11 Ways To Raise Funds For Your Startup (And a Free Step-By-Step Guide)

I’ve been part of the startup ecosystem for over 15 years and I’ve personally raised money up and down the ‘fundraising stack’.

I know what it’s like when you’re just starting out - you need guidance on what type of funding is available (and how to go out there and get it!).

 

That’s what this blog post is all about. Here’s what we’ll cover:

• The 11 different ways you can raise money for your business
1. Bootstrapping
2. Friends & Family
3. Business Incubators
4. Accelerators
5. Traditional Crowdfunding
6. Equity Crowdfunding
7. Angel Investors
8. Venture Capital
9. Grants
10. Bank Loans and Lines of Credit
11. Private Equity
• The essential steps you need to take to secure funding for your business

 

 

When I was building my first business, I didn’t know all of the fundraising options available to me. I naively thought that because I was the “founder of a startup” that I was practically required to raise money from angel investors and venture capital!

Little did I realize that there are many different ways to raise money and that different business structures (and different founder personalities) will suit various methods.

Here are all the different fundraising avenues that are available to you and your business:

 

1) Bootstrapping

What is bootstrapping?

Bootstrapping means you are only your own funds to support the business. You are not taking any outside investments and you maintain total control.

What type of founder should consider bootstrapping?

• Founders who are not interested in “growth at all costs” and scaling their business to hundreds, or even thousands of employees.
• Founders who are excited by running a small team and building a business that breaks even / makes a profit (even if it means staying small).
• Founders who want to maintain total control of all decisions, without answering to outside parties
• Founders who want to maintain control over all of their profits, without giving anything away.
• Founders who want to eventually raise from other sources, but who know that the best way to do so is to prove product/market fit before they give away equity in their company.
• Founders who are building a business on the side and who have not quit their day job.

This is one of my favorite options. It’s not glamorous and it’s a lot of hard work, but it aligns incentives around the core of building a business: making money.

Bootstrapping means you learn to make some tough decisions about what to prioritize and where to spend your time in order to start making money, even if that means working on your business at night and on weekends for the first few years.

The other advantage that bootstrapped companies have is that if you hit profitability, then you are much more likely to get funded if and when you want to scale your efforts.

I know of several businesses who have reached the $10M in revenue a year through bootstrapping and now the founder or founders are taking home $1M+ pay checks a year, without answering to anyone!

 

2) Friends and Family Rounds

What is a friends and family round?

A friends and family round is exactly what it sounds like - you are raising money from people you know directly, usually on a SAFE (Simple Agreement for Future Equity) or a convertible note.

What type of founder should consider a friends and family round?

• Founders who have an existing network of wealthy individuals who can afford to lose the money.
• Founders who have not yet gotten their business off the ground, but who need just a little bit of money to prove that their idea works before raising a larger amount from angels or VCs

This is my least favorite method of fundraising. I know that all founders think their idea is gold, but the truth is that 4 out of every 5 startups fail (and not for lack of effort).

I’ve raised money from friends and family before and let me tell you: telling them that the business didn’t work out was one of the hardest things I’ve had to do.

Friends and family are not professional investors. They are investing with their heart, because they believe in you. That’s wonderful if everything works out, but the expectations are too great for me to raise in this way again.

 

3) Business Incubators

What is a Business Incubator?

Business incubators are designed to help companies grow by providing mentorship amd resources. They are typically designed for startups who are still refining their business model and navigating the challenges of getting from the idea stage through to the growth stage. Incubators are often associated with local government and innovation initiatives. While they may not provide direct funding, they often provide office space and other perks that can reduce your costs and increase your runway.

What type of founder should consider a startup incubators

• Founders in the very beginning stages of creating their business
• Founders who need mentorship and help navigating how to turn their business into a scalable system
• Founders who have early signs of traction and are looking to accelerate their progress by accessing a network of individuals, free office space, and other perks.

 

One of the things I love about incubators is that you don’t necessarily have to be on the “I’m building a billion dollar business” track to benefit. They are truly designed to help founders understand the mechanics of building a business. Incubators are often funded by a mayor’s office or local non profit organization. The idea here is that if the city can build more businesses, it will create more jobs and will stimulate economic growth. A win-win.

 

4) Startup Accelerators

What are Startup accelerators?

Startup accelerators are programs for people in the “my goal is to build a billion dollar business” camp. They are designed to help startups grow by providing mentorship, resources, and sometimes funding. Nearly all accelerators end in a ‘demo day’ where you can pitch local investors, angels and VCs to raise money. The most famous accelerator program is Y Combinator.

What type of founder should consider an accelerator?

• Founders who have early signs that their business is working with an idea for how they can scale it into a billion dollar company
• Founders who intend to raise from venture capital in order to grow their company in the future.
• Founders who have a strong, compelling narrative (you’ll need a great pitch deck!)
• Founders who are looking for industry-specific investors or mentorship - many accelerators specialize in a certain type of business, for example, EdTech, MedTech, FinTech etc.
• Founders who do not mind giving away equity (a stake in their company) in return for either an investment from the accelerator or access to their network.
• Founders who want to perfect the art of pitching and gain the attention of angels or VCs.

