Back to blog

Beyond R&D Tax Credits - Public Funding For Your Innovative Start-up

There are several types of public funding available for innovative start-up businesses. Determining which type of public funding is right for your start-up depends on your business and your future goals. You’ll need to analyse all aspects of any funding opportunity to ensure that it meets your needs.

Equity financing

Equity financing requires you to surrender part of your business ownership in return for cash. This includes surrendering part of future profits.

Equity financing covers a wide range of activities, from raising money from family and friends to an initial public offering (IPO), when the stock of a private company is offered to the public for the first time.

Equity financing sources include:

• Venture capital funds, which are professional groups looking for start-ups to fund. Venture capitalists are often looking for larger, more established companies. If you want to work with a venture capitalist, you will need to be flexible and willing to compromise, as you may have to give up more control of your business.
• Angel investors, who work on a smaller scale than venture capitalists, and generally invest in smaller start-ups. Angel investors provide capital in exchange for convertible debt or ownership equity.

Loans

Whether from a bank or an alternative loan provider, loans must be repaid, and some lenders require security.

Alternative loan sources include:

• Government-backed loans, such as those provided by the Start-Up Loans Company.
• Peer-to-peer lenders, such as Funding Circle, which allow investors to directly lend to SMEs.

Crowdfunding

Crowdfunding, a form of alternative finance, is a way of funding a business or project by raising money from a large number of people.

Types of crowdfunding include:

• Reward-based crowdfunding, for creative projects, which allows entrepreneurs to pre-sell or finance a product or service with a fundraising goal. Investors receive rewards based on their level of investment. Reward-based crowdfunding platforms include Kickstarter and Indiegogo.
• Equity crowdfunding, for commercial projects, which allows investors to fund start-up companies and small businesses in return for equity. Equity crowdfunding platforms include Funding Tree.

Whatever form of public funding is right for your innovative start-up business, don’t forget that you can also make one R&D Tax Relief Claim per year. A specialist R&D Tax Relief claim provider will help you analyse, prepare, optimise, and then submit your R&D Tax Relief claim to HMRC.