An overview of startup funding
- Kelly Drewett
- 2 days ago
- 10 min read
Forget the sleek pitch decks and Dragon’s Den drama when it comes to startup funding.
Welcome instead to a world of buzzwords, backdoor negotiations, and a surprising amount of pretending to be more confident than you feel.
The FD Consultant is here to explain everything, from funding rounds to ASAs and everything in between, because navigating this world blindfolded is a surefire way to give away equity for the price of a decent lunch or not raise at all.
So if you dream of raising funds for your startup, this is the blog post for you.
Startup funding stages
1. Pre-seed funding stage
“We have an idea. Some product development. And maybe a Deck."
This is where it all begins. In the early stages of the product, there are few users and little or no revenue—just an idea, a founding team, and the promise of "potential." Investors here are typically friends, family, and fools (that’s not us being rude—it’s a real expression).
You might raise up to £300 thousand if you’re convincing.
No VC (venture capitalist) worth their salt is touching you here unless you’re a repeat founder or your last name is Musk. But angels?
Angel investors are your goldmine. These are high net worth (HNW) individuals who like the thrill of getting in early and betting on early-stage chaos.
Use of funds? Build an MVP (minimum viable product). Get something people can touch, click, or complain about. Look to build your sales funnel.
2. Seed funding stage
"We Have Traction. Sort of."
By this point, you’ve got a product, some customers, and — if you’re lucky — early revenue. Now you’re targeting a more structured raise: anywhere from £300 thousand to £2 million.
This is the round where an Advanced Subscription Agreement (ASA) are commonly used to get money quickly without spending six months negotiating terms that may be irrelevant to your Series A. More on ASAs later.
At the seed funding stage, investors want evidence that the business will solve a real problem.
It’s less of a “vision board " and more of a “we’ve got 1,000 users with £5,000 in marketing—imagine what we can do with £500K.”
You might get angels again, but now early-stage VCs or micro-funds come into play.
Think Seedcamp, LocalGlobe, and Ascension, the UK-based venture capital (VC) firms focusing on backing early-stage startups.
Seedcamp
An early-stage venture capital fund (pre-seed and seed) that focuses on ambitious European startups, often with global potential.
Invests in pre-seed and seed rounds.
Known for backing founders early, sometimes with just a team and an idea.
Portfolio includes TransferWise (Wise), Revolut, Hopin, and UiPath.
Offers capital, access to a strong mentor network, and help with follow-on fundraising.
Best for European founders with high-growth tech startups, especially in fintech, SaaS, and AI.
LocalGlobe
Seed-stage venture capitalists focusing on the UK and Europe, with strong community and ecosystem ties.
Focuses on seed-stage investing, with follow-on capability through its later-stage fund, Latitude.
Backed companies like Zoopla, Citymapper, Improbable, and Cazoo.
Deeply embedded in the UK tech scene, focusing on long-term, founder-first relationships.
Best for startups looking for seed funding and a thoughtful, long-term investor with deep London roots.
Ascension
Impact-driven early-stage venture capitalists focusing on UK startups, often mission-led or with social impact.
Runs multiple funds, including SEIS, EIS, and impact funds.
Invests in startups with strong commercial potential and positive social/environmental outcomes.
Portfolio includes companies in healthtech, edtech, fintech, and sustainability.
Actively supports underrepresented founders and purpose-driven ventures.
Best for UK-based startups seeking early-stage capital with a mission-driven edge, especially if SEIS/EIS eligible.
Each plays a significant role in the startup ecosystem by providing funding, mentorship, networks, and long-term support.
At the seed funding stage, the funds are used to build out the team. Think tech hires, marketing, and customer acquisition.
3. Series A - startup funding stage
"We’re rolling now."
You’ve built a product or service. People use it. You’re growing — ideally fast. Now you’re raising £2M to £10M, and you’ve caught the attention of larger VCs.
At the Series A stage, the question shifts to,
“Can you walk us through your unit economics—specifically your customer acquisition cost (CAC) and customer lifetime value (LTV)—and explain how those numbers inform your path to profitability?”
You’re not selling a dream anymore; you’re selling a machine. A startup that spits out growth and can scale without combusting.
Venture capitalists are serious now; they want board seats and veto rights. They will send you a 70-page term sheet with complex clauses.
At the Series A stage, the buzzword is scale.
Expand into new markets.
If you’re in tech, double your dev team.
If you’re a manufacturer, build out production.
Move from co-working to an actual office with potted plants.
4. Series B - funding stage and beyond
"Rocket fuel."
The Series B rounds are about growth at scale. Depending on the sector, Series B could be £10 million to £50 million upwards.
Now, your startup is competing with incumbents, those with roles within a corporation or a government branch.