 

While accelerators are primarily designed for people who plan to raise future capital through VCs, they are also a great way to learn from others and hone your business strategy. For this reason, if you’re on the fence about which direction to take your company (bootstrap, traditional fundraising etc) I’d still suggest you explore joining a startup accelerator.

Startup Accelerator Watch Outs:

Applying for a startup accelerator is like applying for college/university. You want to go to the best school you possibly can. Accelerators like Y Combinator and 500 Startups have a great reputation for putting through a rigorous program that will help you become a better entrepreneur. They also have the connections to get you in front of a large network of professional investors who can fund your company. But, it is notoriously difficult to get accepted into these programs. They also take a pretty large chunk of your company in return for not that much cash. 

 

The general rule I use to choose a startup accelerator:

• If a startup accelerator has a large network of investors, is well established and has produced many successful companies, then I will consider giving up equity to be part of their orbit.
• If the accelerator is a new program, they can’t introduce you to founders who have been through the program, or they require you to pay them cash to participate, then I stear clear.

There are a lot of unscrupulous companies out there who call themselves accelerators but don’t really care about providing a good service. Make sure you talk to founders in previous cohorts to find out if it’s the right fit for you.

 

5) Traditional Crowdfunding

What is Traditional Crowdfunding?

Traditional crowdfunding is a method of raising money from ‘the crowd’. It was popularized by websites like Indiegogo and Kickstarter. Unlike equity crowdfunding, you do not give any investor a stake in your business. Instead, you might offer them a perk in return for investing or donating money to your cause.

What type of founder should consider an incubator or accelerator?

• Founders who have a physical product or game - digital products and apps don’t tend to do well on these platforms
• Founders who have a large, passionate community to tap into. The international board game community is really strong and will support creative ideas. This is why raising money for board games does well on these platforms
• Founders who are ready to hustle every day - getting the word out about their campaign and getting in front of individuals who care about what they are doing

 

I’m pretty into this method of fundraising and have supported several campaigns myself. But this method does live and die by how many people you can get in front of and how shareable your offering is. Have something truly unique that people want to own? This may be the avenue for you. Building an app, eCommerce, SaaS, B2B or service business? Read on for a new type of crowdfunding that suits these businesses better.

 

6) Equity Crowdfunding

What is Equity Crowdfunding?

Equity crowdfunding is the new fundraising method on the block. Just like a traditional crowdfunding raise (on platforms like Kickstarter etc) you are raising money from individuals around the world. But unlike traditional crowdfunding, you are giving everyone a micro-stake in your company. It is this method that I have personally used to raise over $2.1M.

 

What type of founder should consider equity crowdfunding?

• Founders who are being knocked back by traditional investors because they don’t have enough traction.
• Founders who are unlikely to raise from VCs in the future or who have a business entity structure that is not suitable for VC funding.
• Founders with a strong network or community of supporters - the more people who know about you and you can email about your offer, the more you’ll raise
• Founders who want to maintain control of their company

 

I’ve raised over $2.1M in equity crowdfunding. It was the right fit for our business because we were told we were too early for venture capital, but we did have an awesome team and amazing tech.

But don’t be under any illusions - equity crowdfunding is not an “easier way to raise”. It takes grit and hustle! Your main goal when you raise money for your startup using this method is to get your campaign page in front of as many people as possible.  

If you are thinking about raising funds for your startup through equity crowdfunding, check out my post on the techniques that I used to raise millions.

7) Angel Investors

What is an Angel Investor?

An angel investor is a person who invests in your startup as an individual. They typically invest between $25k - $100k and will appear as one line on your cap table. Angel investors must be able to prove a minimum net worth to be eligible to invest. For more details on who qualifies read my article on Angel Investors vs. Venture Capitalists - the Complete Guide.

 

What type of founder should consider angel investors?

• Founders who have a pre-existing network of wealthy individuals
• Early stage founders who don’t yet have enough traction or growth to raise from VCs

 

There are two approaches if you want to raise money for your startup from angel investors:

a)  Reach out to “non-professional angels”

Non professional angels are people who have a high net worth (so are eligible to invest) but who don’t regularly invest in startups. They can be anyone from the CEO of your former company, to your Uncle’s rich friend. These types of investors usually like to see a business plan as well as a pitch deck.

b) Reach out to “professional angels”

Professional angel investors regularly invest in early stage companies. Many have set aside a certain amount of money to invest and do a set number of deals each year. Because they see a lot of deals, they tend to have a thesis for what they want to invest in and will ask you questions that are similar to what a VC will ask you. The difference between a professional angel investor and a VC, however, is that they are more likely to take a risks on an early stage company. 

 

Where to find professional angel investors?

