To VC or not to VC… Exploring funding options

One of the most challenging times to raise funding is in the beginning, but luckily, there are many funding options available to early-stage startups. The current economic climate has intensified difficulties, and this is set to continue. But, raising from a VC isn't the only option, so we've laid out some other routes to consider.

To VC or not to VC… Exploring funding options

Joe Seager-Dupuy / Insight / 30 Jan 2023

Raising money for your business can seem like a daunting task, particularly when you’re hearing ‘no’ a lot. But there are many routes to funding, and Venture Capital (AKA ‘VC’) is just one. In fact, VC may not be the best source of funding for you depending on your situation.

Here are our tips on other routes to consider.


Finance 101 tells us that the ‘cheapest’ source of capital is internal funds.

Cutting non-essential expenses is one way, but even if your costs remain the same, re-shaping your working capital can help reduce funding needs. Consider negotiating with your customers and suppliers for more favourable payment terms (shorter for customers, longer for suppliers). For customers, consider offering incentives like discounts for faster payment or cheaper annual memberships paid up-front to sweeten the deal and help short-term cash flow. For suppliers, consider what low-cost/high-value things you could offer, for example: exclusivity, more volume, referrals, etc. Another significant drain on working capital is stock. See if there are opportunities to free up cash by carefully analysing what you really need, and by when, to cover your sales projections.


At the other end of the spectrum, equity is the most ‘expensive’ source of capital as you are effectively selling a portion of your ownership, so chase down other routes before defaulting to an equity fundraise.

Grants are a fantastic form of ‘free money’ for innovative young companies. There are a host of government and private grants available for small businesses, you just need to know where to look. Service providers like GrantTree and Grantify can help you navigate the options, or you could try going direct to funding providers like Innovate UK.

Debt is another avenue to consider. Obviously, you need to be extremely careful to ensure any debt you take on is affordable, otherwise, you risk losing everything.

That said, used in the right way debt can be a great tool. For example:

  1. Bank overdraft: this can be a helpful temporary tool to bridge gaps in working capital, e.g., the time between having to pay for stock and being paid by a customer. Talk to your bank to see what they can offer but beware of hidden fees and high costs.

  2. Working capital financing: similarly, this can be a helpful way to bridge issues created by timing. There are multiple flavours, from digital revenue-based financing offered by platforms like Uncapped, Velocity Juice and Wayflyer, to invoice financing offered by companies like Bibby (UK) and Dwight (US), and emergent ‘Buy Now Pay Later’ platforms for SMEs like Playter. Reach out to a few providers to explore the options.

  3. Term loans: as a slightly longer-term solution, small business ‘term loans’ can be helpful to fund a big initial outlay for a project or investment which will generate a direct return. Start by speaking to your bank to see what they can offer, or chat with start-up loan providers like Virgin StartUp. Be wary of taking on loans simply to fund day-to-day operating expenses, and as with any loan, make sure you have plenty of buffer on your ability to repay.

  4. Venture debt: this is a form of longer-term funding that operates similarly to VC, with many of the same funds offering debt alongside equity. Used well, it can be a non-dilutive – albeit often quite expensive – form of financing to consider, but make sure you clearly understand the terms to ensure you know what you are getting yourself into.

To reiterate, debt can be a great tool in the toolkit for an entrepreneur, but there’s a risk of losing everything if you get it wrong. Proceed with caution. Always have a plausible path to repayment with plenty of buffer to cover any shocks, particularly given rising interest rates. Watch out for hidden fees and tricky terms. If you don’t understand them, don’t accept them.


Having considered all of the above, if there is still a need for funding, then it’s time to turn to equity.

Here’s a rundown of options you should consider before turning to ‘institutional’ funds like VCs.

  • Friends and family: Clearly this isn’t an option for everyone, but for those in a fortunate enough position, it’s a good place to start. The people closest to you are likely to be your biggest advocates. Remember to treat them like any other investor, including getting the right documentation in place to limit the risk of issues further down the line.

  • Angels: Aptly named, these are individual investors that invest in early-stage companies, often aligned with their experience, expertise and passions. The best angels can provide guidance and support as well as ‘just’ cash. There are also some great angel syndicates and networks in the UK worth checking out, including Angel Investment Network, Alma Angels and HERmesa.

  • Crowdfunding: Similar to the above, crowdfunding platforms like Seedrs and Crowdcube can help you raise money from a large group of individual investors. This is a route several of our portfolio companies have used successfully including War Paint, COAT and Bedfolk. To do it well requires careful planning, including thinking about how to involve your customers to help hit funding goals. But don’t worry, the platforms have plenty of resources to help. Note: They do charge fees, so shop around and compare the costs/benefits before you pick one.

  • Accelerators: Getting closer to the ‘institutional’ end of the spectrum, accelerators help young companies catalyse growth. Many offer funding themselves, while others facilitate warm introductions to other investors. All provide guidance, mentorship, resources and networks to help entrepreneurs succeed, though sometimes there is a cost to being involved, so again, shop around. A few of the best 'generalists’ in our view include Y Combinator (AKA ‘YC’), TechStars, Founders Factory and Plug and Play. Some ‘specialists’ on our radar include Carbon13 (climate tech) and Bethnal Green Ventures (impact). Some of True’s portfolio companies are accelerator alumni, including Short Story (YC), Fable (TechStars) and Shameless Pets (LEAP).

  • Incubators: A ‘younger sibling’ of accelerators, incubators are typically set up to bring motivated entrepreneurial people together to meet co-founders and build brand-new ventures. Entrepreneur First and Antler are at the top of our list.


So, there you have it: our tips for sources of funding other than VC. As you can see from the above, there are plenty of options out there and hopefully, this blog helps point you in the right direction.

Of course, if you have considered all of the above and still think VC is the right route for you, we’d love to hear from you. In True’s Early-Stage funds, we back mission-driven entrepreneurs building a better and more sustainable future at the forefront of consumer behavioural change. Our focus areas include Consumer Brands and Tech, Retail and eCommerce Tech, Supply Chain Tech and Sustainable Materials, and we invest anywhere from Pre Seed to Series A.

If that sounds like a fit, please do get in touch.

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