7 Sources of Funding for Startups (And How to Improve Your Odds of Getting Funded)

For Airbnb to disrupt the hotel industry and Canva to do the same with digital design, they both needed one thing: funding.

Fundraising is one of the biggest challenges startups face, and finding the right source of capital can shape the success of your business. This guide breaks down the key sources of funding for startups and explains when to consider each one. From bootstrapping to pitching venture capitalists, you’ll find actionable advice to navigate your funding journey with confidence.

1. Bootstrapping

Bootstrapping is the art of building your business using personal savings or early revenue instead of outside funding. It’s one of the most common ways startups get off the ground, especially for first-time founders who want to keep things lean and in their control.

This approach works best for ventures with low startup costs or those generating revenue early on. It’s also a great fit for founders who value independence, as they retain 100% of the ownership.

How to succeed with bootstrapping

Start small and focus on validating your idea before scaling. A slow, steady approach lets you build strong relationships with early customers while reinvesting revenue back into the business for growth.

Advantages of bootstrapping

• You’re in charge: With no investors, you maintain full ownership and control over every decision.
• Lean and efficient: Bootstrapping forces you to prioritize spending, keeping your business financially disciplined from the start.
• No debt or dilution: Avoiding loans or equity deals means you don’t owe anyone or share your company’s future upside.

Challenges of bootstrapping

• Limited resources: Without external funding, scaling can be slower, and big expenses like hiring or marketing might feel out of reach.
• High personal risk: Using your own savings or reinvesting all profits can put pressure on your finances.
• Growth constraints: While great for early stages, bootstrapping can make it tough to compete with better-funded rivals when scaling.

Bootstrapping success story: Mailchimp

Mailchimp started as a side project, funded entirely by its founders. By bootstrapping, they retained full control and grew the company into a global leader in email marketing. This lean approach paid off big time when they sold the company for $12 billion to Intuit in 2021.

2. Angel investors

Angel investors are individuals who use their own money to invest in early-stage startups in exchange for equity. These investors don’t just offer money, though — they often offer a helping hand with developing your product, growing your team, or securing your first customers.

How to succeed with angel investors

To win over an angel investor, craft a pitch that’s clear and compelling. Highlight your market opportunity, show how their investment will drive growth, and be prepared to share key financials and milestones.

Advantages of angel investors

• They invest when others won’t: Angel investors step in early, taking risks banks and VCs avoid, helping you go from “big idea” to actual business.
• You get more than money: Many angels bring industry experience, valuable connections, and hard-earned good advice to help you avoid mistakes.
• Terms that fit you: Angels are flexible with deals, whether it’s equity, convertible notes, or other creative setups.

Challenges of angel investors

• Equity adds up: Every angel deal means giving up ownership. Do this a few times, and your stake might shrink more than you’d like.
• Not exactly unlimited funds: Angel checks usually range from $10,000 to $500,000. It won’t typically cover massive growth needs.
• Finding “the one” is work: Not every angel is a fit. You’ll need time (and patience) to find one who believes in you and your vision.

Angel investor success story: Uber

Uber’s early growth was fueled by angel investors like Garrett Camp and Chris Sacca, who saw the potential of a ridesharing platform.

Their financial contributions, coupled with strategic advice and industry connections, helped Uber scale quickly and take its place as a major player in the transportation sector.

3. Venture capital

Venture capital (VC) is a type of funding provided by professional investors and firms to startups with high growth potential. In exchange for their investment, VCs take an equity stake in your company. If you’re looking to scale quickly and dominate your market, VC funding can provide the resources to get you there.

This funding source works for startups with a proven business model, clear growth metrics, and the potential to deliver significant returns. Like angel investors, VCs bring more than just cash; they can help with strategic advice, connections, and credibility that’ll help you secure your place in the market.

How to succeed with venture capital

VCs want to see how their investment will multiply, so focus on how your business model is positioned to make a dent in the current market. This means you’ll need clear growth metrics, unit economics, and future milestones already in place.