Here are a few platforms you can use to find angel investors

• Angellist
• Crunchbase
• LinkedIn (see how I raised $30k in 5 days using LinkedIn)
• Angel Investment Network
• PitchBook

8) Venture Capital

What is venture capital?

Venture capital is a type of financing that provided to startup companies with high growth potential in exchange for an equity stake in the company. Typically, venture capital firms invest in companies that have already developed a working prototype or product and have some traction in the market, but still need significant capital to scale the business and bring the product or service to market.

If you’re interested in VC funding, check out my article:  Angel Investors vs. Venture Capitalists - the Complete Guide.

 

What type of founder should consider venture capital?

• Founders who have found product/market fit
• Founders who have already developed a working prototype and have some form or market traction
• Founders who can demonstrate how their funding will be used to grow the company with a reasonable certainty

The ideal company that VCs invest in is a company that can show they have figured out how to grow and all they need is an investment to pour fuel on the fire. If you are still figuring out your business model, your customer channels, or how to reliably sell your product, then venture capital likely isn’t for you.

When you are raising money for your startup, there are some other things to remember about venture capital as well:

• VC firms are looking for companies who are interested in becoming enterprises that are valued at over 1 billion dollars.
• They typically fund founders who they think have the grit, tenacity (and perhaps the ego!) to go the distance and grow, whatever it takes.
• VC firms are not investing their own money, they also have to raise their own round of funding - typically from wealthy individuals and organizations who trust the venture capitalist to make smart investments and choose startups who are likely to grow.

 

9) Grants

What is a grant?

A grant is a sum of money provided by a government agency, private foundation, or other organization to an individual or business for a specific purpose. Unlike loans, grants do not have to be repaid, making them an attractive option for individuals and businesses in need of funding.

What type of founder should consider applying for grants?

• Entrepreneurs with innovative business ideas that have the potential to solve big, global problems. Many grants are awarded to businesses that are working on cutting-edge technology.
• Founders with a social impact: Venture capitalists often shy away from funding social impact businesses. If your business is impact focused, a grant can be a great way to accelerate your growth.
• Small businesses: many grants are specifically targeted at building small businesses in order to stimulate job growth or the economy.
• Minority-owned businesses: in recent years there have been a rise in grants that are specifically targeted towards minority-owned businesses. If you fall into a minority category, grants can be a great source of seed funding.

 

Many government organizations and nonprofits offer grants to startups to encourage entrepreneurship and innovation. These grants can be used for a variety of purposes, such as research and development, marketing, and hiring employees. To qualify for a government grant, a startup typically needs to meet certain criteria and submit a proposal outlining how the funds will be used.

 

10) Business Loans and Lines of Credit

What is a line of credit?

A line of credit is a type of bank loan that allows you to access a certain amount of money, up to a predetermined limit, whenever they need it. You can withdraw funds from the line of credit as needed, and only pay interest on the amount they have actually borrowed.

 

What type of founder should consider a bank business loan or line of credit?

Banks are risk averse when it comes to lending a founder money for their business. They typically will not lend you anything if you are an early-stage founder. To de-risk the deal they are looking for an established business with a proven track record of operating.

 

Consider a business bank loan or line of credit if:

• You are a business owner who has an established business with proven revenue and a solid business plan.
• You are a founder who has collateral that they can put up to secure the loan (the bank wants something it can seize if you stop your repayments)
• You are an established business who is in the process of expanding and need access to additional funds in order to take advantage of this opportunity.

 

Line of credit watch-outs:

A line of credit can be secured or unsecured. Secured lines of credit require the borrower to put up collateral, such as property or equipment, to secure the loan. Unsecured lines of credit, on the other hand, do not require collateral, but may have higher interest rates.

11) Private Equity Firms

What is a private equity firm?

A private equity, or PE firm is an investment firm that specializes in acquiring and investing in private companies, typically with the goal of increasing their value and eventually selling them for a profit. Private equity firms raise capital from a variety of sources, including institutional investors, pension funds, endowments, and wealthy individuals.

 

What type of founder should consider an investment from a private equity firm?

• Business owners that have a strong market position, a scalable business model, and the potential for significant growth. 
• Founders who are generating $10M+ in annual recurring revenue
• Founders who have established a successful business but are ready to step down and let someone take over the next growth phase.
• Entrepreneurs who need capital for growth either through equity investments or debt financing. In exchange for this funding, private equity firms typically take an ownership stake in the company and often have a seat on the company's board of directors.

If you are reading this article then it is likely you are an early-stage entrepreneur. If this is the case, private equity funding will only be an option for you once you have grown your business and are looking to take the next step - either by continuing to run the business or yourself, or by handing the reins to someone else.

 

How to Raise Money For Your Company

I hope that this post has demonstrated that there are many different ways to raise money for your business. Also, just because you are a “startup founder” does not mean you need to automatically raise money from angel investors or VCs. 

However, if you are thinking about raising from angels or VCs, I strongly recommend you download my free Fundraising Launch Checklist so you don’t miss any crucial steps. Swipe it free here.