for some time already. One of the reasons why startups bank with SVB (apart from the service) is that SVB gets tech startups, so if you're a VC-funded tech startup, they're likely to be willing to extend you a loan to help leverage your funding better. It's almost a no-brainer to apply to SVB if you're the right kind of startup. MarketInvoice MarketInvoice provide invoice financing, which enables you to auction off your invoices sent to large companies, so you get the cash now and not in 90 days. ThinCats ThinCats are basically like bank lenders - i.e. risk-averse, and will only loan money to established, profitable businesses. But unlike regular banks they actually do loan money. Funding Circle Funding Circle offer peer-to-peer loaning.

Startup Loans The UK Government backed Startup Loan scheme through the Start Up Loan Company is designed to help entrepreneurs get their ideas off the ground with debt financing. To apply via the Start Up Loan you must (1) be over 18, (2) have developed a business idea, (3) be planning to start a UK based business, (4) a UK resident and (5) have been trading for between 0 and 24 months. As well as providing a free template to develop your business plan, once successful you’ll be paired with a mentor who’ll be able to provide support as you grow your business. The Start Up Loan Company also has a number of regional partners who provide the same service under the same terms and conditions.

Virgin Start Up is a not for profit member of the Virgin Group that looks to provide debt finance to over 18’s to start or expand their UK based businesses. The average loan is around £5,000 at a rate of 6.27% payable over a three to five year period and as well as the cash you’ll receive support from you Local Enterprise Agency and your own business mentor.

The London Small Business Centre, who offer under the same terms and conditions as the Start Up Loan Company, also run workshops, masterclasses and meet the expert days.

Crowdfunding

CrowdCube claim to be the world's leading crowdfunding platform and have nearly 200,000 registered investors and have collectively raised over £90 million for its clients. CrowdCube’s clients range from dipping sauces to breweries and from software platforms to apps. CrowdCube raise finances through either equity in exchange for investment or through implementing their MiniBond product. The minimum that can be invested is £10, but the upper limits are in the tens of thousands and higher on occasion. Often organisations undertaking this level of investment position are in a good position to leverage GrantTree’s tax credit services, so get in touch!

JustGiving work much like other crowdfunding platforms, however they are looking to facilitate philanthropic projects that can benefit anyone anywhere from a friend in need to an overseas community. With 100,000 users, JustGiving have secured £3.2million for projects that range from sending mosquito nets to overseas communities to village defibrillators to funding surgery for a french bulldog named Lola. The broad criteria is that the work will have a positive impact on either an individual or a community. Investors through the JustGiving platform effectively gift their money.

Crowdfunder provide raising opportunities for projects in a number of fields from the arts to politics, and from publishing to music. The rewards for investment range from a virtual high five’ to a sample of the finished project. Overall there are dozens of crowdfunding platforms out there which range in specialty, here is a list of ten of the most popular. Entrepreneurs then promote their Pitch to potential Investors. Investors then invest money in the Pitch and over a period of time (30 days is the maximum time available to raise the investment required) investments accumulate until the Target Amount is reached.

It’s a good idea to check out the Alternative Business Funding site for further schemes and provider.

Accelerators and Incubators Accelerators exist to push your business forwards in a short space of time through giving you access to premises in a vibrant ecosystem, experts and ‘key decision makers’ within the sponsoring organisation’s management team.

Incubators work in a similar way to accelerators, however the term of engagement tends to be months (often three to nine) rather than weeks and there is often a cash sum provided to the organisations at the outset.

Incubators are not for everybody, and one should be careful not to go to an incubator as the "easy option". There can be a large hidden cost to going through an incubator with the wrong kind of business (or a business that's too early to be worth that level of commitment). Make sure you think carefully about the pros and the cons.

Capital List has a whole directory of accelerator programs - these are the ones we would recommend:

Level39 - fintech Bathtub2Boardroom - social entrepreneurship Bakery - AdTech Emerge - EdTech Cognicity - Smart Cities

Angel Investors One of the first stopping points for founders new to the UK funding scene is one of the numerous "angel networks" out there. Unfortunately, many of those charge (a lot) to pitch. I strongly disagree with that philosophy - as do many other startup figures in the UK and abroad. Instead, if you're looking for angel funding, try the following sites to get you started.

