Getting funding for a startup can feel like trying to climb a mountain you can’t avoid. Money keeps your business moving as you’re just starting out or already in a growing phase. Almost 40% of businesses in Africa shut down just because they run out of cash along the way. It’s a tough reality because, as a startup, if you don’t have enough money, you won’t be able to invest in the technology, the equipment or, the product development that will help you scale higher. That’s why every entrepreneur really needs a solid plan to get the funding that drives their business forward. Before choosing the best startup funding options, it’s important to understand how each one aligns with your business goals and risk comfort.
Funding is more than just cash; it is also fuel for growth. According to the Small Business Administration (SBA), more than half of all small businesses struggle to secure financing in their early stages. However, the type of fund you look for should be right for your objectives, stage, and risk tolerance. This article aims to guide you to have an understanding of these options together so you can choose what works best for you.
Among all startup funding options, bootstrapping remains the most hands-on because it forces founders to rely on creativity and personal financial discipline. Bootstrapping is the practice of starting and growing a business with your own money rather than borrowing or obtaining venture capital. The goal is to keep operations running without the help of others, which requires you to be resourceful and inventive. It is not for everyone, however. Only about 40% of startups actually make a profit using this method, so you need a solid financial backing to handle the risks.
Founders who bootstrap usually keep things simple. They use free tools like Canva, Google Workspace, or anything that gets the job done without draining their wallet. Their main focus is on hitting that $10,000 a month in recurring revenue before they even think about scaling things up. Growth may be slow, but it is steady, and you don’t have to answer to anyone else. Endeavor to always put 20-30% of what you earn back into the business. Make use of an app like QuickBooks to track your money. Many founders see this bootstrapped approach as a solid way to get started, especially if you run a services business.
This is one of the earliest startup funding options available to founders who have not yet built formal traction or a complete business plan. It’s a means of raising capital at a very early point in your company’s development from those who believe in you enough. It’s possible that you don’t yet have a comprehensive business plan or any value yet, like initial stock orders. Regardless of how specific or ambiguous your business plan is at the moment, the majority of your friends and family will be willing to put their trust in you to invest in it. This can quickly net you $10,000 to $100,000, often in the form of convertible notes, as it comes with emotional attachments. It is less formal than banks,
If you want to secure funding, begin by being upfront. Share a brief, concise business summary, including the important details, such as how quickly your user base is growing. Set the terms early on with simple, clear agreements. One founder, for example, earned $50,000 simply by chatting with family over dinner. Although whatever you promise, keep it realistic, and try to outperform yourself every time.
Crowdfunding is a method of funding a business or venture that involves collecting small sums of money from a large number of people who believe in the project. While crowdfunding can be an effective way to raise capital, the business must communicate its brand through compelling storytelling, strategic marketing, and aggressive promotion. Crowdfunding has become one of the most accessible startup funding options, especially for product-based businesses looking to validate demand. Examples are from platforms like Kickstarter or Indiegogo, turning fans into funders.
In addition to financial resources, crowdfunding can help a company build an enthusiastic and loyal community around its products and services. It can also determine whether there is market demand for your business early on in the startup process. Crowdfunding allows you to maintain full ownership of your company while also getting people talking about your product. On the other hand, you face an all-or-nothing gamble; if you don’t meet your goal, you get nothing, and dealing with shipping and delivering everything can be complicated. Still, for product startups, it’s an excellent way to raise the first round of funds. Sure, the platform takes a cut (usually 5-10%), and shipping eats into your profits, but many campaigns end up raising two or three times their goal.
A small business loan can help when you want to continue your business but are short on cash. The US Small Business Administration (SBA) helps small businesses get funding by setting guidelines for loans and reducing lender risk. These SBA-backed loans make it easy for small businesses to get the funding they need, covering up to $5M for working capital or equipment. They are ideal if traditional banks say “no” due to your newness. Other options include 7(a) loans (versatile, up to 25 years) or microloans ($50K max for unsourced founders). If you have difficulty getting a traditional business loan, consider an SBA-guaranteed loan, where the U.S. Small Business Administration backs your loan, reducing the bank’s risk and increasing your chances of approval. Use LenderMatch to find suitable lenders. Compared to other startup funding options, loans work best for founders who want capital without losing equity.
Grants stand out from other startup funding options because they provide non-repayable capital that helps you grow without giving up ownership. They are non-repayable funds, money you don’t have to pay back. People or groups, like the government, give them out for all sorts of reasons. In the U.S., there are 26 government agencies handing out grants. Take America’s Seed Fund, for example. They help startups with more than $200 million every year. For startups, grants are a solid way to get funding without giving up ownership. This document digs into why grants can be better than other funding options and walks you through how to find them and apply. Some of them also offer mentorship.
The purpose of both incubators and accelerators is to provide startups with a genuine opportunity to grow and succeed. When your business is just getting started, accelerators enroll you in a rigorous program where you receive practical assistance, mentorship, and essential resources. Conversely, incubators focus more on refining your concepts and assisting you in determining what works and what doesn’t before you even launch. To be honest, it’s difficult to get into either one. They have particular tastes. In exchange for their support and some funding, they typically demand a portion of your business, roughly five to ten percent, if you make the cut. According to Bussgang in Launching Tech Ventures, that’s just the way things work.
To join the club, apply early, as deadlines are quarterly, and prioritize traction over polish. Highlight the team’s complementary skills since accelerators emphasize people. Pros include accelerated growth and increased credibility, while cons are an intense pace and equity dilution. For SaaS or consumer tech, accelerators are beneficial, with alumni raising 10 times more on average.
These are wealthy people who invest their own money and are another source of funding. For instance, an investor may fund your startup for sentimental reasons without anticipating much in return, even if it carries a high level of risk, if it supports a cause they support. According to Bussgang in Launching Tech Ventures, “They usually invest for both rational and emotional reasons.” “They want to make money, but they also want to be helpful and supportive.”
The majority of investors won’t risk more than 10% of their total holdings. Make sure you understand how much ownership and involvement angel investors want if you’re thinking about getting funding from them. Tap into your network if you want to get funded. For example, LinkedIn, industry meetups, and a friend of a friend, use any warm connection you can find, and when you get the chance to pitch, make it count. Show the problem, your solution, the size of the market (goal of at least $1 billion total addressable market), your traction to date, and exactly how much money you need. Angel investors can be great. They often offer flexible terms and practical advice, but fees are often lower, and their experience varies greatly. What really catches their attention are founders who genuinely care about what they’re building and can explain why.
Venture capital (VC) firms invest in startups to raise capital, actively helping them grow through capital, experience, mentoring, and connections. There are four main roles in venture capital firms: general partners, who make investment decisions and serve on boards; directors, who support the general partners; collaborators, who help but cannot make decisions; and resident entrepreneurs, who provide expert guidance. VC firms are professional investors, firms like Sequoia or Andreessen Horowitz, pouring $1M-$50M into Series A. Venture capitalists seek 10x returns, so scalability is key. A fintech startup I follow raised $5M after 50 rejections by being able to modify their value proposition and give a quality response to their questions. VCs are considered one of the most scalable startup funding options, but they require strong traction, a big market, and a compelling long-term vision.
