Dan Sutch, head of development research, Nominet Trust
Remember why you're getting funding in the first place: It's to support and extend the delivery and success of the startup. That means it's not just about money, but about support, networks and so on. Of course some businesses/social enterprises are built by individuals and teams who have that expertise already, but the vast majority benefit from finding new networks, mentors etc. Organised funding (grants, venture capital, social investment) often comes with this additional support, which can be vital to success.
Grants are and option: If your venture is working to address any social problem, markets might not be easy to find, which means other forms of investment might not be suitable (or forthcoming) – this is where grants are really well suited. Not because sustainability or growth aren't possible, but because they can take longer to identify and realise.
Investment is in many ways about risk: backing an unknown team; investing in an unproven idea. Where there's more risk and where the rewards aren't necessarily financial, this again is where grants are particularly useful.
Jeff Lynn, co-founder and CEO, Seedrs
Put yourself in the shoes of your potential funders: If you understand their economic and social motivations, you will have the best chance of determining what type of funding to raise (and succeeding at doing so).
Are you a high-risk, high-growth business? Then your investors want meaningful enough upside to compensate for the risk. Are you confident of steady returns? Then a debt instrument is likely to appeal to investors. Maybe you're doing something cool and fun with no particular economic return – in that case, the social motivations of rewards-based crowdfunding (like Kickstarter) might be right for you. Understand your funders, and the rest will fall into place.
Equity crowdfunding is a good first step on the equity ladder: By raising initial capital through platforms like Seedrs, a startup gets not only the money it needs to take a first step but also an installed base of supporters who can help test the product, spread the word and make connections. From there, the business can go on to raise angel money, venture capital, join an accelerator or pursue any of a range of different funding options.
Scott Sage, partner, DFJ Esprit
The pros and cons of venture capital: Most of the companies that we are aware of today raised VC early on when they were startups – Google, Facebook, Twitter, even Starbucks. It allows you to react to your customer demand in an exponential manner in spending money scaling your platform, product, sales, marketing and so on. It allows you to hire the best talent, open offices overseas faster and generally grow your company much faster than you could by growing organically.
I don't think there are that many disadvantages. For control freaks, they may not like giving equity away in their company which often means they give some of the control of the company to investors.
When it comes to venture capital, do your research: Founders should exercise due diligence on the VC firms they are speaking with. They should ask questions like: does the fund have any money left to invest? Have they invested into this kind of a company at this stage before? Are their current investments happy with the relationship with the VC?
We always introduce companies that we are looking to invest into with a range of our current and past CEOs so they can have honest and transparent conversations about how we work with startups. If a VC firm is not wanting you to speak with former investments, then that is a red flag for me.
Accelerators could be for you: Accelerators are a great platform for young or first/second time entrepreneurs who need the support in reaching that 'product/market fit' and all of the other spillover benefits like figuring out how to hire, sell, market, form partnerships. Basically, everything that you need to learn to do in your first 2 years, you can accelerate that in the first few months with hands-on mentors and experts from specific areas.
But shop around. A lot of it depends on where you want to live personally. I don't think you should go to Silicon Valley to launch your product if your whole life is in Manchester or Brixton and you don't want to go through the personal hardships of uprooting yourself.
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