3 Top Public Funding Alternatives for Innovative Start-Ups

Turning a brilliantly innovative idea into a profitable business needs funds. And lots of them. If your work involves R&D, you’ve probably already claimed R&D tax credits to get up to 18.5% back from your R&D expenses. If you haven’t, read this or contact our R&D tax credit specialists. 

But what other sources of funding can you tap into to fund the success of your start-up? 

Here are three alternatives to claiming R&D tax credits. 

1. Equity financing

Equity financing requires you to sell shares in your business, to new investors or existing shareholders, for cash. Although you’re changing and diluting the ownership structure of your business, it’s an attractive option for many start-ups because they don’t need to pay the money back. This leaves them free to channel funding into growing their business. 

You can raise equity finance in many ways: you can raise money through family and friends, professional investors or an Initial Public Offering (IPO), where the stock of a private company is offered to the public for the first time, opening the field up for public investors. Giants like Meta and Google have raised millions this way.

Two common equity financing options for start-ups are venture capitalists and angel investors. Let’s take a closer look at each of these:  

Equity financing sources include:

Venture capital funds: Venture capitalists (VCs) tend to finance start-ups that have a clear USP, a track record of success, have the potential for rapid growth and are likely to generate a large profit on initial investment. They’re usually professional groups looking for a decent return on their investment. For this reason, they’ll probably want a bigger stake in your company, and will often demand a seat on the board so they can influence the strategy and direction of your business. VCs are often in high demand and don’t typically advertise themselves. The best way to find one is to contact the British Venture Capital Association (BVCA). Securing VC investment can be an expensive, long-drawn-out process, so if this is the road you choose to take, make sure you enter the process fully prepared.

Angel investment: Angel investors are people–usually fellow entrepreneurs–who work on a smaller scale than VCs, and invest their own hard-earned money in early-stage or pre-launch start-ups for a minority stake in the business (typically 10%-20%). Not only do they invest money in you, but they’ll also use their experience, knowledge and contacts to make sure your company thrives (think Dragons Den investors). Angels tend to target businesses that have a yearly turnover of less than £5 million and are in an industry they’re familiar with. To attract an Angel, if you’re at pre-launch, make sure you have a proof of concept to demonstrate the market demand and potential, a clear business plan or pitch that shows value and a patent or copyright IP secured.

2. Start-Up Loans

Whether from a bank, the government or an alternative loan provider, loans can give you funds to cover things like initial expenses, equipment and employees. But, like all loans, they must be repaid, and some lenders will require security on this. Finding affordable terms on a small business loan can be challenging, shall we say. An option you might want to consider, though, is an Innovate UK loan. Or, the Prince’s Trust Enterprise Programme.

Start-up loan sources include:

Innovate UK loans: Innovate UK can offer start-ups anything from £100,000 to £2 million, at a 7.4% interest rate (the average interest rate on a small business loan can be around 11.56%) over 5-10 years. It can be difficult to secure an Innovate UK loan because competition is fierce, the application process is long, it requires detailed financial information and it’s similar to the grant application process. 

The Prince’s Trust Enterprise Programme: This is a programme that not only offers start-up loans (provided by the Startup Loans Company) of up to £25,000 at a rate of 6.2% over a 1 to 5-year period, but it also provides resources, mentoring and marketing support. These loans, however, are only for entrepreneurs aged between 18 and 30. They also offer start-up grants, but only under special circumstances.  

3. Crowdfunding

Crowdfunding is when a founder manages to motivate a crowd of people to invest anything from hundreds to thousands of pounds in their business for a pre-determined reward (usually financial or gift-based). People tend to invest this way because the risk is relatively low, if the business is successful, they could stand to gain a significant amount and it’s an uncomplicated process that enables anyone–with or without previous investment experience–to get involved. If you have a large network or client base, one of these two crowdfunding options could be for you. 

Crowdfunding options include:

Reward-based crowdfunding: This is where the concept of crowdfunding first began. Members of the creative industry, such as musicians, artists and writers, offer their ‘crowd’ a reward like a free pre-sale copy of their finished product or an exclusive signed copy or limited edition, in return for investment. Reward-based crowdfunding platforms include Kickstarter and Indiegogo.

Investment-based crowdfunding: Sometimes called ‘equity crowdfunding’, investment-based crowdfunding is a great option for start-ups. Similar to equity financing, the founder gives up shares in their business, in return for investment. If you go for this type of crowdfunding though, you’ll need to have a credible business plan, a strong business case, a big community that is likely to invest and proof that you’ve received previous investment. The big investment-based crowdfunding platforms like Crowdcube and Seedrs, won’t let you in without this.  

These are just three alternative types of public funding available for innovative start-up businesses. There are more options out there, including grants and accelerator programmes, but these are notoriously difficult to secure because they’re highly competitive. With a struggling economy, everyone wants a piece of the grant funding pie because investors are holding onto their purse strings, tightly. 

If you need help to secure grant funding or a place on an accelerator programme, contact the team at Myriad Associates: We not only specialise in R&D tax credit claims but also government grant applications. 

Whatever form of public funding is right for your innovative start-up business, don’t forget you can also make one R&D tax relief claim per year. A specialist R&D tax relief consultant will help you analyse, prepare, optimise, and submit your R&D tax relief claim to HMRC. Get in touch. 

Why choose Myriad Associates to help with your R&D tax claim?

Myriad Associates has been managing R&D Tax Credit claims for nearly two decades, assisting a broad range of companies up and down the country. No matter what size or sector your company is in, we can help.

We understand how important R&D Tax Credits are, both to individual companies and the wider economy as a whole. However, because the government is keen to maintain the scheme’s success, they often update the rules and regulations around these R&D tax schemes, which can get confusing. This is where we come in.

The expert team of R&D tax advisors here at Myriad Associates apply a unique methodology when navigating through the complexities of the R&D tax claims process. To secure the R&D tax relief you're eligible for, we maintain a holistic approach.

First, we’ll work to understand the technical and scientific uncertainties your project faced in order to ensure we meet HMRC's strict R&D tax credits criteria.  Then, we’ll use that information to build a robust technical report, collate all the relevant costs and calculate the benefit owed for inclusion in your company’s tax return.

We’ll also happily handle any enquiries from HMRC should they arise. The claims criteria can be difficult to understand and so enquiries are becoming a more regular occurrence as HMRC works hard to tackle abuse of the scheme.