What Are Effective Strategies for Startup Funding?
Securing funding is often the make-or-break moment for any startup. Without the necessary capital, even the most innovative ideas can struggle to get off the ground. But what does it take to successfully navigate the complex world of startup funding? How can entrepreneurs find the right sources of capital to fuel their vision and drive their business forward?
To answer these crucial questions, we sought insights from twenty seasoned industry experts who have been in the trenches and know what it takes to secure funding. We asked them to share their most effective strategies for entrepreneurs looking to raise capital. The advice we received covers a range of tactics, from leveraging personal networks to tap into initial funding, to using home equity as a resource before taking the leap into full-time entrepreneurship. These top strategies, shared by successful founders and CEOs, will equip you with the knowledge and confidence to secure the funding your startup needs to thrive.
- Leverage Personal Networks for Funding
- Consider Revenue-Based Financing
- Choose a Service-Based Business Model
- Build Strategic Partnerships
- Utilize Government Grants and Subsidies
- Explore Accelerators and Incubators
- Spend Your Own Funds First
- Pitch Your Business Idea
- Combine Bootstrapping with Investor Partnerships
- Leverage Equity Crowdfunding
- Try Community Crowdfunding Pre-Launch
- Use Microloans for Initial Funding
- Write a Detailed Business Plan
- Build Relationships with Angel Investors
- Utilize Incubators and Accelerators
- Develop a Minimum Viable Product
- Use Crowdfunding for Capital and Validation
- Connect with Local Banks or Credit Unions
- Engage Accountants to Find Investors
- Use Home Equity Before Quitting Job
Leverage Personal Networks for Funding
One effective strategy for startup funding that I’ve leveraged successfully is leveraging personal networks combined with a clear value proposition. In founding my company, connecting with fellow property investors and finance professionals opened doors to initial capital. This approach allows you to pitch directly to those who understand the market’s nuances and are more likely to see the potential in your vision, increasing your chances of securing the needed funds.
Matt Willoughby, Founder, OneStop Financial Solutions
Consider Revenue-Based Financing
While most startups prefer venture capital and angel investment for their startup funding, another viable option is Revenue-Based Financing (RBF).
Unlike traditional equity-based funding, RBF providers invest capital rather than equity in exchange for a share of future revenue.
In a world where founders often lose significant equity to secure funding, RBF allows entrepreneurs to maintain control over their companies. This is particularly attractive for those who prioritize long-term vision and independence. Moreover, RBF is repayment-focused, not valuation-driven. Instead of demanding high valuations and potential down rounds, RBF providers are more interested in the company’s revenue-generation capacity. This aligns incentives with the entrepreneur’s core objective: growth and profitability.
Another key advantage of RBF is its more predictable funding source. Repayments are typically tied to a percentage of revenue, providing a clear financial roadmap. This can be beneficial for startups operating in industries with stable revenue streams. However, it’s essential to note that high-growth, early-stage companies with uncertain revenue projections might find RBF less suitable.
RBF can help startups optimize their cash flow and invest in growth initiatives by providing upfront capital in exchange for a revenue share.
Raviraj Hegde, SVP of Growth & Sales, Donorbox
Choose a Service-Based Business Model
If you want to replace your 9-5 income quickly, choose a business model that doesn’t require outside funding. That’s what I did: I wanted more freedom than my job allowed, so I started consulting using the skills I had gained at my 9-5. After four months, I had hit six figures. And today, I help others do the same. Ultimately, service-based businesses are ideal because you can keep your overhead low—while having a huge impact and making great money.
Luisa Zhou, Founder, LuisaZhou.com
Build Strategic Partnerships
Instead of looking solely at traditional funding avenues like venture capital or bank loans, I focused on building relationships with companies that could benefit from our digital-marketing expertise. We secured financial backing and valuable business opportunities by offering our services at a discounted rate or exchanging equity for their support.
For instance, partnering with a tech firm allowed us to integrate their software solutions into our offerings, providing mutual value. This approach helped fund our growth and expanded our market reach and customer base. Strategic partnerships provide more than just capital; they offer industry insights, shared resources, and a network that can accelerate growth. This strategy proved more sustainable and mutually beneficial than relying solely on external investors, aligning long-term interests and fostering collaborative success.
Marcus Clarke, Owner, Searchant
Utilize Government Grants and Subsidies
Leveraging government grants and subsidies can be a powerful strategy, especially for startups working in technology and innovation sectors. At our company, we took advantage of various EU digital innovation grants, which supported our early developmental stages without diluting equity. These grants are often under-utilized but can provide significant non-dilutive funding along with validation from reputable institutions, enhancing credibility and attractiveness to later-stage investors. This route requires navigating bureaucratic processes, but the payoff can be substantial in terms of funding and network connections within the innovation ecosystem.
