Innovative Approaches to Financing Startups Without Venture Capital

If you are starting a business, you would need capital to run it. Getting this capital with the absence of venture capital can be very challenging. There are different ways to raise money for a business, including angel investors and crowdfunding. However, when selecting one to fund your long-term business vision, ensure it is tailored for the business.

Bootstraped companies are less likely to prioritise capturing market share or raising large rounds of financing, and tend to be much more self-reliant, which often slows their growth.

Angel investors

If your startup requires funding but is not ready or willing to dive into venture capital offers, there are other ways for you to get startup finance. As a matter of fact, there are more than enough alternatives to venture capital out there. Both in terms of business loans and angel investing lie a variety of alternatives that can even help your startup to raise equity crowdfunding.

Angel investors back startups with disruptive product or technology that might completely reset the market and find at least some early signs of early traction in customers, revenues or partnerships. Most importantly, every angel investor is usually a seasoned entrepreneur who mentors startuppers.

An angel investor in most cases receives some equity stake in return for the investment – the percentage being sometimes be negotiable. While selecting the angel, make sure that the investor shares your vision and is passionate enough towards your idea to bring it to fruition in the long-run. Ways through which an angel investor can be sourced include professional investment organisations, business forums or networking events.


Sole-source dependence is no longer a badge of start-up honour: crowdfunding is a faster, less expensive (and often no-equity) way of getting project capital than venture capital funding. Still, crowdfunding is not a cure-all: founders should look at all the options and select the one that is most appropriate for raising the capital they want.

This type of crowdfunding is reward-based crowdfunding and typically provides something in exchange for a donation – whether that be products, services or discounts. Those who invest more than $10,000 get shares of ownership or dividends.

Your company can use debt-based crowdfunding if it wants to. However, it would be taken over by your lenders if you were not repaying your debt and maintaining full control. Crowdfunding rounds are also generally not led by the angels, a fact that many investors also find concerning.

Revenue-based financing

One such approach is revenue-based financing, where a startup can raise funds by selling percentage of its future revenue to investors through a revenue share investment; revenue share investment allows the startup to avoid the intense compliance needs of venture capitalists and (happily for the startups) avoid their intense compliance needs, too. A wide range of factors go into the decision about which startups qualify for revenue-based financing including historical and projected revenues, gross profit margins, and management structure – startups can find this kind of funds by networking or searching for firms that specialise in it.

Revenue-based financing offers advantages over equity-based venture capital funding – for e.g., it does not dilute the founder stake and requires deep due diligence, while equity-based VC funding dilutes founder stake and requires deep due diligence. Thus, startups can leverage revenue-based financing to provide a non-dilutive source of capital to fund growth, traction growth that will lead to bigger investment rounds – as long as ‘The 33% Rule’ is kept in mind {e.g., in most cases, if the cost of capital from a revenue-based investor is ‘x’, then the maximum percentage of your revenue you can give away should not be more than ‘3x’); moreover, it should not be used as a form of funding your long-term funding needs.

Venture debt

As a non-dilutive funding source, venture debt finance can potentially be a useful route for avoiding equity dilution for the unit owners of the start-up. For instance, a start-up oriented lender specialising in the VC ecosystem may offer structure that is not unduly burdensome.

Whatever route you choose to raise venture debt, always keep in mind that lenders are embarking on a due diligence process with you that could last for many months, and so can be expected to have rigorous scrutiny of what has happened with your company so far – and that will require you to supply the absolute best of what your company data and evidence of growth there could be, but also that you will need to have achieved the best possible financially-sound models in order to negotiate from a position of strength and kick back at the lender for the very best terms.

Venture debt should always be accompanied by, or complementary to, equity financing. Too much debt will reduce your equity totals and make it more difficult to attract investors in the future – plus, restrictive covenants might limit your startup’s strategic flexibility. So make sure your investors are on-board before you take on the venture debt.

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