Key Takeaways

  • In addition to traditional funding paths like angel investors and venture capitalists, startups can also explore newer and less conventional options such as pitch competitions, revenue-based financing, and strategic corporate investors.
  • Government programs and industry-specific grants can offer non-dilutive capital, especially for startups focused on innovation, technology, or social good.
  • Building a strong financial foundation—like having a solid business plan and understanding your credit profile—can improve your chances of securing funding.
  • Alternative options such as revenue sharing, equipment financing, and working capital loans offer more flexibility to certain business models.
  • Exploring multiple funding types and combining them strategically can help founders tailor a path that matches their business goals and risk tolerance.

It takes money to turn a great idea into a great product, but “money doesn’t grow on trees” and you may not have thousands of dollars just waiting to be spent.  So how do you turn your dream into a reality?  Here are some of the best options.  

Self-Funding / Bootstrapping

Many entrepreneurs start with some level of self-funding (also known as bootstrapping) and, in fact, future investors likely will want to see that you have some “skin in the game”.  Even if you can only put in a little money, it is worth considering the benefits. For example, you don't have to worry about keeping investors happy. You also can keep more profits to yourself.  Many founders also hold off on taking a salary, consider tapping into the 401(k) retirement account, and/or have a side job to help make ends meet while they get their business up and running.

You also can use your initial profits to bootstrap future growth instead of relying on future funding rounds.

Friends and Family Investors

First, make sure you read our guide on raising money from friends and family investors and the dangers that your startup faces. Your friends and family may be willing to help you grow, and they probably wouldn't make you jump through the many hoops. These investments generally are some type of loans or stock purchases and are something later investors will likely find to be a positive (i.e., if your family and friends don’t believe in you, why should the investor).

However, to protect yourself and your relationships, make sure you have a clear written agreement that outlines how the money will be repaid.  Also, remember that even if the arrangement is informal, you should confirm if any securities restrictions apply to the arrangement.

Crowdfunding

Crowdfunding is quickly becoming a popular way to help fund a startup.

However, before seeking crowdfunding, make sure you look at our guide on the various crowdfunding legal issues and tips on how to avoid legal mistakes.

In the traditional approach to crowdfunding, you offer a first-run product or some other incentive in exchange for a monetary contribution. Contributors receive no equity and are not entitled to be repaid.

In many cases, the process is essentially a pre-sale of your product and not an investment -- and not regulated by the federal Securities and Exchange Commission.

Equity crowdfunding is a newer option made possible under the Jumpstart Our Business Startups (JOBS) Act -- which allows you to seek small investments from a large number of investors. You use a crowdfunding platform to post a listing similar to a traditional crowdfunding campaign, but your investors become shareholders. This includes voting and dividend rights as outlined in the shareholder agreement.

If you're interested in equity crowdfunding, carefully review the requirements of the Jumpstart Our Business Startups Act because it is a regulated securities offering.

Incubators / Accelerators

Incubators and accelerators generally provide groups of startups with workspace, business advice and training, and potential funding. They are often sponsored by universities, industry organizations, or individual companies. You can learn more about what you should do to legally prepare for the accelerator program beforehand in our guide here.

Each startup gets support from the sponsor plus networking opportunities with the other startups. In exchange, the incubator or accelerator may take an equity stake especially if they provide funding.

You can find incubators and accelerators geared towards local businesses in most cities. Accelerators and Incubators with national recognition include the following:

Angel Investors

Marcus Lemonis from the TV show "The Profit."  

Before seeking out angel investors, it is highly recommended to make sure that you read the guide on angel investors and the things startups must know and prepare for beforehand.

The upside is often a closer personal relationship that includes heavy mentoring. The downside is that an angel investor will often ask for a large equity stake and possibly even a controlling interest.  

Typical investments frequently range from $25,000 to $250,000. Because angel investors operate with a smaller, less formal structure, they can have widely differing expectations of the terms of an investment. While getting a large investment offer is exciting, you need to make sure it's best for you.

Venture Capitalists

Venture capitalists are professional investors who invest in startups and growing companies. This makes them a receptive audience when you're looking for investors to pitch. However, you'll generally need to be past the earliest stages because the typical venture capital investment is $1 million or more. It may also take many months to close the deal.

It is highly recommended to read this guide on how to get venture capital and the most important things startups must do beforehand.

Make sure that your interests are aligned with a prospective venture capitalist. These firms often seek fast returns and push for rapid growth. This may go against your desire to build slowly and steadily.

Venture capitalists also seek, and regularly exercise, substantial control over a company. If you want to follow your own vision, venture capitalists may not be right for you.

It is further important to note that venture capitalists typically want to use their own investor agreement. As with any important contract, you should carefully review it to ensure it promotes your own interests and goals. Don't be afraid to negotiate changes or walk away if it doesn't.

Strategic Corporate Investors

Strategic corporate investors—typically large companies looking to foster innovation in their sector—can offer funding in exchange for equity, partnerships, or exclusive technology access. Unlike venture capitalists seeking high returns and quick exits, corporate investors may be more focused on long-term strategic alignment.These investors often bring significant advantages: access to distribution channels, supply chain resources, and validation from a major industry player. Startups in fields like biotech, fintech, and software may find this especially valuable. However, founders should be cautious of becoming overly dependent on a single strategic backer and ensure that agreements protect their autonomy and IP rights.