Alari Aho, CEO and Founder, Toggl Inc
Explore Accelerators and Incubators
Securing startup funding requires creativity and strategic partnerships. While VCs often prefer experienced teams, a standout product and a rock-star team can level the playing field. Building a strong network is essential. Explore accelerators or incubators to gain funding, mentorship, and industry exposure. Additionally, don’t overlook government grants, competitions, and corporate-backed initiatives. These can provide crucial capital and validation without diluting ownership.
Echo Wang, CEO & Co-Founder, EpicBooks
Spend Your Own Funds First
First of all, I recommend you spend your own funds. This will protect you from the wrong steps and involve the founder as much as possible in the new company. Spending time on building a product is way more effective than spending it on fundraising. When you have a working model that generates revenue, you always have more options, and then you will decide if you need investments.
Andriy Bogdanov, Entrepreneur, Travel Expert, CEO and Founder, One Day Tours Portugal
Pitch Your Business Idea
The most effective strategy is to pitch your business idea to potential investors. This involves creating a compelling and detailed presentation that showcases the uniqueness of your product or service, market potential, and growth projections. Investors are always looking for startups with high-growth potential and a solid plan for success. You can capture their attention and secure funding for your startup by engagingly presenting your business.
I highly recommend you know your audience, such as through research on their investment preferences, previous investments, and success stories. This will help you tailor your pitch to their specific interests and increase your chances of securing funding. Understand their investment preferences, previous investments, and industries they are interested in. This will help you make a stronger case for why they should invest in your startup.
I firmly believe that a strong team behind your startup is essential in pitching to potential investors. Investors are not only investing in the idea but also in the people driving it forward. Therefore, it’s crucial to have a team with diverse skills, relevant experience, and a shared passion for the business.
During your pitch, be prepared to answer tough questions and address any potential concerns or objections from investors. Show that you have a thorough understanding of your market, competition, and target audience. Demonstrate how you plan to overcome challenges and achieve growth. For instance, you can highlight your customer acquisition strategy, marketing plan, and financial projections.
Michael Benoit, Founder, ContractorBond.org
Combine Bootstrapping with Investor Partnerships
Combining bootstrapping with early-stage investor partnerships is an effective approach to startup funding. In the beginning, bootstrapping gives you full control over your firm and creates a solid foundation for it. This can be achieved by personal savings, reinvesting early revenues, and minimizing costs in order to demonstrate your dedication and the sustainability of the company.
As your start-up picks up steam, seeking angel investors or venture capitalists (VCs) at an early stage can give your business capital that’s essential for scaling. To lure these investors, make a strong pitch that will showcase how large your market is alongside the uniqueness of your value proposition as well as the path towards profitability becoming clearer.
Furthermore, evidence of customer validation and some initial successes can significantly improve trustworthiness. Incorporating bootstrapping with strategic individual-investor partnerships ensures that in its inception stages, it retains management while also ensuring the availability of funds that will enable quicker expansion at the appropriate time. For me, this has been effective in growing my company and could be a powerful strategy for any other entrepreneur looking for start-up funding.
Khurram Mir, Founder, Kualitee
Leverage Equity Crowdfunding
One effective and little-more-unconventional strategy for startup funding that I have favored is leveraging equity crowdfunding through niche platforms.
Unlike traditional crowdfunding, equity crowdfunding allows investors to purchase shares in your startup, thus providing capital in exchange for equity.
Using niche platforms can attract a more targeted and engaged investor base, ensuring better alignment with your business vision and goals. Therefore, building a loyal community of investors and advocates who share your vision and values.
Sabine Schopke, Serial Entrepreneur, Bestselling Author, Podcaster, Business Growth & Midlife Guidance Coach, Sabine Schopke
Try Community Crowdfunding Pre-Launch
One effective strategy for startup funding is venturing into the exciting world of community crowdfunding with a pre-launch twist. This approach allows you to raise capital from a passionate community who believe in a company’s product or service, attain valuable consumer insights and pre-orders before launch, validate the concept and reduce risk, and create a community of engaged supporters who become brand advocates, spread the word, and increase excitement for the pre-launch.
However, in order to obtain crowdfunding, a company should be transparent regarding how the funding will be used and the early development stage of a product. Open communication builds trust and creates a sense of shared ownership among the community.
Nikki Jain, Founder and CEO, The Sprout PR
Use Microloans for Initial Funding
Microloans can be a game-changer for startups looking to secure initial funding. Organizations like Kiva and Accion specialize in providing small, short-term loans specifically designed to help startups and small businesses get off the ground. These microloans are generally more accessible than traditional bank loans, which often require extensive credit history and collateral—something many new entrepreneurs lack.
