Raising capital is one of the most critical and challenging steps in a startup’s journey. Understanding the different sources of capital is important for the business growth. Each stage of the startup journey brings unique funding needs, and the type of capital raised can significantly influence the company trajectory, ownership structure, and strategic direction. Knowing the available funding options empowers founders to avoid unnecessary dilution, and align fundraising strategy with long-term goals.
At the very early beginning, founders usually do bootstrap to start a new business. Bootstrap is when you use personal savings or revenue generated by the business. Founders have full ownership and control, there is no investor pressure on results. It is usually how startups begin. It requires discipline and lean operations and limited runway and growth potential.
After bootstrapping, capital from friends and family is often the first external capital raised. Those funds are from people who believe in you more than in the business model. It is also often limited.
Then come angel investors. Angels are individual investors who back early-stage startups with their own capital, often offering both funding and mentorship. They provide smart money, a combination of financial resources, connections and advice. At this stage, valuations are still very low and investment is usually done in the form of a debt that is later converted in shares of the Company.
Accelerators and Incubators have programs that provide funding, mentorship, and resources in exchange for equity. Joining those programs send a good signal to investors and gives startups support and access to investor networks, but they come with a dilution of 5 to 10% of your ownership, on average.
VC (Venture Capital) firms provide larger checks than angels, usually for high-growth startups with big market potential. For very early stage, this might be pre-seed or seed rounds. Getting invested by a VC will help the startup scale up, give its business model some validation, but there will be more pressure for high growth. The funding raising process is usually longer than in angel rounds.
Another option is to go to crowdfunding platforms like Kickstarter, Indiegogo (rewards-based), Seedrs, Republic (equity-based) that allow startups to raise funds from a large number of small investors or supporters. It provides market validation and is good for B2C or product startups.
Non-dilutive funding from government programs, innovation grants, or startup pitch competitions can also help to reach the total amount of money needed. In this case there is no equity or repayment of the capital raised, but processes are competitive, and application process can be slow.
The best fundraising path depends on the startup stage, industry, traction, and goals. Many founders combine several sources, starting with bootstrapping or friends and family, then moving on to angels or accelerators, and eventually raising VC when the time is right.
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