The Side Hustle is the latest Avocado On Toast – everyone is trying it, talking about it and sharing it on Instagram. While the cynics may sneer, having an expressive and creative outlet is essential to the human experience. Side hustles are also an excellent way to learn by doing, while undertaking a process of self-discovery and serving unmet market needs. In the era of unabashed self-experimentation (recessions are supposedly a great time to start a business…), here are some personally tried and tested ways in which you could fund your next endeavour.
The infamous 3 F’s of ‘funds for fun’: friends, family and the foolish. Bootstrapping your start-up means shoestring budgets fuelled by a mix of personal savings and best wishes from your nearest and dearest. The reality is that being a first time entrepreneur means being prepared to embrace the failures as much as successes, and it’s important that novice and informal investors know that they may not see financial returns.
That being said, many successful passion projects do begin life as bootstrapped basement bargain deals, and serve as an excellent form of learning to minimise risks and overheads, while maximising resourcefulness and insight. Bootstrapped businesses often rely on growth being generated from their first few sales, which can be a hugely rewarding process.
Unlike some of the more stereotypical business models which rely on quick hires and aggressive targets, bootstrapping can allow you to travel at a much slower and often more sustainable pace. Starting small enables companies to really refine their product-market fit, get to know their customers on an intimate level, and personalise the process in a manner that best suits their needs.
A minority percentage of the investment in my first start-up came from family and friends. No matter how much I believed in my idea (borderline delusional is a prerequisite for becoming an entrepreneur), I wouldn’t feel comfortable borrowing off friends I wasn’t quite sure that I could pay back (unless they were sitting on the euro-millions). Although mock-fundraising is a great way to see who really loves you (your parents will probably claim to know you the best, and therefore offer the least).
I was partially raised by my grandparents who left me some money when they passed away. A small amount of this went into keeping my start-up afloat after I’d re-invested returns from revenue on indirect income generating overheads, such as website improvements. Much of the rest went on funding a masters which I may not have been able to enrol on without such a passion project. So although your business may not always ‘succeed’, just getting started often leads to other doors you didn’t see yourself opening.
Higher funding sent from above – the angel investor is every entrepreneurs divine intervention. This investment usually comes from private individuals looking to loan cash for convertible debt or ownership equity. Angels are often found within a pre-existing network, as trust and relationship are key tenets of weathering the associated risks.
Angel investors usually give support to start-ups at the initial moments and when most investors are not prepared to back them. At a pre-concept stage, this may be because they truly believe in the enthusiasm of the founder, or the mission and purpose of the brand overall.
Securing angel investment is facilitated at the level of ‘proof of concept’, when you’ve created a minimum viable product and have been out getting whatever results and feedback you can find. This is much more likely to secure funding than an isolated idea or draft business plan. From experience, it’s also a much better way of gathering more relevant market share insights than simply scrolling through expensive databases.
The majority of funding for my first start-up has come from angel investments. This has relied on warm leads and often an on-going renegotiation of contract terms as circumstances change. You can also check out the various angel investment groups across the UK.
Grants are like the genies of the start-up world. They are one of the most generous forms of funding available, and are usually well suited to social-impact driven start-ups. The key issue is knowing where to go and the time needed to spend on grant applications. Grants can often be difficult to sniff out, as they’re not as heavily marketed or publicised as some of their Glossier venture capital counterparts.
Grants are unlikely to fuel you forever, but you should maximise their non-dilutive benefit in the early stages of your business before having to give away equity when you raise from traditional investors. As they often take little from you in the form of either debt or equity, they’re one of the best launch pads available for getting going.
The best places to start are local and government websites, as well as social enterprise resources, accelerators and communities. If your start-up is based in a university or a research lab, there’s a high chance that there will be developmental grant funding available, Innovate UK are a good place to start.
As a founder, fundraising is an extremely time-intensive and administrative process so optimising this is key to minimising distractions and diverting too much attention away from growing your business. If your business is eligible for (S)EIS funding, applying for advance assurance could be one of the most efficient ways to optimise.