What makes microloans particularly effective is their focus on community and social impact. These organizations understand the unique challenges that startups face and often offer more favorable terms than conventional lenders. Entrepreneurs can leverage these funds to cover early expenses such as inventory, marketing, or even hiring their first employee. Microloans can provide not just the financial boost needed to scale, but also a vote of confidence that can inspire further investment and growth.
Fameez Haroon, Co-Founder, OTAA
Write a Detailed Business Plan
No matter how great your business idea is, a pitch deck with an idea alone won’t be convincing to investors, especially since there are millions of startups around looking for funding every year. To secure startup funding, I would strongly suggest writing a business plan along with financial estimates and a project plan. At the end of the day, what investors are looking for is the financial requirements to launch a project, the timeline for achieving profitability, and the expected return on investment (ROI) from their initial contribution. The better you can answer these questions, the more likely you are to get funding from investors.
CJ Looi, Co-founder & CEO, Pixcap
Build Relationships with Angel Investors
You need to focus on building strong relationships with angel investors. These individuals are often successful entrepreneurs themselves and can provide not just capital, but also valuable mentorship and industry connections. The key is to network extensively at industry events, pitch competitions, and through mutual connections to meet potential angels who align with your business vision. Once you’ve identified promising investors, it’s crucial to craft a compelling pitch that clearly articulates your unique value proposition, market opportunity, and growth potential.
What sets angel investment apart from other funding sources is the flexibility it offers. Unlike venture-capital firms, angel investors are often willing to take a chance on early-stage startups and can make decisions more quickly. They may also be more open to negotiation on terms, potentially allowing you to retain more control over your company. However, it’s important to be prepared for due diligence and to have a solid business plan and financial projections in place.
Joe Horan, Owner & CEO, Jumper Bee
Utilize Incubators and Accelerators
In our company, we explored the utilization of incubators and accelerators that go beyond providing funding. They offer guidance, resources, and connections that are incredibly valuable for a startup. We were careful in selecting the programs that best suited our industry and growth phase. Being a part of these initiatives assisted us in securing funding and also equipped us with the necessary tools and know-how to expand our operations effectively. This environment played a role in promoting progress and establishing relationships with important investors and partners in the tech and digital-signage sector.
Mark McDermott, CEO & Co-Founder, ScreenCloud
Develop a Minimum Viable Product
Investors are all about potential profit. While past successes can certainly open doors, what really excites them today is seeing a product that’s not just an idea, but something people are actually buying. Having a minimum-viable product (MVP) that’s already making money is like gold to investors. It shows that you’ve got a market, a product people want, and the ability to turn it into a business. So, instead of chasing investors right away, focus on building a solid foundation for your startup. Once you’ve proven your concept, the funding will likely follow.
Jasper Knight, Founder, Secret Saunas
Use Crowdfunding for Capital and Validation
I’ve found crowdfunding to be an incredibly effective startup-funding strategy. Through it, we secured initial capital, validated our product, and built a loyal community. Crowdfunding is more than just a funding mechanism; it’s a powerful tool for market validation and community building. I believe this approach was pivotal in attracting further investment and fueling our growth.
Erwin Kalemi, Founder & CEO, Publer
Connect with Local Banks or Credit Unions
One good strategy is to connect with local banks or credit unions. They often offer small-business loans with good terms. I talked about my business plan and how I could succeed.
Andrew Merrick, Owner & CEO, Aquasoltech
Engage Accountants to Find Investors
Having founded a number of businesses over the years, I have tried all of the funding strategies out there. The one that was most effective to me helped find interested angel investors for “Family and Friends” funding rounds. It was originally suggested to me by an existing shareholder in my business and ended up being a complete surprise—engaging with accountants to identify investors.
Initially, I didn’t think this would be particularly fruitful. I thought they would never respond to my inquiries and emails, and even if they did respond, it would likely be politely declining due to client confidentiality reasons. This was not the case at all, and as I later found out, there are good reasons for this being an effective strategy for finding start-up funding.
Firstly, due to the very nature of their role as an accountant, they always know at any one time who has the available cash to be an investor. Secondly, they manage their clients’ tax affairs, which can often directly relate to whether they have cash left over to invest in startups. For example, accountants tend to manage Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) returns and submissions, meaning that they will know who is an active investor and whether they have any funds left to be invested for that tax year.
Lastly, many accountants are on the constant lookout for value-add services they can offer their clients. If they can find new up-and-coming investment opportunities for their client base, this is a significant area of added value they can bring. What’s more, they are directly financially incentivized—for every new investment opportunity they find, various accountancy-related paperwork will be required (and charged) to the end client, earning them revenue.
Jonny Pelter, Chief Information Security Officer (CISO) and Founder, CyPro
Use Home Equity Before Quitting Job
One creative strategy for startup funding is to pull money out of the house before you quit the day job. Mortgage lending is a lot easier for someone working on a W-2 income.
Carlos Scarpero, VA and Non QM Mortgage Expert, Edge Home Finance
