How to Raise Capital: Best Funding Options for Startups in 2025

Uncover the essential funding sources that could save your startup! Find the full-proof financial resources that you need to succeed.

Without a successful financial foundation, a startup business can never take off. In order to develop an exceptional product, hire a skilled team, or scale operations, businesses must secure their finances. Navigating a myriad of funding options for startups can be overwhelming for new entrepreneurs, but understanding these options can help in making informed decisions. 

In this blog, we will explore different funding options for startups in 2024. The article also offers insights into how each works, their pros and cons, and expert tips for securing these funds. So, let's explore the best funding options to propel your startup business forward. 

What is Startup Funding?

Once you have a mind-blowing idea, the next step is to secure investors for the startup. Startup funding is a process through which new entrepreneurs secure financial resources. These resources are important for designing and developing products, hiring a team, and improving business operations. Initial startup financing is important for bringing startup ideas to life and scaling the business.

The Need for Startup Funding 

Startup funding is essential because it provides the resources necessary to transform an idea into a viable business. At the earliest stages, funding helps cover foundational expenses like product development, market research, and operational costs. Without this initial capital, even the most innovative ideas may struggle to get off the ground. 

As the business grows, funding becomes crucial for hiring skilled talent, scaling operations, and meeting the demands of an expanding customer base. It allows startups to invest in marketing and customer acquisition, ensuring their product or service reaches a broader audience and establishes a foothold in competitive markets.

Additionally, having access to capital accelerates a startup’s time to market, enabling it to capitalize on trends or opportunities before others do. In essence, funding is the lifeblood of a startup, fueling its journey from concept to market leader.

Essential Reasons for Initial Capital Funding 

Startup owners seek business capital for multiple reasons, which include the following:

• Hiring a team
• Working capital
• Prototype creation
• Marketing and sales
• Product development
• License and certifications 
• Raw material and equipment 
• Legal and consulting services
• Office space and admin expenses 

Stages of Startup Funding

Startup funding can be understood in three different stages. Let’s understand these in detail.

1. Pre-Seed Funding

This is where it all begins. At the pre-seed stage, you’re shaping your idea and building a foundation for your business. Funding at this point usually comes from your savings. Money from family members or friends who believe in your vision can also be an option for funding at this stage. 

The goal here is simple—covering early costs like market research, developing a prototype, or even basic operational expenses. It’s worth noting that this stage is the most fragile and so one needs to pay special attention. In fact, statistics show that around 70% of startups don’t progress beyond this point. This all the more highlights the need for utmost vigilance and consideration in your startup. 

2. Seed Funding

For most startups, seed funding is the first official round of investment. By now, you’ve moved past the idea phase and likely have a working prototype, some market validation, and a vision of what’s next. Funds raised here help you launch your product, market it to a broader audience, and assemble a small but capable team. 

Angel investors or early-stage venture capital firms are common participants. Startups in this stage are often valued anywhere between $100,000 and $6 million. However, this depends on their potential and early traction.

3. Series A Funding

By the time you reach Series A, your startup is way more than an idea - it’s a functioning business with at least a solid user base and revenue potential. In Series A, investors look for startups that have figured out their product-market fit and need capital to scale. Funds raised at this stage often go toward elements like:

• Expanding your team
• Enhancing your product
• Entering new markets and more

The average Series A round in 2023 ranged between $10 million and $15 million. In this venture capital, firms seemed to be the key players. Interestingly, sectors like AI and green tech saw significant Series A investments, reflecting broader industry trends.

4. Series B Funding

Next, Series B is all about some serious growth. At this stage, your business has proven it can generate revenue consistently with minimal risks. And now it’s time to scale operations. Funding here helps with hiring talent, expanding into new markets, and optimizing business processes. But now the stakes are way higher, and so are the investor expectations. By this point, venture capital firms and sometimes private equity players step in to fund well-established startups.

5. Series C and Beyond

By Series C, your startup is a well-oiled machine. Now, it is likely generating significant revenue and looking to dominate your market. The funds raised here are often used for acquisitions, launching new products, or expanding internationally. Large institutional investors (hedge funds or investment banks) may look to join in.

