Ways to fund a company: equity, SAFEs, debt, grants and crowdfunding compared

Ways to fund a company: equity, SAFEs, debt, grants and crowdfunding compared

Every way of funding a company is a trade: you sell part of the business (equity), promise to repay (debt), or accept conditions and competition for public money (grants). Customer revenue asks for none of these.

This guide compares the main routes: how each works, what it costs, who it suits and what it demands. Where UK and US rules differ, both are given. Still deciding whether to raise? Read Should you raise money at all? first. Ready for investors? Publish an anonymous raise on Companies raising, TrustList's fundraise board.

The routes at a glance

Route	You give	Main cost	Suits	Demands
Bootstrapping and customer funding	Nothing	Slower growth	Companies that can sell early	Paying customers
Friends and family	Shares or a loan	Dilution or interest	The first outside cheque	Written terms, legal compliance
Angel investors	Shares, often via a SAFE or ASA	Dilution	Pre-seed and seed	A credible team and plan
Venture capital	Preferred shares, often a board seat	Dilution, investor rights	Very fast, large growth	Traction, due diligence
Corporate venture capital	Shares, often commercial ties	Dilution, IP exposure	Strategic fit with a corporate	Patience in negotiation
SAFE or convertible note	A right to future shares	Dilution; notes add interest	Quick early rounds	A cap or discount
Priced equity round	Shares at a set price	Dilution, legal fees	Seed onwards	Full legal documents
Venture debt	Repayments	Interest and fees	VC-backed companies	Existing VC backing
Revenue-based financing	A share of revenue	A fixed repayment multiple	Recurring revenue	Revenue history
Bank and government-backed loans	Repayments, perhaps a guarantee	Interest	Steady cash flow	Credit checks
Grants and innovation funding	Reporting	Your share of project costs	R&D-heavy companies	A strong application
Equity crowdfunding	Shares to many investors	Dilution, platform fees	Consumer brands	Public disclosure
Accelerators	Usually a small stake	Dilution at an early price	First-time founders	A full-time programme

Starting without investors

Bootstrapping and customer funding

Bootstrapping means funding the company from savings and sales. Customer funding goes further: pre-orders, deposits, upfront annual contracts and paid pilots bring cash in before you deliver. There is no dilution or interest, but growth is limited to what revenue pays for. It suits anything that can charge early and demands tight cash control.

Friends and family

Money from people you know is often the first outside cheque. Write the terms down and use the documents you would use with a stranger. The law does not relax for relatives. In the UK, section 21 of the Financial Services and Markets Act 2000 bars anyone, in the course of business, from communicating an invitation to invest unless an authorised firm makes or approves it or an exemption applies. The Financial Promotion Order provides exemptions, including for high net worth individuals and self-certified sophisticated investors, which depend on the investor having signed a prescribed statement. In the US, a private round needs an exemption from registration, such as Rule 506(b) of Regulation D: unlimited accredited investors plus up to 35 non-accredited but sophisticated investors in any 90 days, no general advertising, and a Form D filing within 15 days of the first sale. Take legal advice first.

Selling equity: angels, venture capital and corporates

Angel investors

Angels are individuals investing their own money, usually at pre-seed and seed, alone or through networks, in shares or an agreement that converts later. The cost is dilution, and the price you set shapes later rounds. They suit raises too small for most funds.

In the UK, tax relief shapes the market. Under the Seed Enterprise Investment Scheme, a company can raise up to £250,000 in total; among other conditions, it needs gross assets of no more than £350,000, fewer than 25 full-time-equivalent employees and a qualifying trade no more than three years old. Investors can claim 50% income tax relief on up to £200,000 a year under SEIS, and 30% on up to £1 million under EIS (£2 million if at least £1 million goes into knowledge-intensive companies), holding the shares for at least three years. Since 6 April 2026, the Enterprise Investment Scheme lets most companies raise £10 million in any 12 months and £24 million in their lifetime from these schemes combined, with gross assets under £30 million before the issue and no more than £35 million after. Apply for HMRC advance assurance early. See our SEIS and EIS listings.

In the US, the key test is whether an angel is an accredited investor: net worth over $1 million excluding their main home, income over $200,000 ($300,000 with a spouse or partner) in each of the past two years, or certain securities licences. The UK Business Angels Association and the Angel Capital Association are starting points, or browse angel networks.

Venture capital

A venture capital fund invests other people's money in return for an equity stake and often a board seat. Funds need a few very large outcomes, so they back companies that could grow very large, very fast. The cost is dilution at each round, investor consent rights and, usually, preferred shares with extra rights on a sale. VC demands traction, a team that can scale, due diligence and regular reporting.

Investment is large but concentrated. UK smaller businesses raised £12.3 billion of equity across 2,002 deals in 2025, with deal numbers down 17% on 2024 and seed deals down 27%, according to the British Business Bank's Small Business Equity Tracker 2026. In the US, AI companies took 86% of venture dollars in the first half of 2026, per the PitchBook-NVCA Venture Monitor (Q2 2026). Browse venture capital firms and seed-stage investors, and read Funding rounds explained.

