Funding options for an earlier stage business

How do you raise funds for a business start-up?

Funding options
Credit: Pixabay

In this article, we cover some of the funding options available to earlier-stage businesses.

Venture capital

Venture capital firms (VCs) make equity investments in the growing stage of businesses with high growth potential. VCs invest £100,000 or more (some much more) in each business. They also provide strategic, financial, and operational advice. They make decisions after a thorough, and often quite lengthy (six months or more) investment process. Many of them look to invest in start-ups that could return 10 to 40 times the capital invested in 2 to 8 years.

In the biggest VC market in Europe – the UK – venture capital investment increased to £1.65 billion with 821 companies backed in 2019. VCs are now focusing on existing portfolios as a result of the Covid-19 pandemic, but they expect to put more capital to work on new investments in 12 months or so. Meanwhile, they are helping their portfolio companies to review their strategies.

Corporate venture capital

Corporate venture capital (CVC) includes many forms of equity investment made by (larger) corporations or their investment units (CVCs) into high growth private companies.

CVCs v VCs: the latter have one objective, which is to generate above-average financial returns. The former have strategic objectives too, e.g. learn new technologies, improve reputation. Therefore, CVCs could value start-ups higher than VCs. However, they may restrict the scope of the start-ups they invest in more than an independent VC, if that is best for the corporate strategy.


Equity crowdfunding is a new alternative source of finance for start-ups. It allows retail investors to buy a small stake in a business project or venture online, often alongside angel investors and sometimes alongside smaller VCs.

In the UK, crowdfunding declined in 2020 as Covid-19 started to impact markets. However, while top-line numbers declined, more people invested in start-ups via crowdfunding platforms. Perhaps because more retail investors are spending more time at home and browsing start-ups on platforms. However, they may not be able to invest large sums due to limited net worth and job uncertainty.

For more on this, see my article (P27 Blog): Some colour on Crowdfunding.

Security token offering

A security token offering (STO) is the latest way to fundraise with crypto tokens for start-ups. These tokens represent an asset or a utility – like shares in a business. An STO is a crowdfunding campaign that uses blockchain-based tokens.

For more on this, see my article (CISI Review): Tokenisation: crypto is preparing for prime-time finance.

Revenue-based financing

In a revenue-based financing (RBF) deal, investors inject capital into a business in return for a fixed percentage of ongoing gross revenues. RBF sits between a bank loan, which requires collateral, and an angel (or VC) investment, which requires an equity portion of the business. Usually, the business keeps sharing revenues with the investor until a multiple of the initial capital amount is repaid.

In the past, RBF has been used to invest in companies with predictable financials, such as business services. Now, some VCs purchase a portion of a tech start-up’s revenues for a time. For example, Novel GP provides software-as-a-service (SaaS) companies up to US$1m in growth capital. SaaS businesses have relatively predictable financials.

Valuation v funding options

As valuation and funding range increase, funding options change. The recap table below includes the ones covered in this article and a few more.

Business stage/ funding round Funding size range

(US dollars)

Valuation range

(US dollars)

Funding options (include)
Idea (prototype)/

Pre-seed, Seed

10,000 100,000 100,000 1,000,000 Bootstrapping, grants, accelerators, angels
Minimum viable product (gained proof of concept)/ Seed, Series A 100,000 5,000,000 1,000,000 20,000,000 Angels, crowdfunding, smaller VCs
Rapid growth/

Series A, B

5,000,000 20,000,000 20,000,000 100,000,000 VCs, IPO (select exchanges)
Stable to Challenged Growth/

Series C+

20,000,000 Any 100,000,000 Any Any equity (larger VCs, PEs, IPO, etc), debt option; anything in between
Note that funding size and valuation ranges are indicative. Debt options are also available at earlier stages if the business is profitable.

Source: P27 Limited

Final thoughts

If you are considering launching the next Tesla or TransferWise: back your valuation with the strongest possible business plan, put together a great team and start thinking about governance ASAP. If Environmental, Social, and Governance (ESG) factors are part of the business model, the company may have a higher chance of getting funded. More on this in a future blog article.


To learn how we can help you value your start-up and assess what sort of business finance options are available for your specific stage and culture:

Core and custom services


Mauro Tortone

View posts by Mauro Tortone
Mauro advises financial services, technology and mobility businesses and leads the Strategy & Finance practice. His expertise is in strategic change, capital markets and more. Mauro has over 25 years of experience working with banks such as UBS and Deutsche Bank, smaller financials, fintechs and others across Europe, the US and Asia. He sat on the CISI Corporate Finance Forum Committee for ten years and is passionate about sustainability.
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