Principles of pitching Learning how to pitch is obviously an essential first step. How to approach angels A cold email to an angel In general, warm intros are best, but sometimes you have to make do with a cold email. How to reply to an angel intro Friends, Family and Fools When all else fails, people often fall back on raising funding from friends, family and fools. I advise strongly against it.

AngelLab A cooperative of reputable London investors. Angel Investment Network Gives you access to a huge network of vetted angels worldwide. White Bear Yard / Passion Capital Passion Capital, founded by Stefan Glaenzer and Eileen Burbidge, has funded and hosted many top startups at White Bear Yard, including Flattr, Duedil, GoCardless, GoSquared, and Mendeley. CapitalList John Spindler is one of the best people to talk to in this space. He runs CapitalList - enough said.

Raising a VC Round If you are raising a VC round, you should probably already have a network of contacts in place,

including mentors who can help you through the process. It is important to start meeting people and contribute to the community as soon as your idea ha hatched

If you don't have any such network, I'd strongly advise you to make backup plans and assume you won't get the VC funding. In either case, the articles below may be useful.

How to raise a Series A round Venture Capital basics

In case you are prepared to go for Venture Capital, we recommend to find a partner who can not only support you with money, but expertise, experience, network and knowledge as well. Here is a list of the

top 10 UK venture funds, most of whom has also been amongst the most active in seeking out and investing in young companies:

Accel Partners Amadeus Atomico

Balderton Capital Index Ventures

Octopus Ventures Profounders Capital

Dawn Capital Eden Ventures Notion Capital

Are You a Social Entrepreneur?

Things may be a little different for you. However, there is a fair number of companies, funds and organisations out there, who are focusing on social entrepreneurship and making and impact for a better future.

UnLtd. offer a number of competitive awards that differ either through the location of the social enterprise in question, the sector in which it is operating or the situation of the applicant. At the time of writing there are 17 open calls which vary from those specifying added value to the Tower Hamlets area to projects looking to help 11 to 30 year olds to more general calls to organisations looking to raise debt capital.

Bethnal Green Ventures are a startup accelerator which aims to helping organisations change the world through technology through their three month intensive programmes. This programme is suitable for organisations that are looking to solve either an environmental or social problem. They run both summer and winter programmes on a competitive basis but are happy to receive enquiries at all times. A list of the current cohort can be found here.

ClearlySo https://www.clearlyso.com is a fund that works exclusively with high-impact businesses, charities and funds. They support their capital raising activity through financial advisory work, introduce them to institutional and individual investors who share their objectives and values. They’ve raised £60 million to date, working with startups like hubbub, Fluency or Wool and the Gang.

More Social Entreprise Funds

Esmee Fairbairn Big Issue Invest Bridges Ventures Gatsby Ashoka KL Felicitas Wolfson Barrow Cadburry Impact Ventures

Should you get funding at all?

An important question worth addressing is whether you should get funding at all. Most funding guides just assume that funding is appropriate for your situation, without even asking the question. GrantTree never took funding, and it’s doing great - which proves that not all startups need funding. Another common example is 37 Signals, which only took some funding from Jeff Bezos (for mysterious reasons) after staying out of the funding game for a decade.

Here are a few useful articles to help you think through this question and guide you into the most fitting direction.

Are you taking investment as a cushion or springboard? Too many new entrepreneurs go the funding route without considering other options. Are you getting funding for the right reasons? Idea reach and the cofounder myth If you need more funding than you have to build your idea, perhaps the idea is out of your reach? To raise or not to raise? Criteria for raising funds, or not doing so. What are the right investors for your business? The right investor brings knowledge, experience as well as money. The cost of funding may be your freedom A worthwhile counterpoint to the funding cheerleaders.

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team@granttree.co.uk

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