What's the best way to get start-up funding?

From VC investment to maxing out credit cards, there are various ways to raise capital. Here's how leading entrepreneurs did it and what they learned.

by Adam Gale
Last Updated: 21 Sep 2016

There’s a reason entrepreneurs often describe their business as their baby. Start-ups can be a source of pride, a cause for worry, an object of devotion - and a nightmare for your bank balance. Marketing, R&D and the opportunity cost of all that work you put into it can burn a serious hole in your finances.

Raising capital can therefore be the difference between a successful entrepreneur and just some guy with an idea.

Unless your parents happen to own a Duchy or a multinational, this probably means convincing someone that you and your idea are worth parting cash for. So what are your options, and which one’s right for you?

VC or angel funding

Entrepreneurs don’t tend to be the most patient of people. Yes, they’re willing to put in the hard hours and yes they believe that their dream will become a reality, but wouldn’t it happen so much faster if they had another £20m to play with? Ideally by three o’clock?

Thanks to Dragons' Den, we’re stuck with the romantic notion that entrepreneurs get access to this life-changing funding by virtue of a dramatic ‘elevator pitch’ (i.e. how you’d convince someone of your business idea in the time it takes for a lift to reach its destination) to a fantastically wealthy and needlessly rude investor.

The truth is of course somewhat more than that. While elevator pitches are important, venture capitalists (VCs - big funds that bet large sums of cash on start-ups in exchange for equity) and angel investors (usually private investors who typically provide seed funding - smaller sums than VCs, earlier on) will want to do a lot more due diligence than the TV dragons.

Not that this means you can get away raising without mastering the elevator pitch. You may have a great idea and plenty of financial and market data to support it, but if you can’t express it quickly and in a way that’s easy to understand, no one will back it.

‘Make sure that you can reduce your proposition down to one sentence. People talk about the elevator pitch but I think even the elevator pitch is too complicated,’ advises Justin Basini, CEO of Clearscore, which raised £10m in its first round of funding.

‘You’ve always got to go in smiling, confident, enthusiastic. Because if you’re not enthusiastic about the business, no one else is going to be.’

If in doubt, practise. ‘Make sure you do at least five trial runs with people that you don’t want to raise money from,’ says Stuart Sunderland, who raised £1.1m for his business City Pantry. ‘And never take the biggest meeting first.’


In some respects, crowdfunding is a type of angel investment. Essentially you put your idea out into the ether, via sites like Seedrs or Crowdcube. If people like it, they pledge money in exchange for equity (or on occasion perks).

The more traditionally-minded may be dubious, but numerous entrepreneurs including Tempus Energy’s Sara Bell and Fourex’s Jeff Paterson crowdfunded hundreds of thousands of pounds that way.

Of course, it brings with it its own challenges. ‘You have to understand that crowdfunding people are going to invest if they believe in what you’re doing,’ says Chapel Down winery CEO Frazer Thompson, who raised £4m that way.

‘Sell that story as professionally as you can, don’t skimp on marketing. You are encouraged to do a video but some that you see are simply appalling. If you can’t get that right then I would seriously worry about the quality of the management.’

Going to the banks

If giving away equity isn’t your bag, you can always try the debt route instead. Many an entrepreneur got their break by maxing out credit cars and convincing a sceptical bank manager to give them a loan.

‘I went to the bank for a £10,000 business loan but they turned me down,’ says Rational FX founder (and deputy mayor of London for business) Rajesh Agrawal. ‘The next day I went back and said "you’re right, I’ll just stick with my job, but now I want a car", and they gave me £20,000. I didn’t even have a driving license.’

BrewDog’s James Watt, meanwhile, relied on the competition between banks to get a £150,000 loan. After being turned down by one bank, ‘I walked across the street to a competing bank and told them about [BrewDog’s breakthrough Tesco deal], about how despite our size we’d be an epic long-term partner to them and, most importantly, about how our current bank had just offered us this amazing loan deal.

‘If they could match it, I said, we’d switch all our banking to them. And they did.’   

Such swashbuckling tales may be inspiring to the wannabe entrepreneur, but remember that debt can be a dangerous way of funding a start-up. If things don’t go as well as you’d hoped, at least with equity your liability goes down with the value of the company. With debt, the banker will want their penny, come rain or shine.


Bootstrapping is a delightful Americanism, meaning to fund one’s business oneself - literally the act of pulling oneself up by the bootstraps. In practice, this can involve several things.

If you’re lucky, you might have savings - or a very supportive network of friends and family - to draw on. More often than not though, those entrepreneurs who raise their own capital do so by remortgaging their house (in the case of WGSN’s Marc Worth, twice).

But there’s a different way of looking at bootstrapping. Instead of still burning through a pile of money that just happens to be your own, it could instead mean building a business more slowly, so it doesn’t burn through the pile in the first place.

Utah-based Ryan Smith bootstrapped ‘fast data’ tech unicorn Qualtrics over ten years, before raising $220m between 2012 and 2014. It was clearly a slower approach, but he has no regrets about resisting the accelerating advances of VCs for so long.

‘Growth at all costs – that’s a model. Great when everything’s good, but when the market swings, which it will, you’ll see who’s swimming without shorts.’

Indeed. Smith sums up his slower approach as ‘nail it and scale it’. In other words, building a profitable business and only then expanding it, resulting in greater resilience and a greater ability to figure out the all-important details.

And if the business isn’t likely to be profitable for some time? Despite the time-honoured image of the entrepreneur working 80-hour weeks, giving their life’s blood for the business, it might not actually be necessary to quit the day job.

Angel investor Patrick McGinnis is an advocate of '10% entrepreneurship' – giving a tenth of your time and money to a side project, without leaving the security of a salaried position. He believes concerns that someone else will steal your idea and leapfrog your business by going full time are misplaced and conceal a major advantage of going slow.

‘Sometimes ideas are half-baked or ahead of their time. When someone quits their job to go full-time they are getting on this path with a limited amount of time and money. Ergo, if you get going on it and it doesn’t do well, you may be out of business, while the 10% is far more sustainable.’

Which route you take to raise capital depends on your circumstances, your idea and indeed your personality. Keeping your mind open to exploring different options never hurts, however. Neither does taking your time to think it through – how and when you find funding can make a huge difference to the success of your start-up.


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