Advantages of venture capital

• Big checks for big growth: VCs invest significant sums, often millions, giving you the fuel to scale quickly and take market share.
• Strategic support: Beyond money, VCs offer guidance, mentorship, and connections to partners or customers that can help your business thrive.
• Increased credibility: Securing VC funding signals to the market, and other investors, that your startup has serious potential.

Challenges of venture capital

• Equity dilution: VC deals often mean giving up a sizable share of your company, reducing your control over time.
• Pressure for rapid growth: VCs expect quick results, which can be capital-intensive.
• High stakes, high scrutiny: The due diligence process is exhaustive, and once you take the money, you’re on the clock to deliver results.

Venture capital success story: Airbnb

Airbnb’s meteoric rise was fueled by early VC backing from firms like Sequoia Capital and Greylock Partners. These investors provided funding, as well as strategic guidance and connections that helped Airbnb expand globally and build a trusted brand in the short-term rental market.

4. Crowdfunding

Crowdfunding is a way to raise funds by tapping into a large group of people, often through online platforms like Kickstarter, Indiegogo, or GoFundMe. Instead of relying on a few big investors, crowdfunding allows you to gather smaller contributions from a broader audience, often in exchange for early access to your product, perks, or equity.

This funding source is perfect for B2C startups with a compelling product or idea that resonates with a wide audience. It’s also a great way to validate market interest before you scale.

How to succeed with crowdfunding

A successful crowdfunding campaign starts with a clear story that excites people about your vision. Create engaging visuals, like videos or prototypes, to show what you’re building and why it matters. Transparency is key—keep backers updated throughout the campaign and deliver on your promises to build trust and loyalty.

Advantages of crowdfunding

• Market validation: Crowdfunding not only raises funds but also proves there’s demand for your product or service before you invest in scaling.
• Community building: Backers often become your first loyal customers and biggest advocates, helping you build a strong early user base.
• No equity required: With rewards-based crowdfunding, you don’t have to give up ownership or repay loans.

Challenges of crowdfunding

• Time-intensive campaigns: Running a successful campaign takes significant time and effort, from creating marketing materials to responding to backers.
• Uncertain outcomes: Success isn’t guaranteed, and failing to meet your funding goal could delay or derail your plans.
• Reputational risk: If you fail to deliver on promises, it can harm your brand and credibility with early supporters.

Crowdfunding success story: Oculus VR

Oculus VR raised $2.4 million on Kickstarter to develop its virtual reality headset, far exceeding its $250,000 goal. The initial campaign not only provided funding but also proved there was massive interest in VR. The company later attracted major investors and was acquired by Meta for $2 billion.

5. Grants and government programs

Grants and government programs offer funding that doesn’t require repayment or equity, making them one of the most founder-friendly options. These funds are often provided by federal, state, or local governments, as well as nonprofit organizations, to support innovation, job creation, or economic growth.

Grants are an excellent choice for startups working in industries like healthcare, education, clean energy, or technology, where governments have a vested interest in fostering local growth.

How to succeed with grants and government programs

Securing a grant requires thorough research to find programs that align with your startup’s mission. Applications can be competitive, so craft a proposal that highlights your innovation, potential impact, and ability to deliver results. Don’t underestimate the importance of following every requirement to the letter—attention to detail can make or break your application.

Advantages of grants and government programs

• No strings attached: Unlike loans or equity funding, grants don’t require repayment or ownership trade-offs, letting you retain full control.
• Credibility boost: Winning a grant signals your startup’s potential to investors, customers, and partners.
• Sector-specific funding: Many programs target industries like tech, sustainability, or healthcare, providing tailored support for mission-driven startups.

Challenges of grants and government programs

• Competitive and time-consuming: Grant applications can be lengthy, and competing against other startups means you’re not guaranteed funding.
• Strict requirements: Grants often come with restrictions on how the money can be used, limiting your flexibility.
• Delayed payouts: It can take months to receive the funds, which might not align with your immediate cash flow needs.