Think brand building, international expansion, and mergers & acquisitions (M&A).
From Series B onward, it’s not about survival — it’s about dominance. And the venture capitalists playing here want you to go big or bust. Think Index Ventures, Accel and Atomico.
Index Ventures, Accel, and Atomico are three well-known European venture capital firms. They focus on supporting high-growth startups from their early stages to growth stages.
Index Ventures
Global venture capitalist firm headquartered in London & San Francisco; focuses on Seed to growth-stage startups.
Invests across Europe and the US
Notable investments: Deliveroo, Revolut, Robinhood, Slack, Figma
Sector-agnostic but strong in fintech, SaaS, consumer tech, and marketplaces
One of Europe’s most globally connected venture capitalists
Best for ambitious startups aiming for international scale with proven traction or high-growth potential.
Accel
Global venture capitalist firm with headquarters in London (European arm) and Palo Alto (global HQ); focuses on Seed, Series A, and growth-stage.
Backed legendary companies like Facebook, Spotify, Dropbox, and Supercell
Strong presence in enterprise software, cybersecurity, consumer apps, and infrastructure
Their London team focuses heavily on European opportunities
Best for founders building globally scalable tech companies, especially in B2B SaaS or platforms.
Atomico
European venture capitalist firm based in London with a focus on Series A and beyond (some earlier investments too).
Founded by Niklas Zennström, co-founder of Skype
Big on mission-driven, scalable startups from Europe with global ambition
Invested in Klarna, Lilium, Graphcore, TrueLayer
Emphasises purpose, diversity, and long-term impact
Best for European startups with a clear mission and global ambition, especially in deep tech, fintech, and sustainability.
The Series B funding stage's end game is an IPO (initial public offering) or acquisition.
What is an Advanced Subscription Agreement (ASA)?
An Advanced Subscription Agreement (ASA) is an investment agreement used by startups and early-stage companies to raise funds from investors before a formal valuation is set. Advanced Subscription Agreements (ASAs) are the secret sauce behind many early-stage raises in the UK.
Think of them as I-Owe-Yous that convert into shares later on, typically during the next funding round.
Why use an Advanced Subscription Agreement (ASA)?
ASAs mean speed.
You can close an ASA round in weeks rather than months. No valuation needed.
ASAs mean reduced cost.
Fewer legal fees. Less drama.
ASAs mean better flexibility.
You can raise money today but issue shares tomorrow, which is useful if you're still determining your startup's worth.
Typically, ASAs come with a discount - a reduction in the share price the investor will pay when the ASA converts into equity, e.g. 20%.
Sometimes, a valuation cap is set, setting the maximum valuation at which the investor’s money will convert into shares, regardless of the actual valuation in a future funding round.
For example,
"We'll convert at no higher than £5 million valuation, no matter how high your Series A goes".
Discounts and valuation caps make early backers feel like they're getting a bargain for taking a risk on your startup.
The UK government’s SEIS/EIS schemes make ASAs even more appealing. Investors can get massive tax breaks — assuming you qualify.
SEIS & EIS explained
The UK government’s SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are programs encouraging people to invest in new startups by offering tax benefits. Investors can get back 50% of their investment for SEIS and 30% for EIS as income tax relief, along with exemptions from capital gains tax and loss relief if the business fails.
With these schemes, Advanced Subscription Agreements (ASAs) become more attractive. When structured properly, investors can claim SEIS/EIS tax relief on the shares they receive when the ASAs convert.
ASAs are not loans; they do not earn interest or have redemption rights. However, they can qualify under HMRC rules if they meet certain conditions, such as having a long stop date and not offering protections similar to debt.
For startups, ASAs provide a tax-efficient way to raise early capital without needing to set a valuation too early, while still encouraging investors to join.
Sources of funding: who’s holding the cash?
1. Angel investors
These investors can make or break your pre-seed round. They invest between £1 thousand and £250 thousand personally.
Some are ex-founders, some are wealthy professionals, some just like the gamble.
Savvy angel investors bring more than money. They bring introductions, advice, and, when needed, support.
2. Venture capitalists (VCs)
They’re not evil. But they do have LPs (limited partners) to answer to, which means they need big wins. One out of ten of their bets needs to be ten times or more. If you don’t look like that one, they’ll pass. Coldly.
Don’t chase venture capitalists unless you’re solving a venture-scale problem. If the market isn’t big enough for a £1 billion-plus outcome, you'll get strung along.
3. Accelerators
When you think of accelerators, think of Y Combinator, Techstars, or Zinc.
All are startup accelerators or venture builders, but they operate differently and serve different types of founders.
Y Combinator (YC)
Located in the USA (Silicon Valley) with a focus on high-growth tech startups.
