Guide to UK Startup Funding

For all startups looking to shift from promise to performance, funding makes all the difference. Finding out who the funds are, where they’re based, plus what resources and network they offer is a common challenge for startup founders.

 

In 2019, an all time high of £12b worth of equity was invested in UK startups. Despite these record breaking figures, the total number of deals has in fact declined since 2017. Between 2018-19 the total number of deals fell by 2% year on year. However, the huge amounts raised by UK-based disruptors like OneWeb, Greensill, Babylon and Deliveroo show that there will always be backing for innovative businesses with the right product/market fit. For early-stage companies, finding the right fund is becoming increasingly difficult. 

 

Government Iniatives to Support Startup Founders

SEIS & EIS

In an attempt to overcome the hurdles start-ups face when seeking financial backing, the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) offer tax relief to individual investors. Despite being subject to a host of T&C’s, the incentive allows UK-based startups to raise up to £150K under SEIS and £5million under EIS. 

 

Entrepreneurs’ Relief

Entrepreneurs’ tax relief is also a well known government incentive designed to encourage people to build business in the UK by reducing the rate of Capital Gains Tax on business disposal. Active since 2008, this scheme has meant qualifying individuals would pay a Capital Gains Tax of just 10%, significantly lower than the standard rate of 18%. At its peak, entrepreneurs’ relief was limited to £10 million but this has recently dropped to the original maximum of £1 million, prompting many to question whether this scheme will exist for much longer.

 


 

Although initiatives are constantly changing, in the UK start-ups are  recognised for their critical contribution to socio-economic progress. This support, particularly benefitting businesses in the capital has resulted in London’s startup ecosystem being recognised as the 3rd best in the world by the Global Startup Ecosystem Report 2019, trailing only New York and Silicon Valley. According to Beauhurst records, 33% of all active startups in the UK are based in London. Astonishingly, 73% investment made in 2019 was directed at businesses based in the capital. Perhaps with 42% of all active startup funds in the UK also being based in London, this isn’t so surprising. With commitments to make London a world leading smart city, trends like this are unlikely to change any time soon. 

 

Despite the pull of the capital, cheaper commercial rents and investment in digital infrastructure have turned cities like Glasgow, Manchester, Leeds, Birmingham into smaller hubs of innovation and investment. In 2019, most regions, including London, saw a slight fall in the total number of investment deals year on year. Outside London, the South West was the only region to achieve its best ever total number of deals.

Types of startup fund

Angel Network

An Angel Network is a facilitator for a group of individual angel investors that would act as shareholders in a client.

 

Asset Management

An Asset Management invests in varying asset classes with a consolidation of their clients’ capital.

 

Bank

A Bank can either make equity investments off their balance sheets or grant debt funding to investees.

 

Central Government

A Central Government distributes funds consisting of public money that are overseen by private or public organisations.

 

Charity/Not-for-profit company

A Charity or Not-For-Profit Company are funding programs that primarily give grant or debt funding and are run by a charity or not-for-profit company.

 

Commercialisation Company

A Commercialisation Company is an organisation that gives university projects and research organisations pursuing new technologies investments in the form of equity or grants.

 

Corporate

A Corporate fund is a fund financed and managed by a corporate organisation, giving the corporate organisation the ability to make strategic investments.

 

Crowd funding

A Crowd Fund, usually conducted online, is financed from individual investors donating for principle, lending for interest, or buying shares. Thus, crowdfunding is able to grant equity investment, debt funding, or reward-based funding.

 

Devolved Government

A Devolved Government distributes funds consisting of public money that are overseen by private or public organisations.

 

Family Office

A Family Office oversees and invests the capital of a wealthy individual, family, or group of families.

 

Local and Regional Government

A Local and Regional Government distributes funds consisting of public money that are overseen by private or public organisations.

 

Merchant Bank

A Merchant Bank, or investment bank, runs financial advice for businesses and can make investments off their balance sheet.

 

Private Equity and Venture Capital

A Private Equity or Venture Capital fund consists of privately-owned legal entities created by wealthy individuals. Venture Capital funds usually have minor stakes in business in the early or high-growth stages.

 

Private Investment Vehicle

A Private Investment Vehicle is a fund that typically makes equity investments into unlisted companies and invests in, or buys out, established companies.

 

Specialist Lender

A Specialist Lender provides debt finance and if not managed by a bank or government.

 

University

A University fund is established and run by a university and usually invest in companies created by current students or alumni.

 

 

If you would like any advice on how to navigate the UK funding scene, please get in touch.