How To Fund Your Side Hustle

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 needs. In the era of unabashed experimentation, here are some of the ways in which you could fund your next endeavour.

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Bootstrapping

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The infamous 3 F’s of ‘funds for fun’: friends, family and fools. 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 success, and it’s important that novice and informal investors know that they may not expect to see financial returns.

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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.

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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.

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Angel Investment

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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.

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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.

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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.

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To understand the potential of your wider network better, try upgrading your Linkedin account to Sales Navigator. Search your 1st and 2nd degree contacts according to keywords and sector experience. A warm introduction to a potential investor is much more likely to have a positive result – so be strategic and targeted in your approach, securing warm introductions wherever possible; and check out the various angel investment groups across the UK.

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Grants

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Grants 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 more flashy venture capital backed counterparts.

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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.

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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.  

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SEIS

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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.

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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 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.

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Accelerators

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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.

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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.

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The terms of this assistance are highly context 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.

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Start-up Loans

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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.

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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.

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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.

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Crowdfunding

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Leveraging the wisdom of the crowd, crowdfunders 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.

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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.

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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, but if you have a network of cheerleaders, or can commit some budget to private investment, then its often worth a shot.

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There are more types of funding available today than ever before, 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 than you expect.

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