3-month program
$500,000 for ~7% equity
Demo Day for investors
Acceptance rate < 2%
Notable alumni: Airbnb, Dropbox, Stripe, Coinbase
Best for founders with a minimum viable product and early traction
Techstars
Worldwide, Techstar focuses on industries such as finance, healthcare, energy, food, space technology, and web3.
3-month mentorship-driven program
$20,000 cash + up to $100,000 convertible note for ~6% equity
Demo Day
Emphasises mentorship and community
Notable alumni: SendGrid, ClassPass, PillPack.
Best for startups seeking expert advice and networking.
Zinc
UK based with a focus on social and environmental startups.
12-month program
No existing idea/team needed; support in development
Focus on mental health, women's empowerment, etc.
Stipend support and access to experts
Best for aspiring founders interested in social impact from diverse backgrounds.
An accelerator takes a small chunk of equity (6–10%) in exchange for mentorship, office space, and a little cash. The real value? Their network.
You can also use accelerators to boost credibility and get in front of angels and venture capitalists later.
Accelerators are like shortcuts, cutting through the noise.
4. Government grants
If you're doing anything even vaguely innovative in an industry like technology, check out grants with the following:
Innovate UK is the national agency that helps startups and growing businesses in the UK. It supports companies creating new products, services, or business models and offers funding, mentorship, and connections to help businesses turn their innovative ideas into successful ventures.
For startups in the UK, it is an important source of grants and innovation loans that don't require giving up equity, which helps founders grow their businesses.
Innovate UK supports projects in various sectors, including technology, healthcare, sustainability, and manufacturing. It focuses on projects with a strong potential for impact and commercial success.
Horizon Europe is the EU's main funding program for research and innovation, offering great chances for UK startups despite Brexit.
UK businesses can apply for grants and funding to support important R&D projects, especially in fields like deep tech, health, climate, and digital transformation. It’s a valuable opportunity for startups with innovative ideas looking to grow in European markets, providing access to funding, expert networks, and collaboration across borders.
Innovate UK and EU Horizon are non-dilutive funding, which means money a startup or business receives without giving up equity or ownership in return.
Unlike investment from venture capitalists or angel investors (which is dilutive, meaning they take a share of your company), non-dilutive funding lets founders keep full control—i.e., free money.
However, the application process is onerous, time-consuming, and painful.
For your information, some industries considered innovative include:
Legal Tech
AgriTech
Construction Tech
GovTech
Elder Tech
Blue Economy
Industrial IoT (IIoT)
Circular Economy
Supply Chain Transparency
Cultural & Creative Tech
5. Revenue-based financing
What if you don’t want to give up equity?
Companies like Uncapped or Clearco will front you cash based on your revenue and take a percentage of future earnings.
Uncapped and Clearco (formerly Clearbanc) are alternative funding platforms that provide non-dilutive capital to startups, especially those in e-commerce, SaaS, and subscription-based businesses.
Instead of taking equity, they offer revenue-based financing, which is faster and more flexible than traditional VC or bank loans.
Uncapped
Revenue-based financing based in the UK and Europe.
Best for fast-growing digital businesses with predictable revenue (e.g., e-commerce, SaaS)
Offers up to £10M in growth capital
No equity or personal guarantees
Repayments are a fixed percentage of monthly revenue (so it scales with your cash flow)
Used to fund marketing, inventory, or working capital
Quick decisions, often within 24–48 hours
Clearco
Revenue-based financing based in Canada, operating globally.
Best for e-commerce and online brands, especially DTC (Direct-to-Consumer)
Offers up to $20M per company
Funds can be used for ads, inventory, or expansion
Repayment is tied to revenue performance, so there’s no set repayment schedule
Revenue-based financing is great for D2C (direct-to-consumer) or SaaS (Software as a Service) businesses with steady cash flow.
How to avoid beginner startup funding mistakes
Don’t overvalue your startup
It’s tempting to chase a £5M pre-money valuation at pre-seed, but you’ll regret it when Series A investors laugh you out of the room.
Do due diligence on your investors
Bad money is worse than no money. References matter.
Legal stuff matters
Before taking money, you should always have a founders' agreement, vesting schedules, and IP assignment in place.
Don’t fundraise forever
Fundraising is a full-time job. Close your round, then build. Repeat.
Summary of startup funding
Startup funding isn't merely about money; it involves a careful balance of timing, storytelling, and strategic alignment. Each funding round represents a negotiation between your startup and its potential future. The smartest founders know how to communicate their vision without getting swept up in their own hype.
To succeed, focus on building something meaningful that addresses a real problem. Learn the language of investors, and understand your business's true needs, not just what social media trends dictate.
Remember, raising money isn't an achievement in itself; it's a means of buying time and creating opportunities to earn more revenue.