Loans / Credit Cards / Debt

New businesses can find it challenging to get a traditional loan from a bank unless they have business assets for collateral and/or are willing to personally guarantee the loan (e.g., by putting up the equity in their house).  However, the federal Small Business Administration (“SBA”) offers several small business loan programs that can help you get approved.  Some entrepreneurs also may utilize credit cards, microloans or venture debt to finance their companies.

Once you have steady sales, you may be able to open a credit line against your accounts receivables (what customers owe you) (also referred to as “factoring”) or use your business equipment as collateral for a loan (also known as an asset loan).

Equipment Financing and Working Capital Loans

If your startup needs to purchase machinery or other tangible assets, equipment financing may be a viable path. These loans use the purchased equipment as collateral, often with favorable terms for startups that have limited credit history.Working capital loans, on the other hand, help cover short-term expenses such as payroll or inventory. They’re useful for seasonal businesses or companies with cash flow gaps. While these options don’t provide equity-free funding, they offer flexibility and quick access to funds—just ensure you understand the repayment terms.

Small Business Grants

Grants provided by the government or private organizations can provide free funding. To receive a grant, your company may need to be engaged in some sort of societal good or specialized area, such as education, medicine, or alternative energy. You can search for grants at grants.gov.

If you do receive a grant, there may be limitations on how you can use the money, and this could create an additional accounting burden for you.

Industry-Specific and Minority Business Grants

In addition to general small business grants, there are many industry-specific and demographic-targeted grants. For instance, grants may be available specifically for women entrepreneurs, veterans, or minority-owned businesses.Federal and state agencies, as well as private foundations, offer these programs. A few popular examples include:

  • Amber Grant – for women-owned businesses.
  • Veteran Business Outreach Centers (VBOCs) – support veteran entrepreneurs.
  • SBIR/STTR Grants – for R&D in tech or science-based fields.

These grants can offer critical early-stage support without diluting ownership.

Barter

Many businesses understandably prefer to be paid in cash, but there is still room for trade in the modern economy. Look for small businesses that can fulfill one of your needs and have a problem that you can solve. You may be able to trade your services in exchange for something you need (e.g., agreeing to do IT for a company in exchange for using their office).

Even if you don't directly receive cash, the savings will allow you to further stretch your resources.

Pitch Competitions

Startup pitch competitions provide a platform to present your business idea in front of investors, industry experts, and potential partners. Winners often receive seed capital, free services, or admission to accelerators.Popular competitions include:

  • Startup Battlefield by TechCrunch
  • MIT $100K Entrepreneurship Competition
  • YC Startup School Demo Days

Even if you don’t win, the exposure and feedback can be invaluable. Be sure to research submission requirements and prepare a compelling pitch deck.

Partnership / Licensing

Sometimes, growing on your own isn't the answer. Instead, you may want to create a partnership or licensing deal with an established company who can benefit from your product.

For example, if you invented a cell phone battery that lasted twice as long as existing batteries, you could: (i) go through the expensive and risky process of trying to market your battery independently to consumers, or (ii) strike a licensing deal with an established manufacturer who would love to put your battery in their next model.

In a partnership or licensing arrangement, funding might be limited to an advance on a first order to help you scale up your manufacturing. However, the bigger win is that by reducing the costs of setting up your own supply chain and marketing strategy, you won't need as much funding.

Commitment to A Major Customer

If you can lock in a major customer, they may be willing to fund your development. In exchange, they may want to adapt your production process to their exact specs, receive exclusive distribution rights, or get dedicated support. This commitment may be tied into an early licensing deal or white-label agreement.

You'll also gain the advantage of reducing the risk of your investment by locking in a guaranteed minimum return.

Ask a Lawyer

The best funding option is ultimately a personal decision based on your unique goals and risk tolerances. Consulting with an experienced business lawyer who has seen many businesses succeed and fail can help you make an informed decision about what's right for you. Post your legal need through a job on UpCounsel to find a highly qualified lawyer in your area.

Revenue-Based Financing

Revenue-based financing (RBF) offers an alternative for startups with predictable income but reluctance to give up equity. In an RBF arrangement, investors provide capital in exchange for a percentage of future revenue until a predetermined return cap is reached—usually 1.5x to 3x the original investment.This model is particularly attractive to SaaS and subscription-based businesses with consistent cash flow. RBF does not dilute ownership, and payments fluctuate with income, easing the burden during slow months. However, startups must ensure that the terms don’t hinder their ability to reinvest in growth.

Frequently Asked Questions

1. What is the best funding option for early-stage startups? It depends on your business model and risk tolerance. Self-funding, grants, and friends/family investment are common early-stage options due to their accessibility and low cost.

2. Can I combine multiple funding sources for my startup? Yes, many founders use a mix of funding sources—such as bootstrapping, grants, and loans—to cover different phases of their business growth.

3. How do I find grants specifically for my industry or demographic? Use databases like Grants.gov, check with state/local economic development agencies, or explore targeted programs like Amber Grants or SBIR/STTR.

4. What should I include in a startup pitch for competitions or investors? Focus on your problem/solution, market size, business model, traction, and team. Use a compelling story and visuals to make your pitch memorable.

5. Is equity crowdfunding a good choice for startups? It can be, especially for consumer-facing companies with a strong community. However, be prepared to meet regulatory requirements and manage a large number of shareholders.