Beyond equity: start-up funding alternatives to explore

Looking for finance to grow your start-up but don’t want to go down the equity investment route? Daisy Ford-Downes, Head of Group Investment Programmes at Firstport, explores the alternatives.

The main thing to keep in mind when thinking about investment for your business is why you started in the first place. If you want finance to help the business grow and achieve your vision, you need funding (and funders) that are aligned to that vision. Although considered standard for startups, equity investment from angels or venture capital (VC) firms is not right for every business. There are three main reasons why that might be the case:

  • You want to prioritise mission above all, ahead of shareholder returns
  • You don’t foresee an exit (an acquisition by a larger company or floating on the public markets) in the company’s future – or at least, not in the timeframe that equity investors are looking for
  • You want to retain control over the direction and growth rate of the company

Of course, the amount of money you need and when you need it will also play a part, and you may need to compromise to meet the company’s needs (particularly if you need to raise millions right from the get-go!). But if you need funding and equity isn’t an option, where else can you go? Here are five alternative options for you to consider.


Hear me out, even if you think you’ve already exhausted this avenue, because it’s not just about spending your life savings or seeing what you can find down the back of the sofa. There are many different ways of self-funding; the key is to feed enough money into the business to reach trading sustainability. 

The most common form is probably keeping the day job and using your salary and spare time to build your business. Many founders also do consultancy or contract work. You might have heard about how web design agency 37signals funded what became Basecamp, or how the founders of AirBnB sold politically-themed cereal during the 2008 US election to provide funds for their budding idea. But what about the founders with too many ideas selling their side projects? Or those writing e-books or courses on their specialist subject? Avoid the get-rich-quick schemes and concentrate on how you, with the skills and opportunities you have right now, can create value for others. Acknowledge that while it will take your time and energy away from the business, it can keep the dream alive.


You might have considered crowdfunding but have you considered all four (4) forms of crowdfunding? They are:

  • Equity: where you sell shares in your company to the crowd. Before we rule this one out, I’d like to tell you about a different form of equity. Community Shares are a way for a community of people to invest in something important, to have a democratic say in how it’s run and to make a small financial return if it goes well. Community Shares can be raised by certain types of co-operatives or societies. While this may sound old-fashioned, platform co-ops are bringing the model into the digital age and building truly collaborative businesses for employees and users (often in industries where they are otherwise being exploited). Check out Unfound for more about platform co-ops   
  • Debt: where the crowd lends you money for your business, also known as peer-to-peer lending
  • Reward: where you offer a relevant reward (often your product or service, or related swag) to the crowd in return for funding. Often works best for companies with a compelling offer for everyday consumers – it’s much harder to create the necessary excitement around, say, a new kind of ball bearing for photocopiers
  • Donation: where you raise charitable donations from the crowd – great if you want to fund a cause directly, rather than funding a business

Crowdfunding, in all its forms, reflects the democratization that digital tools have enabled. Where most finance relies on raising a lot of money from one or two sources, crowdfunding brings together a lot of people who can give a little. This changes how decisions are made: it changes what gets built and for whom. Crowdfunding can be difficult and time-consuming but it also gives you the another opportunity to connect directly with the people who value what you’re doing the most.

Grants, competitions and equity-free accelerators

I’m grouping these together because they’re free money – except for the investment of your own time and energy. Whether it’s writing applications, reporting results or completing assignments, you’ll need to dedicate yourself to get the most out of the offer. There are some brilliant programmes out there, like Converge or UK Research and Innovation, providing the funding, support, education and exposure that have been transformational for many businesses. Don’t just apply for everything, take the time to understand which ones are right for you. 

Revenue-based funding

Loans don’t typically work for startups because they don’t have assets to put up as security or years of track record generating profit. But revenue-based funding (RBF) is debt re-imagined for the digital world. RBF providers typically work with startups that have stable or recurring revenue and provide a cash advance on that revenue – if they can be confident that you’ll use the investment to grow. It’s called revenue-based funding because your repayments will be based on how much revenue you make, making it much more flexible than a fixed-repayment bank loan. If you have a good month, you pay back more – if you have a bad month, you pay back less. If you want to learn more about RBF providers, Sifted have a helpful overview of the players here

Social investment

Social investment is what we call investment into social enterprises. A social enterprise is a business that is governed rather like a charity and directs its proceeds to a good cause. This means that it (usually) cannot have shareholders and investment is therefore largely loan-based. If the reason that you’ve ruled out equity investment is because you want to prioritise a making a positive impact in the world, you could look into social enterprise and see if it might be right for you. 

In Scotland, we have a wonderful ecosystem of support and funding for social enterprises, including various types of grant and loan. At Firstport, Scotland’s agency for startup social enterprise, we have the Catalyst Fund, which offers revenue-based investment (similar to the above) specifically to help young social enterprises grow.

Final thoughts

I know that the funding landscape for start-ups can feel restrictive, especially if VC is not right for you. So if you’re carving an alternative path, you will need to carefully consider all the standard startup advice that’s out there and think about whether it’s really relevant to you. But you are not alone. You’ll find companionship and inspiration among the global Zebras Unite movement, and UK-focused advice and opportunities from my good friend Esme’s newsletter The Considered Club. And rest assured, there are folks out there innovating with investment to ensure that there are more options for founders just like you. Hopefully in future this list will be much longer.