For startups at this level, conversations often turn to exit strategies. It can be through an Initial Public Offering (IPO) or acquisition. It’s worth noting that even successful startups face hurdles here, with nearly 50% failing to progress beyond Series C or D.

Your Startup’s Path to Millions: Types of Startup Funding Options

There are diverse funding avenues that can help entrepreneurs turn their ideas into millions of dollars. Let's explore the best funding options for startups in detail.

1. Microlenders

Microlenders are the catalysts for any startup’s success and help businesses with the initial setup. Microlenders can be both non-profit and private lenders. These lenders mostly support minority startups and entrepreneurs from marginalized sections of the economy. These funds are particularly suitable for those who do not have access to traditional banking services or funding options. 

Primary Characteristics of Microlenders 

• Typically offer small loan amounts
• Support flexible eligibility criteria
• Focus on community development
• Offer personalized support and services

2. Crowdfunding 

Crowdfunding is one of the simplest startup funding models under which businesses collect small amounts of money from a large crowd. These funds are generally collected through the internet. This funding model is extremely popular as it enables entrepreneurs to reach a larger audience in no time. Crowdfunding also supports quick funding without the need of going through complex traditional methods. 

Crowdfunding can be of three different types: Reward-based crowdfunding, equity crowdfunding, and debt crowdfunding. 

Primary Characteristics of Crowdfunding

• Supports collaborative funding 
• Supports online accessibility 
• Direct communication between creators and backers
• Publically accessible campaigns ensure transparency

3. Government Loans and Grants 

Government loans and subsidies are financial assistance programs supported by state, federal, or local governments. These business startup loans help businesses create and propel their startup ideas easily. Government grants are generally non-repayable and are thus extremely suitable for entrepreneurs who are just starting out. 

Primary Characteristics of Government Loans and Grants

• Offer funds at lower interest rates
• Offer extended repayment options
• Guaranteed by the government and reduces the risk for lenders

4. Angel Investors 

Angel Investors offers the best funding options for loans for small businesses. These are typically high-net-worth individuals who invest their personal funds in exchange for some percentage of the equity in the business. Angel investors for startups mostly come from entrepreneurial backgrounds and bring industry expertise along with investing capital in business. 

Primary Characteristics of Angel Investors

• Investors use their personal funds
• They offer investments in the early stages of startups
• Offer business acumen, industry knowledge, network offerings, and more

5. Bootstrapping Businesses

If you wish to take a self-sustaining approach, Bootstrapping is one of the best financing options for startups. With this funding option, entrepreneurs can sustain and grow their businesses with their personal savings. It eliminates the need for any external funding source like venture capital, loans, grants, etc. This startup business funding option further emphasizes resourcefulness. The entrepreneurs can also reinvest their profits back into the business. 

Primary Characteristics of Bootstrapping

• Growth is slower, but organic 
• Profits are reinvested to fuel growth
• Entrepreneurs can use their personal savings
• Ensures that the expenses are low, avoiding unnecessary expenses

6. Venture Capital 

Venture Capital is a private equity financing that offers early funding options for high-potential startups and small business startups. Venture capitalists manage pooled funds from institutes, corporations, and individuals. In exchange for funding, VC investors generally receive equity ownership in the startup. 

Primary Characteristics of Venture Capital 

• VCs invest capital in business in return for equity
• Startups can receive multiple rounds of funding 
• Typically meant for startups with high potential 
• VCs take an active role in the companies they invest in

7. Friends and Family 

If you do not know how to get investors for your business from the market, you can consider taking money from friends and family. Raising money from friends and family is one of the easiest business funding options for new entrepreneurs. 

It is the best way for them to get their startup businesses off the ground by borrowing money from their personal connections. It is a quick and relatively straightforward way that is secure for both investors and entrepreneurs. 

Primary Characteristics of Funds from Friends and Family

• Investors are usually people who have a personal relationship
• The terms of investment and repayments are flexible
• The funding is highly trust-based and personal

8. Revenue-Based Financing 

Revenue-based financing is among the modern-day startup business financing options under which investors offer capital in business in return for a percentage of the gross revenue. It is one of the best types of funding for businesses with a fixed or predictable revenue stream. 

