7 Sources to Fund Your Startup Without VCs

Founders and entrepreneurs often associate venture capital firms (VCs) as the only option for startup funding. The truth is that pitching to VCs takes a considerable amount of time and effort. In the early days, you must bootstrap and find alternative sources of revenue for your startup.

1 - Traditional Bank Loans

Many companies have used bank loans and credit cards to get started. It's crucial that you recognize the risks and don't take on more debt than your cash flow can handle. If you don't expect to see any revenue right away, avoid taking this route as you will battle to service the repayments.

Your startup might take longer to build on loans and credit cards, but the upside is that you'll remain independent and own 100% of your equity. When you eventually decide to approach VCs for capital, you'll be in a much stronger position to negotiate—assuming you're debt-free, of course!

Read more on how to minimize the cost of scaling your startup.

2- Bootstrapping

Many companies have used bootstrapping to fund their business, including Meta, Dell and Apple, to name a few.

Bootstrapping uses cash flow and frugality to fund your startup's growth and operations. Scaling through bootstrapping is slow and incremental but can offer more stability, especially if you have a complex business model with lots of moving parts.

With bootstrapping, you also look for the cheapest and least risk for purchasing and hiring, for example, buying used instead of new or hiring freelancers instead of full-time staff.

One way to Bootstrap is to create attractive offers to generate revenue. A service like AppSumo allows companies to promote their products with a limited deal. By leveraging AppSumo's massive database, you can onboard new customers and generate quick cash flow.

Here are some other cash-generating ideas for bootstrapping your startup:

• Merchandise: Selling t-shirts, mugs, caps, etc. Platforms like Printful and Printify offer print-on-demand, which means you don't have to buy inventory or ship products.
• Upsells or add-ons: Designing features that customers can purchase as add-ons is a great way to generate extra income. For example, with a B2B product, you could sell a concierge or dedicated account manager service at a premium.
• Ads: Many apps and websites use advertising to generate extra revenue, even from your free users. While ads can be annoying, it's an excellent incentive for free users to upgrade—"upgrade to a paid plan to remove ads." The downside to ads is that they impact performance and your product's aesthetic, which could deter customers.

3- Side Hustles

Earning money through side hustles and freelancing is another way many founders fund their startups. Platforms like Upwork, Toptal, Freelancer, Fiverr, and others enable freelancers to find decent-paying gigs.

You can commit to freelancing in the morning and work on your startup in the afternoon/evening. Side hustles can lead to burnout and distractions, so be careful about how much work you take on.

Like loans, financing your startup yourself will take longer, but it can be very rewarding.

4- Angel Investors

Angel investors are excellent sources of funding, but like VCs, they'll want equity in return. Angel investors aren't some mythical entity waiting in the dark to hand out money—they could even be your parents looking for a retirement investment. You can find angel investors through friends, family, dedicated online platforms, and social media communities.

Make sure you have a comprehensive pitch deck if you plan to approach angel investors. They'll want to see that you have a viable product and a plan to spend the money wisely.

5- Crowdfunding

Crowdfunding has become a popular route for many great products and startups. Numerous platforms offer crowdfunding for startups, but it's important to recognize how they differ.

There are two primary types of crowdfunding:

• Reward: Reward-based crowdfunding platforms like Kickstarter allow people to fund a project in return for freebies, merchandise, or sometimes a simple thank you. They receive "rewards" instead of equity.
• Equity: Equity crowdfunding platforms like Seedrs allow people to fund projects in return for an equity stake.

Crowdfunding can be a fantastic way to raise capital, but it comes with a lot of admin and responsibility—especially with equity-based platforms. Make sure you research all options before choosing which crowdfunding platform is best for your startup.

6- Grants

Many governments, including the United States, United Kingdom, and European Union, offer small businesses and startup grants. Most of these programs have strict requirements and only provide funding for specific sectors that could potentially serve the community, like energy, medical, transport, housing, etc.

Government grants come with lengthy procedures and scrutiny, so be prepared for a lot of paperwork and correspondence—more so than a VC or angel investor!

7- Initial Coin Offering (ICOs)

Initial coin offerings (ICOs) have become a popular method for raising capital in the last few years, particularly for crypto-based projects. ICOs are similar to IPOs (Initial Public Offering) but issue a coin instead of shares.

Anyone can create an ICO, including non-crypto startups, but you will need to create or leverage an existing coin for people to invest. ICOs are still new, and there is no regulation, so do your homework before jumping into this capital-raising strategy.

Startup Funding FAQs

What Is the Difference Between Venture Capital and Private Equity?

Private equity firms typically acquire a majority stake in established private companies, usually going through financial uncertainty. They might also buy public companies to delist them and make them private. A private equity firm will usually take over a company's management, restructuring it to make it profitable and extend its life cycle.

Venture capital firms invest in new projects and startups that show promising growth potential. Unlike private equity firms, VCs rarely take over the company's management and usually hold a minority stake. VCs also offer support like consulting/mentorship, office space, equipment, staff, and other resources to help grow the business. VCs usually invest in startups with the expectation of generating a return, either through the company's acquisition or IPO.

How Does a VC Differ From an Angel Investor?

A venture capital firm has a pool or fund to invest in multiple startups and small businesses. These firms exist solely to invest in and nurture startups to acquisition or IPO. VCs must take many risks to achieve success, hoping that one or more startups deliver a return.

According to Startups.com, "VCs know that for every 20 investments they make, only one will likely be a huge win. A win for a VC is either one of two outcomes – the company they invested in goes public or is sold for a large amount."

Angel investors are wealthy individuals who might not be actively looking for investments but are open to opportunities. Unlike VCs, angel investors typically don't offer support beyond financial investment. They tend to have other businesses and investments that occupy their time.

Because angel investors use their own money, investments tend to be significantly smaller than venture capital funding.

Read more about venture capitalists vs. angel investors.

What is Alternative Financing?

Alternative financing refers to funding sources outside the traditional finance system, including banks, VCs, government grants, and equity firms. Alternative financing encompasses many of the funding models we highlight in this article, including bootstrapping, loans(excluding banks and financial institutions), crowdfunding, angel investing, and ICOs, to name a few.