Costs and pricing
Part of Startup funding costs in England: net proceeds, official fees and a Start Up Loan example
Startup funding return on investment: three questions that must stay separate
Calculate startup funding return on investment in England without confusing gross funds, company outcomes, investor returns, dilution or attribution.
Funding is an input, not a business outcome. A company can raise its target and still destroy value, or reject outside capital and grow profitably. Define whose return is being measured, the comparison case and the period before calculating a percentage.
What to take away
- Funding is an input, not a business outcome, so a raise alone does not prove value was created.
- Keep the company, investor and grant funder questions separate rather than blending them into one figure.
- Build the counterfactual case to avoid exaggerating impact by comparing only against zero activity.
- Report equity dilution and governance rights beside the cash calculation, not inside the denominator.
- Review by milestone and time, using base, slower and failure cases rather than one forecast.
Separate three questions
The company's question is whether the funded plan produced enough benefit for its total economic cost. The investor's question concerns the value and cash returned on their investment, with risk and time. A grant funder may assess project outputs and public value under its own framework.
Three separate return questions
Company
- Question
- Plan benefit vs total cost
- Timeframe
- Project period
- Key measure
- Incremental benefit
- Common error
- Valuation as cash
Investor
- Question
- Value and cash returned
- Timeframe
- Risk and time
- Key measure
- Cash returned
- Common error
- Valuation as cash
Grant funder
- Question
- Outputs and public value
- Timeframe
- Framework period
- Key measure
- Project outputs
- Common error
- Outputs as profit
Do not combine these perspectives. A higher company valuation is not realised cash for an investor, and grant outputs are not automatically company profit.
Build the comparison case
Estimate what the startup would have done without the funding: delay the milestone, reduce scope, use revenue, choose debt or stop. Document the decision date and assumptions. Comparing the funded result only with zero activity will often exaggerate impact.
Build the counterfactual
What would the startup have done without funding?
delay milestone or reduce scope
use revenue, choose debt or stop
HM Treasury's Magenta Book quality guidance explains why observed change is not necessarily caused by an intervention. It was written for policy evaluation, but the attribution warning applies to a funding review.
The British Business Bank's Small Business Equity Tracker is a public source for UK equity investment trends.
Calculate company ROI
One internal measure is:
Company ROI formula
- attributable incremental benefit - total funding costnumerator
- total funding costdenominator
- Equity dilution and governance rightsreport beside calculation
(attributable incremental benefit - total funding cost) / total funding cost
Define every term. Incremental benefit might be additional gross profit, avoided cost or a risk-adjusted value of a completed milestone. Total cost can include interest, fees, legal and tax work, platform charges, grant contribution, management time and other cash costs.
Equity dilution and governance rights do not fit cleanly into a cash denominator. Report them beside the calculation and run ownership outcomes under later-round scenarios.
Measure investor return separately
Record cash invested, follow-on investment, distributions, sale proceeds, remaining value and dates. An unrealised valuation depends on a method and should not be described as a cash return. State failure and dilution assumptions.
Investor return records
- Cash invested
- Follow-on investment
- Distributions
- Sale proceeds
- Remaining value
- Dates
- Failure and dilution assumptions
Tax relief can depend on investor and company conditions. HMRC's advance-assurance guidance says assurance is not general endorsement or an indication of performance and does not decide whether an investor meets scheme conditions.
For UK investors, SEIS can give 50% income tax relief on up to £100,000 invested per tax year. EIS can give 30% on up to £1 million, or £2 million if at least £1 million goes to knowledge-intensive companies.
Both schemes require qualifying shares held for at least three years, and the investor must not be connected with the company. Relief can be withdrawn if conditions fail. HMRC's published venture capital schemes statistics record amounts raised and company numbers under each scheme.
Illustrative example: a startup spends £100,000 on a funded plan. The plan adds £150,000 of gross profit, so company ROI is 50% before dilution. An investor puts in £20,000 for a 10% stake.
The company is later sold for £300,000, so the investor receives £30,000, a cash return of £10,000, or 50% before tax relief. The two figures answer different questions and use different cash flows.
Review by milestone and time
At completion, compare budget, actual spend, timing and evidence. Then review whether the milestone changed customer, technical or operating results. Use base, slower and failure cases rather than one forecast.
Keep gross funds raised separate from net proceeds and money actually deployed. A delayed close may reduce the work possible even when the headline amount stays the same.
Report limitations
Publish the population, period, counterfactual, cost categories and unresolved effects. A contract completion is an output; the business result arrives later.
Use a review table
The table below uses illustrative figures; replace them with your own evidence.
| Measure | Unfunded forecast | Funded forecast | Actual | Evidence date | Attribution note |
|---|---|---|---|---|---|
| Net cash invested | £0 | £100,000 | £100,000 | 2025-03-31 | Funded plan only |
| Milestone cost | £0 | £100,000 | £100,000 | 2025-03-31 | Same cost base |
| Completion date | Not reached | 2025-06-30 | 2025-07-15 | 2025-07-15 | Two weeks late |
| Incremental gross profit | £0 | £150,000 | £140,000 | 2025-12-31 | Customer contract signed |
| Avoided cost | £0 | £10,000 | £8,000 | 2025-12-31 | Reduced support cost |
| Ownership after funding | 100% founder | 90% founder, 10% investor | 90% founder, 10% investor | 2025-03-31 | No later round yet |
Keep nominal money and percentages in separate columns. State whether benefits are realised, contracted or forecast. If the milestone failed, retain the technical or customer evidence that was still produced rather than forcing the result to zero or success.
Review again after enough time has passed for the intended business effect. Update prior assumptions visibly and explain changes. The board should use the exercise to improve its next capital decision, not to justify the last one.
Before you act
- Define whose return, the comparison case and the period first.
- Document the decision date and the assumptions behind the counterfactual.
- Separate gross funds raised from net proceeds and money deployed.
- Record cash invested, follow-on, distributions, sale proceeds and dates.
- State whether benefits are realised, contracted or forecast.
- Publish limitations, cost categories and the attribution method used.
Common questions
What should the comparison case estimate?
It should estimate what the startup would have done without the funding: delay the milestone, reduce scope, use revenue, choose debt or stop. Document the decision date and assumptions. Comparing the funded result only with zero activity will often exaggerate impact.
What should a review table keep separate?
Keep nominal money and percentages in separate columns. State whether benefits are realised, contracted or forecast. If the milestone failed, retain the technical or customer evidence still produced rather than forcing the result to zero or success.
