Your first thought might be the bank. But for early-stage businesses without substantial assets or consistent revenue, traditional bank debt is often out of reach. While personal loans or credit cards are an option, they are an expensive way to fund growth and rarely provide enough capital to scale.

Before you seek investors, explore 'free money' like grants, subsidies, and tax credits. Availability often depends on your industry and location, with tech, R&D, and social or environmental-impact companies often being prime candidates.

Explore common UK grants and funding opportunities here and here.

Finding the right investors

The other main path is equity funding. The world of investors - from angels to venture capital - can be overwhelming. We’ve broken down the key players and cut through the jargon to help you navigate it.

Friends & Family: The first port of call is often your personal network and your own savings. This initial funding is crucial for getting off the ground.

Angel Investors: These are typically successful entrepreneurs and high-net-worth individuals who invest in start-ups. With the rise of sophisticated angel networks, they can provide significant capital, often alongside valuable mentorship.

Incubators & Accelerators: These programs offer mentorship, workspace, and networking. Many now also provide seed funding or connect start-ups with angel investors.

Venture Capital (VC) & Growth Funds: These are professional investment firms targeting high-growth companies. They invest significant capital expecting substantial returns over a 3 to 7-year period.

Regional Development Funds: These government-backed funds aim to boost innovation and growth for SMEs in specific regions. For example, the British Business Bank's Nation and Regions Investment Funds support businesses across the country.

Private Equity (PE) Funds: While 'private equity' can cover the entire investment lifecycle, PE funds typically focus on buying out or investing in large, mature companies. They're unlikely to be your first investors, but if a PE firm comes knocking, you know you're doing something right!

What's on the table? Understanding the deal

In the earliest days (the 'pre-seed' stage), founders, friends, and family often buy ordinary shares at a set price. This effectively gives the company its first, informal valuation.

However, professional investors will need more. Setting a formal valuation that everyone agrees on is one of the biggest early-stage hurdles.

This valuation challenge is why two instruments are incredibly popular for early-stage funding: they allow investment to happen now, with the investor's equity stake determined at a future, priced funding round.

Enter the Convertible Loan Note (CLN) and the Advanced Subscription Agreement (ASA).

Convertible Loan Notes (CLNs)

A CLN is usually drafted as a form of debt, but giving the noteholders the right to convert into shares and/or automatically requiring conversion on certain events occurring.  A CLN will usually bear interest, but this can either be payable in cash, or may just accrue and rollover until conversion.  We are currently seeing interest rates on CLNs of between 6% and 10%, but this will depend on the identity of the CLN provider, the risk profile of the company and the assumed period to a priced funding round.  Whilst the principal amount will fall due after a longstop date, or on certain default events occurring, the principal aim of the CLN is for the notes to convert into shares on a qualifying conversion event.

The main conversion event that is contemplated in a CLN is a fundraising at or above an agreed valuation target, upon which the notes will automatically convert into shares.  The CLN will often also include the right to convert (but not automatic conversion) or redeem the notes for cash, on certain other exit events – e.g. a fundraising at below the target valuation or a sale of the company.

The conversion formula can be the most heavily negotiated part of the CLN, with investors often seeking one, or both, of a “conversion discount” or a “valuation cap”.

A conversion discount will provide that, upon conversion, the CLN investor will be issued shares at whatever the agreed issue price or sale price is, less an agreed discount – i.e. giving them more shares per £ than others, to reflect the early-stage risk that the investor has taken on the company.  The discounts we are currently seeing are usually in the range of 10-20%, but they are heavily dependent on the type of investor, stage of maturity of the company and expected timeline to further funding.

A valuation cap will provide that if the actual valuation of the company for the purposes of the future fundraising (or sale), is above an agreed valuation cap, then for the purposes of the conversion of the investors notes into shares, the valuation cap is used.  The result of this is that the investor will receive more shares than if the actual valuation was used – again, giving them upside for their early stage investment.

