The benefits are being felt nationwide, with a third of the investment going to companies outside the South East, according to figures for the UK's Digital Economy Council compiled by Dealroom and Adzuna. 

They also found a record 29 companies which achieved 'unicorn' status were created in 2021. With such strong performance in 2021, hopes are high that businesses can continue to secure the funding they need to grow next year. 

As we move into 2022, one of the first things likely to be on any new entrepreneur’s to-do list will be figuring out how to fund their startup. To enable and support those entering this critical phase in their business journey, Harper James has produced a handy one-stop-shop guide for the different types of start-up funding available.

Harper James has supported more than 2,000 businesses on their growth journey, helping them get off the ground by ensuring all their legal i’s are dotted and t’s crossed. The guide, which can be read in full here, is a must-read, covering everything from bootstraping to bank loans, and looks at the different kinds of investment for startups that funders typically prefer.

Bootstrap finance

Bootstrap finance is provided by your immediate circle of friends and family, as well as your own resources. Funding is given on the basis of trust in you and your idea. Amounts are likely to be relatively small.

The advantage of this type of investment is that it’s easy to raise. The existence of a healthy amount of bootstrap finance can also be a good signal to future investors that those closest to you believe in you and the potential for your business. The downside of bootstrap finance is that you may be asked for equity in return for funding. However, if you give away too much early on, this can negatively affect your ability to control the business and impact your ability to attract outside investors later on because of the share structure of your company.

Banks and government grants

While these aren’t investors as such, large organisations can sometimes be willing to advance funds to startups. This can be in the form of grants for certain types of business, credit cards, overdrafts or occasionally loans.

The advantage of this type of funding is that you won’t have to give up any equity in your company in return for the cash. The disadvantage is that you may have to repay interest and capital over time, negatively affecting your cash flow in the early stage of your business. You’ll also have regular reporting requirements so that the lender or grant provider can make sure your business is on track and this can be cumbersome to manage, taking up your valuable time.

Angel investors

Angel investors are individuals or firms who invest in small businesses and startups. They are often prepared to fund businesses that are at a much earlier stage than larger firms like venture capital operations are. Because they are often entrepreneurs themselves, they can bring their experience and professional expertise as well as cash to help your business.

The advantage of angel investors is that they are more likely to invest in early-stage businesses. The disadvantage is that you can sometimes end up giving up too much equity in your company to an angel in return for finance.

Incubators

Incubators are programmes organised by groups of professional investors who organise events designed to attract the brightest and best new entrepreneurs and great ideas. More and more an increasing number of large institutions like companies, hedge funds, private equity and investment banks are providing investment for startups by creating these incubator programmes.

If you pitch to an incubator and you’re successful, you’ll not only attract cash but you can also get access to contacts and professional expertise to help your business grow. Incubators also help you target the investors that are right for your business by reviewing your business plan and putting you in touch with those funders who are most likely to be a good fit.

Venture Capital firms

These firms are groups of successful investors, and typically provide large sums of money in addition to the cachet of having them on board. If you succeed in attracting a VC to invest in your startup, that’s a sign to the investment market that you’re a good bet. More and more VC firms are increasingly willing to provide investment for start-ups but you must demonstrate that you’re capable of delivering fast and good returns.

Early rounds of funding are known as series A rounds, and later rounds B, C and D. Which VC firm is best for you depends on their particular niche. This may be tied to geographical location, sector expertise or the stage of your start-up business. Venture capital funding can be tricky to obtain, as VCs can afford to be selective. You’ll need a good pitch deck, minimum viable product (MVP), and the funding process can be time consuming.

They’ll also want a fair chunk of your company’s equity in return for their cash. Your company will need to be valued and they’ll want you to report to them regularly with business updates. They’ll also want to have their share of the company protected against dilution in case you obtain further funding and offer shares to new investors in future funding rounds.

Venture capitalists are particularly keen to take advantage of government backed investment schemes that provide them with tax advantages. If your company is eligible for this type of investment, this can increase your attractiveness to VCs.