From VC funding to angels and crowdfunding, here’s what every founder needs to know before raising equity investment.
Looking at how to raise money your startup? Get ready for a roller coaster ride! Raising investment can feel a bit like dating, job hunting and live theatre all rolled into one — part charm, part strategy, part hoping you don’t spill coffee down yourself before the pitch.
When I raised £250,000 for my own business (through angel investment and equity crowdfunding), I thought I had a decent grip on things. Spoiler: I didn’t. Not entirely. The fundraising process isn’t just about having a brilliant idea. It’s about knowing how to sell it, who to sell it to, and how to keep your business intact whilst doing that.
Now, after more than ten years helping startup founders navigate this world, and developing the Funding Accelerator programme we run at Focused for Business, I can tell you that equity funding is one of the most powerful tools out there if you understand how to use it wisely.
Let’s break it all down, without the fluff.
1. Know Why You’re Raising (And Be Specific)
“Growth” isn’t a reason. Not a good one, anyway. Investors want to know what their money is funding. A marketing push? A tech build? Hiring that second salesperson who can actually close key customer accounts?
Map out what you need, how long it will last, and — most importantly — what the outcome will be. Think about the milestone you will deliver with funding – and be clear about how that will increase the value (or worth) of your business. The clearer your plan, the easier it is for investors to buy into it.
And if you’re raising through equity funding, you’re not just selling the dream. You’re selling a slice of your business. So you’d better know what that slice is worth.
2. Get Your Business Investment-Ready
Before you even whisper the words “I’m speaking to investors”, get your ducks in a row:
- Clean cap table (no mystery shareholders, thank you)
- Realistic valuation (I recommend a three step approach to valuation that compiles evidence to support your valuation at each step: Use the right valuation equations, then benchmark against your peers and, finally, complete a comparative analysis. We show you how to do this on Funding Accelerator)
- Legal structure sorted and term sheet ready to share with potential investors
- A financial forecast that shows how the business will grow, month by month, year by year — and that builds confidence in your plans
Then, work on your equity funding pitch. This isn’t Dragon’s Den. It’s about crafting a compelling narrative that answers the big investor questions:
What are you doing for whom? Why now? Why you? And what’s in it for investors?
Top Tip: I would argue that your executive summary is actually more important than your pitch deck.
3. Understand the Flavours of Equity Funding
Equity funding isn’t one-size-fits-all. It comes in several delightful varieties — each with its own pros, cons, and quirks.
• Angel Investment
Business Angels are individuals investing their own money, often earlier than institutional investors or investment funds are able to. Great for first rounds, and if you choose wisely, they can bring wisdom, connections and calm when things don’t quite go to plan.
• Equity Crowdfunding
Your customers and supporters become shareholders. Platforms like Republic and Crowdcube have made this much more mainstream. It’s brilliant for visibility and validation, but requires serious campaign prep. Think of it as fundraising plus marketing plus theatre – and make sure you have at least 60% of your funding target secured when you launch your crowdfunding campaign.
• Venture Capital
Venture Capital (VC) funds invest other people’s money in order to make an exponential return. This means VCs look for businesses that can scale, at speed and offer strong commercial returns. They’ll expect to influence your business direction to achieve this, too. It works for high-growth, high-stakes startups, but it’s not a match made in heaven for everyone.
Whatever path you choose, equity funding means selling a portion of your business, so be crystal clear on how much equity you’re selling, what it’s worth, and what you’re getting in return.
My rule of thumb: Only sell equity if it gets you somewhere faster than you could go on your own. Don’t just sell a stake for the sake of it. Remember funding is not an end in itself – it’s a means to an end, so be sure it’s taking you in the right direction!
4. Plan the Process (It’s Not a One-Off Event)
Raising money, especially equity, is a time-consuming process — not a one-and-done pitch. You’ll need:
- A warm-up phase: Build relationships before you ask for investment
- A suite of investor documents: See above – but also a host of communication tools and messaging to use at each stage of the funding campaign.
- A target list: A “hit list” of investors that are right for your business
- A tracking sheet or CRM to manage the process (trust me): You will forget who you said what to
Fundraising can take months. It will probably take longer than you’d like. So start before you’re desperate, and keep running your business while you do it.
5. Protect Your Sanity (and Your Equity)
Equity is precious. It’s your ownership, your control, your future. Don’t give it away too cheaply or too early. And don’t assume giving up equity is your only option.
There are other routes: revenue-based funding, grants, good old-fashioned bootstrapping. But if you are going down the equity path, make sure:
- You understand your valuation (and can justify it)
- You get support negotiating term sheets
- You know what dilution means and how to minimise it in later rounds
- You have a support network – of other founders who have raised equity funding, advisers and friends – who can support you on the roller-coaster journey. You will need advice, a shoulder to cry on sometimes and a reminder that there is life beyond fund raising!
Final Thoughts: Fundraising Is Not the Goal — It’s a Means to One
Raising money is not a badge of honour. It doesn’t mean you’ve made it. It just means you’ve convinced someone else to believe in your vision and bought yourself the time and resources to go build it.
Equity funding can be transformational. It can also be costly — not just in terms of ownership, but in time, focus and headspace.
So ask yourself: What kind of business do I want to build? What am I willing to give up to get there? And what kind of investor do I actually want in the passenger seat?
If you can answer that, then you’re well on your way — pitch deck or not.
Frequently Asked Questions on Equity Funding for Startups
What is equity funding for startups?
Equity funding is when a founder raises money by selling shares in their business. Investors gain ownership and a potential return if the business grows in value, while the founder gains capital to accelerate growth.
What are the main types of equity funding?
The three common routes are angel investment, venture capital and equity crowdfunding. Each comes with different expectations, risks and benefits, so it’s important to choose based on your stage of growth and business goals.
How do I prepare my startup for equity investment?
You’ll need a clean cap table, realistic valuation, solid financial forecasts and clear legal documentation. Having an executive summary and investor-ready pitch materials is also essential.
How much equity should I give away?
It depends on your funding needs, valuation and long-term growth plans. Founders should avoid giving away equity too cheaply or too early and always weigh up the trade-off between ownership and speed of growth.
How long does it take to raise equity funding?
Raising equity can take several months, often longer than expected. The process involves relationship-building, pitching, negotiations and due diligence, so founders should start early and continue running their business throughout.
What are the risks of equity funding?
The main risks are dilution of ownership, loss of some control and time away from running the business. Choosing the wrong investors can also create long-term challenges.
Are there alternatives to equity funding?
Yes. Alternatives include grants, revenue-based financing and bootstrapping. These routes allow founders to retain ownership but may not provide the same scale of capital as equity investment.
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