Advanced Subscription Agreements (ASAs)

The newer kid on the block and preferable if the investor does not want their investment to be treated as debt – i.e. because they want to maintain SEIS / EIS tax compliance.  For initial fundraising, especially involving individuals/angel investors, tax reliefs for shareholders will be a key issue to bear in mind and you should seek specialist input on it.  We have published articles on SEIS, EIS and changes in the 2025 Budget that give an overview of these schemes and some of the issues you may want to consider.

Under an ASA, sums are advanced to the company that will convert into shares upon certain trigger events, which are very similar to the qualifying conversion events in CLNs summarised above.  Also like the CLN, the conversion mechanics are an essential part of the ASA and discounts and valuation caps will be negotiated on an ASA, for the same reasons as they are included in CLNs.

The funds advanced under an ASA must convert into shares; they cannot be repaid as debt after a longstop date, which is the key difference between an ASA and a CLN (unless the CLN is being drafted to be an equity-based CLN). ASAs are also very unlikely to include interest.

CLN and ASA documentation can be relatively simple because they anticipate a future funding round. Early investors often 'piggy-back' on the terms negotiated by the lead investor in that later round, receiving the same class of shares.

However, some early investors may use their bargaining power to negotiate for more comprehensive rights and documentation from the outset – i.e. to embed certain investor rights and protections that will apply on conversion.

Given the impact of ASAs and CLNs on later funding rounds, all parties need to be mindful that very heavy discounts, low valuation caps and/or issuing multiple CLNs/ASAs, can be off-putting to later-stage VC investment – so the early-stage investors may need to forgo some of their negotiated upside to realise their conversion/exit!

Levelling up: Securing larger investment

At this stage, with assets or consistent revenue streams to act as security, a bank loan may now be a viable option.  You could also look at other debt products beyond simple loans, such as invoice financing, trade credit and financing your IP rights. If those options are not appropriate or bank debt alone will not provide the level of capital required, and assuming you can set a robust valuation, the most common route to raise further funds is a direct equity investment for shares in the company.

However, sophisticated VCs or growth funds will expect more than the simple ordinary shares your founders may hold.  They will require sophisticated investment documents that give them specific rights, with a particular focus on:

• Preferential share rights – i.e. the new investors shares will rank ahead of the other shares for dividends and capital returns on an exit
• Anti-dilution rights – to protects the investors stake in the company, especially if there is a decrease in the value of the company / a “down-round”
• Information rights – especially in relation to budgets, forecasts and management accounts
• Governance procedures – in particular director/observer rights and reserved matters requiring investor shareholder consent
• Pre-emption rights on transfers and new share issues
• Control over transfers of shares – i.e. prohibited/permitted transfers, compulsory transfers, drag-along and tag-along rights
• Vesting / leaver provisions, potentially linked to employee incentivisation, such as EMI, CSOP and SIP plans
• Warranties from the company, and potentially the founders, in relation to the company and its business

These rights will be set out in the VCs house preferred form documents which may follow the BVCA standard form documents or be their own house documentation.  Whatever the format, you will likely be entering into a full form subscription/investment agreement and a shareholders’ agreement, as well as adopting new articles of association.

The evolving fundraising landscape

The UK's fundraising landscape has seen both growth and convergence in recent years. Early-stage investors, like angels, can now provide larger funds, but may also seek the more sophisticated rights once reserved for VC and growth funds.

At the same time, large institutional investors have diversified. While venture, growth, and buyout funds remain distinct classes, the same firm may now manage funds across multiple or all of these stages.

This means that there is ever greater overlap with the documentation used and funding options and providers available at the various stages of a company’s journey, so it is not always as compartmentalised as it once was, and does not necessarily follow the structure above.  In particular, you may see facets of later stage investments much earlier on in the cycle now.

Our Corporate Finance team at Lewis Silkin is active across all of these investment stages and classes. Whether you are starting up, scaling, growing, or exiting, get in touch to see how we can help you on your journey.