In Part 1 of the Startup Funding Series 101, we’ll start with the basics – defining all the different types of funding, their pros and cons, and who they are best suited for. Get your note pads out, let’s crack on!

Summary (reading time 5 mins):

• Bootstrapping
• Crowdfunding
• Grants & Competitions
• Accelerators & Incubators
• Raising Investment (Angel, Venture Capital, Private Equity)
• Bank loans and alternative lending

Bootstrapping

Definition: Using personal savings or early sales revenue to fund the business. 

Pros: Full control over your business, no need to give away equity, and no pressure from investors.

Cons: Growth may be slower due to limited funds, and personal financial risk can be significant.

Best for: Very early-stage founders who want to stay independent, test ideas before raising capital, or operate in industries where initial costs are low.

Crowdfunding

Definition: Raising money from a large number of people (Kickstarter, GoFundMe, etc.). Subcategories include:

• Reward-based crowdfunding: Supporters contribute in exchange for early access to products or perks.

• Equity crowdfunding: Investors receive shares in your company in return for their contributions.

• Debt crowdfunding (peer-to-peer lending): Instead of selling equity, you borrow money and repay it with interest.

Pros: A great way to validate demand, build a loyal community, and secure funding without giving up any or much equity.

Cons: Success depends on effective marketing, and failing to meet the funding goal can mean receiving nothing.

Best for: Consumer-focused products, hardware startups, or businesses with strong storytelling potential.

Grants & Competitions

Definition: Government or private grants, startup competitions with funding prizes. 

Pros: Free capital with no dilution – unlike investments, grants don’t require repayment or equity exchange. They offer a credibility boost, and potential networking opportunities.

Cons: Competitive application processes, strict eligibility criteria, and lengthy approval timelines.

Best for: Startups in research-heavy or socially impactful sectors, such as health tech, green energy, or deep tech.

Accelerators & Incubators

Definition: Structured programs providing funding, mentorship, and support for early-stage startups. While both provide support, they have distinct differences:

• Accelerators focus on short-term, intensive programs (e.g., 3-6 months) that culminate in a “demo day” where startups pitch to investors.

• Incubators provide longer-term support with office space, mentoring, and networking opportunities, without necessarily requiring an equity stake.

Best for: Early-stage startups looking for guidance, mentorship, and initial funding.

Investment size: £10,000 – £250,000 (typically in exchange for 5-10% equity).

What they look for: Founders with strong ideas and a willingness to grow rapidly.

Pros: Access to a structured program, mentorship from industry experts, and investor connections.

Cons: Some programs take equity in exchange for relatively small funding amounts.

Raising Investment

Definitions: Raising money from high-net worth individuals to investment firms. The different types are listed below:

• Angel Investors: Wealthy individuals who invest their own money into early and provide mentorship in exchange for equity (a share of ownership). 
  • Best for: Pre-seed and seed-stage (more on this in Part 2) startups with early traction.Investment size: Typically, £10,000 – £500,000.What they look for: A strong founding team, an innovative idea, and the potential for high growth.
  • Pros: Fast decision-making, valuable mentorship, and flexible investment terms.
  • Cons: Limited capital compared to institutional investors, and expectations for high returns.

• Venture Capitalists (VCs): Professional firms investing in startups with high growth potential. They typically take a more hands-on approach in scaling the business.
  • Best for: Startups that need substantial funding for scaling.Investment size: £500,000 – £50 million+ (depending on the stage).What they look for: A scalable business model, market traction, and a strong team.
  • Pros: Large funding amounts, access to a vast network of resources, and strategic guidance.
  • Cons: VCs often require a significant equity stake and may push for an exit (e.g., acquisition or IPO) within a few years.
• Private Equity (PE) Firms: Larger-scale investments for established businesses. Unlike VCs, who focus on early-stage startups, PE firms invest in later-stage companies that generate strong revenue and profitability. They may provide capital to scale, restructure, or even buy out the company entirely.
  • Best for: Startups that have scaled successfully and are looking for substantial funding to expand or exit.Investment size: £50 million – £500 million+.What they look for: Profitable companies with stable cash flow and potential for expansion or acquisition.
  • Pros: Access to massive capital, support for large-scale expansion, and potential for high valuations.
  • Cons: PE firms often seek majority ownership and significant control over the company’s direction.

• Corporate Investors (a.k.a. corporate venture capital or CVC): Large companies investing strategically in startups (e.g., Google Ventures). Their goal is often to gain access to new technology, talent, or business opportunities that align with their industry.
  • Best for: Startups with products or technology that complement a larger company’s business model.Investment size: Varies widely, from £100,000 to £100 million+.What they look for: Innovation that aligns with their business goals, market traction, and synergy potential.
  • Pros: Can provide funding, resources, distribution channels, and potential acquisition opportunities.
  • Cons: May have restrictive conditions, such as exclusivity clauses or intellectual property (IP) agreements.

Bank Loans and Alternative Lending

Definition: Borrowing money from the bank that must be paid back, typically with interest over a period of time.

Best for: startups that prefer debt financing over giving up equity, bank loans or alternative lending platforms (e.g., revenue-based financing) can be an option e.g., businesses with steady revenue, low-risk models, or founders who want to maintain full control.

Pros: Retain full ownership, predictable repayment terms, and potential tax benefits.

Cons: Requires a solid credit history, may involve personal liability, and repayments can strain cash flow.

Closing Remarks:

In Part 2, we will discuss the intricacies of the different funding rounds. Make sure to subscribe to the mailing list to know when the next post is released!