Corporate venture capital

Corporate venture capital (CVC) is a large company investing in smaller ones relevant to its strategy. The British Business Bank's CVC guide notes that corporates weigh strategic benefit as well as return, that deals can take two to three months longer than with a VC, and that you expose your intellectual property to a possible channel competitor, so read blocking rights and IP clauses closely. It is a shrinking source in the US: CVC investors joined 21.1% of VC deals in the first half of 2026, the lowest share in a decade, per the PitchBook-NVCA Venture Monitor.

SAFEs, convertible notes and priced rounds

SAFEs

A SAFE (simple agreement for future equity) is a short contract, created by Y Combinator in 2013, under which an investor pays now for shares later. It converts automatically at the next priced round and is not debt: no interest, no maturity date. The post-money SAFE, YC's standard since 2018, comes as valuation cap only, discount only, or most-favoured-nation (MFN) with neither.

In the post-money version the cap is a valuation after all SAFE money, so the stake sold is the amount invested divided by the cap. YC's SAFE user guide shows $1 million at a $6.7 million post-money cap selling about 15%, and warns that SAFEs can convert into more if the priced round values the company below or close to the cap. SAFEs suit fast rounds closed investor by investor; record every one signed. YC's forms are for US companies, with capped versions for Canada, the Cayman Islands and Singapore.

Convertible notes

A convertible note is a loan that converts into shares at the next priced round, usually at a discount or under a cap. Unlike a SAFE it is debt: interest accrues and it has a maturity date for repayment or forced conversion, as YC's documents page explains. If the next round is late, the note must be extended, converted or repaid.

UK: advance subscription agreements

If UK investors want SEIS or EIS relief, check any pre-round agreement against HMRC's rules. HMRC accepts an advance subscription agreement (ASA) for SEIS and EIS only if the money cannot be refunded, the agreement cannot be varied, cancelled or assigned, it bears no interest, and it has a longstop date for issuing the shares, which HMRC expects to be no more than six months away.

Priced equity rounds

In a priced round, investors buy new shares at an agreed price, fixing the valuation. It costs more in time and legal fees than a SAFE because investor rights are set out in full: board seats, consent rights, anti-dilution and what happens on a sale. Templates help: the US NVCA model legal documents, last updated between October 2025 and June 2026, and the UK UK Private Capital (formerly BVCA) model documents, revised in February 2025, drafted for Series A and, their publisher says, not suitable for seed rounds. Track the result in equity management software.

Worked example: how dilution adds up

Illustration only: the figures are invented to show the arithmetic.

• Two founders own 10,000,000 shares: 100% of the company.
• Pre-seed: angels invest £500,000 on post-money SAFEs with a £5 million cap. On conversion they own £0.5m ÷ £5m = 10%; the founders fall to 90%.
• Series A: a fund invests £3 million at a £12 million pre-money valuation (£15 million post-money), buying £3m ÷ £15m = 20%.
• After the round: Series A investors 20%; SAFE holders 10% × 80% = 8%; founders 90% × 80% = 72%.

Each round dilutes everyone who came before. If the Series A also creates or enlarges an employee option pool, existing holders, SAFE holders included, are diluted by that too, as YC's user guide shows.

Borrowing: loans, venture debt and revenue-based financing

Debt does not dilute you, but it must be repaid whether or not the business succeeds, so it suits companies with predictable cash coming in.

UK: Start Up Loans and the Growth Guarantee Scheme

Start Up Loans are unsecured personal loans of £500 to £25,000 at a fixed 7.5% a year over one to five years, for UK residents aged 18 or over whose business has been fully trading for less than five years, with no application or early repayment fee and up to 12 months of free mentoring. The scheme is run by a British Business Bank subsidiary. The loan is personal, so you owe it even if the business fails.

Illustration: £25,000 at 7.5% over five years, in equal monthly instalments, costs about £501 a month, roughly £5,060 in interest in total.

The Growth Guarantee Scheme gives accredited lenders a 70% government-backed guarantee on facilities generally up to £2 million per business group, for businesses with turnover up to £45 million. The guarantee protects the lender: the borrower remains 100% liable, and lenders may take personal guarantees, though not over your main home. Changes announced on 12 July 2026, including a £54 million turnover limit, are still being put in place. See our British Business Bank listing.

US: SBA-guaranteed loans

The Small Business Administration mainly guarantees loans made by lenders. Its 7(a) programme goes up to $5 million for for-profit US businesses that meet SBA size standards and can show they can repay. Microloans of up to $50,000, about $13,000 on average, come through nonprofit intermediaries, over up to seven years at rates generally between 8% and 13%. See our SBA Microloan Program listing.

