Whether your business develops financial software or online games, it will need funding in order to start and grow. The good news is that there are many funding options available for software development companies in London, whatever their stage of development. Here is a round-up of some of the most popular ways of finding funding.
First Stage – Start-up and Seed Capital
Before starting a software development business, you will need to find start-up or seed capital. Although initial investments usually involve relatively small sums of money, they are regarded as the most important type of funding because they get businesses off the ground and onto the next stage of their development.
The Start Up Loans scheme is a government-funded programme that can help fund the start-up of a software development company in London. The average amount of a start-up loan under the scheme is £5,290.
Business incubators and growth accelerators, such as Seedcamp, Springboard and Oxygen, offer seed capital to the most promising start-up companies in return for equity. They also organise training and networking events for entrepreneurs. Each incubator has its own criteria for accepting companies into its programme. The amount of seed capital received is usually between £5,000 and £50,000.
If your business has already developed a software product, it could receive a larger amount of seed capital from a seed investor, such as #1seed, Passion Capital and Ascension Ventures. Seed investors typically offer investments of between £25,000 and £200,000.
Another, new way of raising start-up funding is by crowd-funding, which is an online way of seeking one or more private investors in your business. Several crowd-funding platforms exist, including Crowdcube, Seedrs and InvestingZone.
Second Stage – Series A Finance
Series A, or ‘follow-on’ funding, is required by companies that are in the next stage of development after start-up. Investors offering Series A finance usually provide sums of up to £3 million.
One source of funding for businesses at this stage is the £22 million MMC London Fund, which contains money from both public and private sources. It offers funding to small and medium-sized enterprises (SMEs) that show strong potential for creating economic growth and jobs in London in the future. As well as software companies and other businesses in the technology sector, the MMC London Fund targets businesses in five other sectors that are of strategic importance to London.
Businesses seeking investment ranging from £100,000 to £2 million in return for an equity stake can apply to a network of angel investors, such as the London Business Angels, which is particularly focused on software and other technology businesses that have the potential to become market leaders in the short term.
Third Stage – Venture Capital
The next stage of business finance is usually venture capital funding. London-based technology companies received total venture capital investment of $1.021 billion in the first nine months of 2014, according to data supplied by CB Insights, a research company, and collated by London & Partners, the official promotional company for London. This figure surpassed the record amount of $719 million raised by London’s technology companies in the whole of 2013 and was over ten times the sum raised in 2010.
There is therefore considerable scope for software development companies in London to obtain venture capital funding from such technology-based funds as Google Ventures, Index Ventures and Balderton Capital.
If you are seeking funding for your business, London is one of the best places in the world to be based. It is home to a wide range of investors who are looking to invest in software development companies with a strong potential for growth.