This method is preferred by business owners as it lets them raise capital without diluting their control over the company. 

Primary Characteristics of Revenue-Based Financing

• RBF does not require any equity dilution 
• Repayments are connected with the business’ revenue streams
• The total amount to be repaid is capped at a multiple of the original amount
• Capital in exchange of a fixed percentage of the monthly or quarterly revenue

9. Small Business Grants 

Similar to government loans, small business grants are offered by the government or non-profit organizations to support small-scale businesses. These funds do not demand repayment and are thus an attractive funding option for small business owners to secure funds. 

Primary Characteristics of Small Business Grants

• Each grant has specific eligibility criteria
• Grants are generally free money for businesses
• The application process for securing grants is usually competitive 
• They are often designed for specific purposes like research and development

10. Funds from Incubators and Accelerators 

If you are wondering how to get money to start a business, enrolling in an accelerator program is an excellent option. Incubators and startup accelerators are programs designed to support early-stage startups through funding, mentorship, and resources. 

These programs often provide seed funding in exchange for equity, along with a structured environment to help startups grow and succeed. While they share some similarities, incubators and accelerators, have distinct characteristics and focus areas.

Primary Characteristics of Funds from Incubators and Accelerators 

• Incubators typically offer long-term support
• They provide physical office space for the startups 
• They support startups at the infant stage
• Along with funds, they offer a wide range of services 
• Startups enter accelerator programs in cohorts
• Accelerators offer a structured curriculum

The Sure-Shot Funding Method for Startups

Now that we know how to get investors and the initial funding for your startups, let's understand the method of startup fundraising that will help you secure finances. 

1. Develop a Fool-Proof Business Plan 

Clearly outline your business idea, value proposition, target market, revenue streams, and operational plan. Conduct thorough market research to validate your business idea and demonstrate the potential for growth.

2. Determine Your Funding Needs 

List all the expenses you need to cover to get your business off the ground, such as equipment, inventory, marketing, and operational costs. Also, determine the total amount of funding required to cover both initial and ongoing expenses until your business becomes self-sustaining. 

3. Explore Funding Options

Explore the multitude of funding options available for startup owners. Based on your personal preferences and business requirements, entrepreneurs can secure funds through multiple sources.

4. Prepare Your Pitch

Develop a compelling pitch deck that highlights your business idea, market opportunity, financial projections, and funding requirements. Customize your pitch to suit the interests and preferences of different investors or funding sources.

5. Submit Applications and Proposals

Fill out all required applications and submit them along with your business plan, financial projections, and pitch deck. After submitting your applications, follow up with potential investors or funding sources to answer any questions and provide additional information.

6. Negotiate Terms and Close Deals

Negotiate terms that are favorable to your business while maintaining a positive relationship with investors. Have any agreements reviewed by a legal professional to ensure your interests are protected. Once terms are agreed upon, sign the necessary agreements to secure the funding.

7. Manage and Utilize Funds Wisely

Create a detailed budget and financial plan to ensure efficient use of the funds. Keep track of all expenses and monitor cash flow to avoid overspending.

MAD Keeping Your Entrepreneurial Spirit High 

At MobileAppDaily, we offer entrepreneurs a comprehensive suite of resources designed to support them at every stage of their startup journey. Through our blogs, we provide actionable insights into crucial areas like funding options, team building, and scaling strategies, helping entrepreneurs stay informed and make strategic decisions. 

Our special reports, such as Women in Tech and Best 2000 Companies, deliver an in-depth look at the industry, its key players, and successful business models, offering entrepreneurs valuable perspectives that can shape their growth strategies. 

Additionally, our interviews with industry giants feature firsthand advice from experienced professionals who share their knowledge on overcoming challenges and growing a successful business. We also provide curated directories, which list key industry resources and service providers that enable entrepreneurs to easily find the right partners to support their goals. 

Start Your Entrepreneurial Journey Now!

Exploring funding options for a startup online business and securing funds for your startup is a complex process that requires thorough planning, research, and execution. Having a clear understanding of the best startup funding options can empower entrepreneurs to make informed decisions to support their business goals financially. 

By thoughtfully approaching the business startup funding process, startups can build a strong financial foundation to fuel their innovation, growth, and success.