Grant success story: BioNTech

BioNTech, the biotech company behind one of the leading COVID-19 vaccines, received significant grant funding from the German government. This financial support accelerated their R&D, allowing them to scale quickly and deliver life-saving innovation at a global level.

6. Bank loans and SBA loans

Bank loans and Small Business Administration (SBA) loans are traditional funding options that provide startups with capital in exchange for repayment with interest.

Unlike equity funding, you retain full ownership of your business, making these loans a popular choice for founders who want to stay in control of their business and want predictable, structured financing.

How to succeed with bank loans and SBA loans

To secure a loan, you’ll need to come prepared with a detailed business plan, financial projections, and proof of your ability to repay. SBA loans often have more flexible terms and lower interest rates, but they still require patience, as the application process can be lengthy. Building a good relationship with your bank can also make a big difference.

Advantages of bank loans and SBA loans

• Ownership retention: Loans let you fund your business without giving up equity or control.
• Structured repayment terms: Predictable monthly payments make it easier to budget and manage cash flow.
• Lower interest rates: SBA loans, in particular, often come with lower interest rates and longer repayment terms than traditional bank loans.

Challenges of bank loans and SBA loans

• Eligibility hurdles: Banks and SBA lenders have strict requirements, including good credit scores, collateral, or proven revenue streams.
• Lengthy approval process: Applications can take weeks or months, which may not suit startups needing immediate funding.
• Debt burden: Repayment obligations can strain your cash flow, especially during slow growth periods.

Bank loan success story: Warby Parker

Warby Parker, the eyewear startup, used an SBA loan to fund its early operations. The founders retained full ownership while leveraging the loan to build their brand, refine their business model, and scale into one of the top names in the direct-to-consumer space.

7. Revenue-based financing

Revenue-based financing (RBF) allows startups to secure funding from specialized lenders and alternative financiers in exchange for a percentage of their future revenue. Instead of fixed monthly payments, your repayment adjusts based on how much your business earns. This makes it a flexible option for startups with unpredictable cash flow, such as ecommerce or seasonal businesses.

How to succeed with revenue-based financing

To secure RBF, your startup needs a proven revenue stream and a plan for scaling. Lenders will focus on your financial history and projected earnings, so be prepared to share detailed reports. Since RBF repayments are tied to revenue, showing predictable or growing cash flow will help you lock in favorable terms.

Advantages of revenue-based financing

• No equity required: You keep full ownership of your business while securing growth capital.
• Flexible repayments: Payments fluctuate with your revenue, making it easier to manage during slow months.
• Quick approval process: RBF is often faster to secure than traditional loans, with less red tape.

Challenges of revenue-based financing

• Higher cost of capital: Interest rates and repayment percentages can be steeper than traditional loans.
• Limited to revenue generators: RBF is only an option for startups with consistent revenue streams, making it less accessible for early-stage businesses.
• Ongoing revenue commitment: A portion of your earnings goes toward repayments until the loan is fully paid, which can impact cash flow.

Revenue-based financing success story: Rentable

Rentable, a rental housing marketplace, used revenue-based financing to fuel its growth without giving up equity. By securing flexible capital that scaled with its revenue, Rentable was able to invest in marketing, expand its platform, and grow its customer base.

How to improve your odds of getting funded

In an ideal world, having a great idea is all you’d need to secure funding. But, sometimes, you need more to convince potential backers of the merits of your particular venture. Here’s how to get your startup ready for funding.

1. Build a strong business plan

Investors fund startups that have clear potential. A solid business plan shows that you’ve thought through the risks and opportunities and have a long-term vision for how your startup will become profitable.

Make sure your plan includes:

• Financial projections: Show realistic revenue, cost, and profit expectations over the next few years.
• Market analysis: Prove that there’s strong demand for your product with industry data and competitive positioning.
• A clear growth strategy: Explain how you’ll scale, acquire customers, and generate sustainable revenue.

A well-prepared business plan demonstrates that you’re not just looking for money—you have a roadmap for making it work.