This means any potential investors will get significant tax advantages to investing, which incentivises them by lowering the risk of their investment in your product. Not all industries are eligible (unfortunately Cannabis is still a no-go) and it can take HMRC a few weeks to approve applications, so it’s best to investigate the process as soon as possible, and before approaching any potential angel investors.
These do what they say on the tin – assisting with accelerating growth in more ways than one. The crossover between ‘incubators’ and ‘accelerators’ for start-ups has become increasingly nebulous over recent years. In essence these organisations provide businesses (or even teams before they’ve formed an idea for a business) not only with cash investment but also a dedicated amount of resources.
The scope of both the amount of funding and resources involved varies from firm to firm, so its important to source the right fit for your needs. Although not all firms offer cash, assistance can come in the form of office space, community, legal assistance, advice and experience, tools for growth, mentors, business plans, products or technology. A great example is The Family based in London.
Interviews for such accelerators aren’t just about having a detailed plan and knowing the right buzzwords and lingo. They’ll often be looking for a good culture-fit, and whether or not you’re someone they want to have around the free beer and pool table on a Friday afternoon. It’s the start-up equivalent of taking up golf purely to propagate your career in the city.
The terms of this assistance are firm dependent, some incubators will expect equity in return, or may even charge for certain programmes. Due to their extensive high-profile network, Y-Combinator, arguably the world’s most famous incubator, has been the starting ground for some of the world’s most successful startups, including Airbnb and Stripe.
I haven’t used any accelerators or incubators as of yet. Although I’ve no doubt that the experience would be amazing, at this stage I don’t personally wish to pursue the growth objectives of many firms such as Y Combinator, and I don’t particularly enjoy the politics of fitting into the culture. I’ve felt it a much better fit to try out a few co-working spaces (x+why on the light-side and wework for the dark-side), attend start-up events or reach out to people 1-1: which also doesn’t entail selling equity.
Start-up loans are government or private schemes that allow small businesses to apply to borrow up to a certain amount either at a better rate or with more support than a traditional bank. Popular sources include networks such as the Virgin Start-up hub who also run a series of workshops, training days and talks.
A Start Up Loan is often an unsecured personal loan for business purposes, meaning that you remain solely responsible for paying back the loan, even if the business doesn’t go according to plan. If a payment is missed or the loan isn’t repaid in full, then the Finance Partner will let credit reference agencies know, which could impact your personal credit rating.
Start-up loans are not without their risks and may still have relatively high interest rates. However for founders that truly believe they can generate enough earnings to succeed, such investments often also provide access to a growing network of related founders, mentorship, masterclasses, and promotional opportunities. I haven’t pursued this route, as for a first-time entrepreneur it all seems a little too risky to me.
Leveraging the wisdom of the crowd, crowd-funders are platforms that allow you to fundraise from the general public. This can be an excellent way to test out proof of concept, garner interest and gain a following before even launching your brand. Examples of popular platforms include Seedrs, Crowdcube or Kickstarter.
There are also private crowdfunding platforms, including the UK Business Angels Association, which markets concepts to an internal membership network of angels and funds. Which platform you choose depends on what you want and what you’re willing to give away. For consumer product businesses, there are more options in that platforms like Kickstarter allow you to raise money by selling early prototypes of your product to customers, whereas with Crowdcube and Seedrs you’re selling pure equity.
One thing to note is that many people often underestimate the amount of time, effort and occasionally money that goes into successful crowdfunding campaigns, with some founders describing it as akin to running a business in and of itself. It certainly isn’t as easy as listing a concept and hoping for the best (definitely made this mistake before), but if you already possess a little crowdsourcing acumen, have a strong network of cheerleaders, and can commit a pretty hefty chunk of budget to promotional investment, then it may be worth a shot.
There are more types of funding available today than ever before (anecdotally far more in the US than EU), with something to suit everyone at every stage of growth. Where there is a will there is a way, and fuelling your next side hustle may turn out to be even more varied and creative than you initially anticipated.