Venture debt

Venture debt is lending to companies already backed by venture capital, usually to extend the runway between equity rounds. Lenders judge your investors and ability to raise again, not assets or profits. The British Business Bank says loans can sometimes reach £10 million, at rates that can be high compared with traditional loans. Ask whether the lender wants warrants (rights to buy shares) and what covenants apply. It is harder to get than it was: the PitchBook-NVCA Venture Monitor (Q2 2026) counted only 280 US venture loans in the first half of 2026 and called availability for the typical growth-stage company constrained.

Revenue-based financing

A provider advances cash and takes a fixed percentage of your monthly revenue until a pre-agreed total, a multiple of the advance, has been repaid. Repayments rise and fall with sales, with no dilution. The cost is the multiple: convert it into an annual rate at the speed you expect to repay, because paying back fast makes the same multiple far more expensive. It suits steady, recurring revenue such as subscriptions, and demands a revenue history the provider can check.

Grants and innovation funding

Grants neither dilute you nor need repaying, but they are competitive, often cover only part of a project's costs and fund specific work, not running costs.

UK: Innovate UK. Innovate UK has closed its open Smart grants to new applications while it aligns funding with its new strategy; other funding runs through specific competitions. The Growth Catalyst Investor Partnerships round 2, which closed on 3 February 2026, shows the model: micro and small businesses could get up to 70% of eligible costs for feasibility studies and industrial research and up to 45% for experimental development, but only if invited by an approved investor partner committing equity at least equal to the grant. Innovate UK also offers competitive innovation loans to SMEs. See our listings for Innovate UK, innovation loans and investor partnerships, or browse UK funding programmes.

US: SBIR and STTR. The SBIR and STTR programmes make non-dilutive awards through 11 federal agencies to US small businesses developing technology. As of April 2026, agencies can make Phase I awards of up to $323,090 and Phase II awards of up to $2,153,927 without seeking SBA approval. Both were reauthorised through 30 September 2031 by a law signed on 13 April 2026. See our SBIR and STTR listings, or browse US funding programmes.

EU: EIC Accelerator. The European Innovation Council Accelerator offers start-ups and SMEs in EU member states and associated countries a grant below €2.5 million and investment of €1 million to €10 million, with €414 million for its open call and €220 million for challenges in 2026. UK applicants can apply only for the grant-only scheme.

Whichever you target, expect a detailed application, match funding for the share the grant does not cover, and reporting afterwards.

Equity crowdfunding

Equity crowdfunding sells shares to many investors, often your customers, through a regulated platform. It can double as marketing, but adds many small shareholders and puts your figures in public view.

UK. Unlisted shares sold this way are usually non-readily realisable securities, which the FCA has treated as restricted mass market investments since 1 February 2023. Under COBS 4.12A, before an investor new to a platform sees an offer, the platform must allow a cooling-off period of at least 24 hours, give a personalised risk warning, check the investment is appropriate, and categorise the investor as high net worth, sophisticated or "restricted", meaning they will not put more than 10% of their net assets into such investments. Since 19 January 2026, off-market public offers of £5 million or more to a broad range of investors must go through an FCA-authorised public offer platform; smaller offers remain exempt. Crowdcube and Republic Europe are examples of UK platforms listed on TrustList.

US. Under Regulation Crowdfunding, a company can raise up to $5 million in 12 months through one SEC-registered broker-dealer or funding portal. Under the 2022 inflation adjustments, a non-accredited investor whose annual income or net worth is below $124,000 can invest, across all such offerings in 12 months, the greater of $2,500 or 5% of the greater of income or net worth; if both are at least $124,000, the limit is 10% of the greater, capped at $124,000. Accredited investors have had no limit since March 2021. Financial statements must be certified by the principal executive officer up to $124,000, reviewed by an independent accountant up to $618,000 (up to $1.235 million for first-time issuers) and audited above that. Investors generally cannot resell for a year, and you must file an annual report on Form C-AR within 120 days of your year end.

Accelerators

Accelerators run fixed-length programmes of mentoring, introductions and a demo day, usually for a small equity stake. Terms vary widely, so compare what is taken with what is given. Y Combinator's standard deal, for example, is $500,000: $125,000 on a post-money SAFE for 7% and $375,000 on an uncapped MFN SAFE. Accelerators suit first-time founders who value a network and structure as much as cash, and demand full-time participation. Browse accelerators and incubators.

Outside the UK and US

The same routes exist elsewhere, but securities rules, tax reliefs and public programmes differ. See our guides to India, Pakistan, the UAE and Saudi Arabia, and our funding programme listings.

Choosing a route

• Can customers fund it? Start there and raise later on better terms.
• Is the money for R&D? Check grants first; they can reduce the equity you sell.
• Is revenue predictable? Debt may cost less than equity.
• Aiming for venture-scale growth? Angels, then VC, often on SAFEs or ASAs first. Routes combine: a grant can sit beside an angel round.

Next, read How to raise money for a startup, prepare your pitch deck and, when ready, publish your raise so investors can ask for an introduction.

About this guide: general information, researched on 26 September 2026. It is not financial, legal or tax advice, and TrustList does not arrange or advise on investments. Check current rules at the official sources linked above and take professional advice before you raise.