2. Show financial transparency

Investors need to trust your numbers before they invest. Financial transparency is one of the biggest ways to set your startup apart from the many others looking for funding.

Here’s what investors look for:

• Up-to-date financials: Stale or inconsistent reports are a red flag that your startup’s finances aren’t as rosy as you’re making them out to be.
• Clear revenue and expense tracking: Investors want to know where the money is coming from and where it’s going so they can trust you are on the way to profitability.
• Scalability: Demonstrate that your business model allows for efficient growth by keeping customer acquisition costs (CAC) sustainable, maintaining healthy profit margins, and showing a clear path to increased revenue without proportional increases in expenses.

One way to make your finances more transparent is to work with an automated accounting platform like Digits. With real-time financial tracking, automated transaction classification, and customizable reports, Digits ensures you always have clear, investor-ready financials at your fingertips.

3. Build relationships early

The best time to connect with investors is before you need funding. Building relationships early allows you to establish trust, gain valuable feedback, and make investors more familiar with you when you eventually ask for capital.

Here are a few ways to build investor relationships:

• Attend industry events and startup meetups: Networking in person can make a lasting impression and give you access to industry insiders you’ll want to know when your funding rounds come around.
• Engage on social media: Many investors share insights on platforms like LinkedIn and X (formerly Twitter). Join the conversation and make a name for yourself and your startup before you try to secure funding.
• Provide updates: If you’ve met investors before, keep them informed about your progress through newsletters or personal check-ins.

Investors back founders they trust, and trust is built over time. When the time comes to raise, you’ll be speaking to investors who already believe in you, not trying to convince strangers to take a chance.

4. Focus on your metrics

Investors rely on KPIs to assess your startup’s potential. The stronger your numbers, the better your chances of getting funded.

Key metrics investors look for include:

• Customer acquisition cost (CAC): How much it costs to acquire a new customer.
• Lifetime value (LTV): How much revenue a customer generates over their lifetime.
• Annual recurring revenue (ARR): Predictable, subscription-based revenue (crucial for SaaS startups).
• Burn rate and runway: How fast you’re spending money and how long you can operate before needing more funding.

One of the easiest ways to get these metrics is to use Digits, which automatically syncs with your financial data, providing real-time insights into CAC, LTV, ARR, and cash flow. Instead of manually crunching numbers, you can present investors with clear, data-driven visuals that highlight your startup’s strengths.

5. Practice your pitch

Even the best startups can miss funding opportunities if their pitch falls flat. Investors hear countless pitches, so yours needs to stand out by being clear, concise, and backed by data.

• Make your pitch data-driven: Investors love numbers. Use real revenue, growth, and customer metrics to make your case undeniable. The more evidence you provide, the more compelling your pitch.
• Tell a story: Connect your numbers to a narrative that explains why your startup exists, the problem it solves, and why now is the perfect time to invest.
• Anticipate tough questions: Investors will poke holes in your pitch. Be prepared to address concerns about competition, market risks, and scalability with clear, well-reasoned responses that show you’ve thought through every angle.

Once you've done all of the above, practice, practice, practice. You’ll want your pitch to go smoothly, so do a couple of mock pitches with people you trust and work out the kinks in your presentation.

Take control of your startup’s funding journey with Digits

Regardless of whether you get funded through VCs, Kickstarter, or go the bootstrap route, your startup needs to keep its finances in order.

Ensure your finances are always investor-ready with an AI-native accounting platform like Digits that helps you stay on top of your numbers, make smarter decisions, and confidently navigate every stage of growth.

With Digits, you can:

• Track revenue and expenses in real time to stay ahead of financial trends.
• Generate professional reports instantly to impress investors and lenders.
• Customize financial dashboards to monitor the metrics that matter most to your startup.

Digits is an automated accounting platform built for startups and backed by AI. Whether you're pitching investors, scaling operations, or simply keeping your books in check, with Digits, you have the financial clarity you need to grow your business.

Try Digits for free today and see how our platform can help your startup find success through smarter accounting.