Written by Alex Watts, Marketing Specialist at Granted and Hugo Walker, Head of Marketing at Gravitywell
Whether you’re a budding entrepreneur leading a disruptive startup or a seasoned leader navigating an established SME, nurturing innovation ideas often requires access to capital. In today’s dynamic market, a multitude of funding options exist beyond the traditional bank loan, empowering businesses to unlock their full potential.
In this blog post, we’ll demystify the funding jungle, shedding light on popular choices like angel investors and venture capital (VC), while exploring high-reward research & development (R&D) grants, and the ever-valuable sweat equity.
This guide will equip you with the knowledge to navigate the funding options available with confidence.
Angel investors are high-net-worth individuals (HNWIs) who provide financial backing to early-stage startups in exchange for equity ownership. These investors typically offer mentorship, guidance and industry connections along with their capital.
Angel investment can be a game-changer for startup founders as it provides them with vital funding to kickstart their businesses when traditional financing options may be limited. Additionally, Angels often bring valuable expertise and networks to the table, helping founders navigate challenges and accelerate growth.
Venture capital (VC) denotes a form of funding extended by investors to early-stage, high-growth startups, in return for an ownership stake in the company. This funding is typically aimed at businesses with innovative ideas and significant growth potential, but lacking the necessary capital to expand or develop their products/services.
In the UK, VC plays a crucial role in the startup ecosystem by providing entrepreneurs with the financial resources needed to scale their businesses rapidly. This funding can support various aspects of a startup’s growth, including product development, marketing, hiring talent and expanding into new markets.
Furthermore, VC investors often bring valuable expertise, industry connections and strategic guidance to the table, which can help founders navigate challenges and make informed decisions. Additionally, validation from reputable VC firms can enhance a startup’s credibility, making it easier to attract additional funding and partnerships in the future.
VC funding can help accelerate growth — from unlocking new markets, releasing new products or doubling down on the existing value proposition. At Mercia Ventures we invest £1-10m in equity but pride ourselves on supporting up and above providing a cheque. We work with founders to establish strong governance through our wide network of non-executive Directors, help unlock operational challenges through our operating partners, share knowledge through our portfolio, and help prepare the business for exit when the time is right. VC investment is a long-term partnership, hence we seek alignment on the goals and vision for the business from the outset of any relationship.
Adam Watts, Investment Manager, Mercia Ventures
It’s worth noting that Venture Capital is different to Private Equity. Private Equity firms mostly buy 100% ownership of the companies in which they invest. Venture Capital firms, on the other hand, mostly invest in 50% or less of the equity in startups with high growth potential.
In the UK, research & development (R&D) grant funding provides businesses and organisations with non-dilutive financial support to drive innovation. NB: Non-dilutive means you don’t have to give up equity or ownership.
These grants, awarded by government agencies and other bodies, target high-potential projects focusing on technological advancements and knowledge creation. They provide transformative impact with grants typically available between £50k – £4m and at an intervention rate of 50-100% of total project costs.
R&D grant funds support the development of novel technologies from TRL 1 (basic principle observed) through to TRL 9 (actual technology proven in operational environment). But the real sweet spot for R&D grants is TRL 4-6, after proof of concept (ideally with ‘letters of support’ and a team ready to go), but before a prototype/minimum viable product (MVP) is commercially developed and ready to take to market.
Key benefits of R&D grants include reduced financial risk, accelerated development timelines, access to partners and end-users, and increased investor appeal.
Grant funding allows organisations to unlock projects that sit outside the ordinary; it allows (mitigated) risks to be taken whilst pushing the research and technology envelope. It can also bring consortia together in unique ways to address problems collaboratively, all without the need to give away any equity or require any interest to be repaid.
Tom Kennard, Granted Consultancy Director
Maximising your chances of securing funding involves understanding specific grant criteria, outlining your innovation and its impact, and seeking guidance from specialist advisors, such as Granted. Remember, competition is fierce, so proactive research and a well-crafted application are crucial.
Sweat equity from a service provider, such as a venture studio like Gravitywell, involves the provider offering expertise, resources and support to a tech startup in exchange for a stake in the company’s ownership, rather than charging upfront fees (or at least a fraction of the full cost of services). This collaboration allows startup founders to access crucial services like mentorship, strategic guidance, product development and networking without needing to allocate significant financial resources.
For startup founders, this arrangement is invaluable as it provides them with access to vital resources and expertise needed to accelerate their growth. By partnering with a venture studio, founders can leverage the studio’s experience, industry connections, and resources to overcome common challenges faced by founders, such as market validation, product development and scaling strategies.
Additionally, since the studio’s success is tied to the startup’s performance, there is a shared incentive to drive the company’s growth and success. Overall, sweat equity offers a mutually beneficial arrangement that empowers founders to access essential support and resources while preserving their financial resources and retaining control over their ventures.
In special circumstances, a sweat equity arrangement can be agreed to enable startup founders to access the expertise of experienced companies like Gravitywell, accelerating their growth without being solely reliant on outside investment.”
Simon Bos, Founder, Gravitywell
Whether you seek high-impact investment from angels or VCs, non-dilutive R&D grants for innovation, or strategic collaboration through sweat equity, the key lies in understanding your specific needs and aligning them with the right fit.
Thorough research, a compelling pitch, and a proactive approach are invaluable tools in securing the funding needed to take your venture to new heights.
At Granted, we believe the best approach to non-dilutive funding is a long-term strategic approach. Want to benefit from industry-leading expertise, funding opportunities, grant application support and expert project-to-fund matching? Contact us today.
As Bristol’s Venture Studio, Gravitywell deploys its expertise, resources and infrastructure to generate and validate startup ideas, then build and launch them into the market. To learn more, contact them today.
