As a startup or even an existing business, you may have a unique mobile app or web service idea but lack the funding to make it a reality. Regardless of the developer/agency you choose to run your project with, software development can be expensive. However, there are plenty of options out there to help you bring your idea to a reality, and assist with the initial outlay of development and launch. Here are a few options we typically recommend to businesses looking to seek investment.
Government-backed investment
There are many schemes available to help companies get off the ground and bring their ideas to reality. While government funding can be specific to the industry you’re looking to integrate into, such as healthcare or education, government-backed funding options are an excellent, reliable way to seek both first-round investment, and investment for new technology within existing businesses.
Government-backed investment and funding options can also change depending on the location of the startup or an established business, however, this again mainly pertains to businesses looking to address a regional or industry-specific pain point.
Here are some of the most prevalent government schemes for startups and established businesses.
Seed Enterprise Investment Scheme
The Seed Enterprise Investment Scheme (SEIS) provides significant tax incentives to investors in exchange for investments in small and early-stage startup enterprises in the United Kingdom. SEIS was created to stimulate economic growth in the United Kingdom by encouraging new business and entrepreneurship.
SEIS provides a convenient way for startups and company owners to get critical early-stage finance. As an entrepreneur seeking SEIS financing, you must be willing to give up stock in return for cash backing.
There are many benefits to becoming SEIS compliant. As a high-profile programme supported by several of the biggest UK crowdfunding platforms, a SEIS-compliant firm will find itself and its services/products in front of a large audience interested not just in investment, but also in innovation. Even if they do not elect to invest, folks who come across your company when it is seeking capital may just come to you in the future to make a purchase or eventually become a client.
Government-backed Research and Development Tax Relief
Companies that engage in breakthrough initiatives in science and technology benefit from R&D tax breaks. It can be claimed by a variety of firms seeking to investigate or make a breakthrough in their sector. It can even be claimed on failed ventures.
To get R&D relief you need to prove that your project:
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looked for an advance in science and technology
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had to overcome uncertainty
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tried to overcome this uncertainty
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could not be easily worked out by a professional in the field
You can claim SME R&D relief if you’re an SME with:
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Fewer than 500 employees
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A turnover of less than 100 million euros or a balance sheet total of less than 86 million euros
SME R&D relief enables businesses to:
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Deduct an additional 130% of their qualifying expenditures from their yearly profit, in addition to the standard 100% deduction, for a total 230% deduction
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If the firm is losing money, you can claim a tax credit for up to 14.5% of the surrenderable loss.
There are many UK Government-backed investment and tax relief schemes, a summary of which is best revised here on the Governments guidance of Use of a venture capital scheme to raise money for your company. These schemes are often a great option if you’re not looking to give away too much of your business in equity to gain capital.
Private investment
Private investment can be a viable option for sourcing capital to get your business going or expand it into new territory. Let’s talk about a few of the key areas in which private investment commonly come from.
Pre-seed Funding
Pre-seed funding is an early funding round in which investors will offer a startup funds to develop their product (in this case a digital service, app or site) in exchange for equity in the company. This is typically a small amount of investment that seeks to get you to market.
Typically, companies eligible for pre-seed funding meet one or more of these criteria:
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They can demonstrate potential for product-market fit
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They’ve begun onboarding customers to use your product or service
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Their business has begun generating revenue
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They have a strong founding team with relevant background and experience
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They need cash to develop a prototype
Pre-seed funders can be anyone from your family and friends, to investment firms that deal specifically with early-stage funding.
Seed Funding
The seed fundraising method is quite similar to pre-seed funding, in which investors pay money in exchange for a stake in a company. Most entrepreneurs, particularly those in the IT industry, adopt this route to get their business off to a good start. However, seed funding typically entails a large amount of investment.
You’re most likely meeting seed funding criteria if:
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You've found an obvious product-market fit. You are not yet at the point where you are providing KPIs, but you do have some active user metrics on your PowerPoint presentation. Even better, you may have some income to report, however, you are not yet at the stage where you have visibility into a full profit and loss statement.
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You’ve assembled a great team and are in a position to start bringing in revenue.
Seed funding might come from
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Crowd funders (e.g. Kickstarter, gofundme or crowdfunder)
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Corporate seed funders
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Angel investors
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Venture capitalists
Angel Investors
An angel investor is a person who contributes funds for a new firm in exchange for convertible debt or ownership stock. Angel investors typically provide assistance to start-ups in their early stages, when other investors are unable to fund them.
In short
Building a digital service no matter the technology you choose to utilise can be expensive, but with cost comes the quality and longevity of the product. However, raising capital to get your business going, or expand it irrespective of the source is very common, and there are a plethora of excellent sources you can use to help determine which is right for you. We’re not official advisors, but we will always help point you in the right direction of organisations specially set up to help you navigate investment strategies if needed.