There’s a common assumption that startup funding means big VC funding from professional investors. This is not true at all.
But all startups are funded in some way in time and money to get started, including the majority of software startups that never took any institutional VC funding.
Here are 5 common ways startups fund starting up WITHOUT venture capital or institutional investors:
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Funded with personal savings.
They worked hard at their job for years and saved. Or they sold a previous business or made money with stock or real estate investments. Whatever.They are funding their product dev and startup team with their own money. Self-funded with their hard-earned cash.
- Funded from profits and team from an existing business.They have a services business or previous software company and are investing their profits to build a new product and a new team.More often they are deploying (investing) their current paid employees to build and sell their new product thing.
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Funding with founder time.
A developer works by day and codes in at night to build a sellable product. Or anyone with a side gig that could grow up. But they didn’t quit their day job yet.Anyone that can invest time to code, sell, build before revenues. Sometimes that being supported by a spouse by parents while living at home.
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Funded with angel donations from friends, family, and local investors.
Most angels are friends, families, and encouraging local investors who like you and want you to succeed. This can be practical funding when it doesn’t create big pressures, preferred shareholders, and the need to raise big VC funding.SAFE notes and pre-seed investments from small funds may sound safe and practical, but they aren’t intended to be “one and done” angel investments. They are intended to be onramps to more and bigger institutional funding.
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Customer funding to start their business.
Mostly this is living very frugally and surviving on savings or gig work as revenue grows and covers expenses and founder salaries.Less often, a big customer pays them to build a solution that the founders can sell to other customers later.
All new companies are funded in some way with time and sometimes money before their revenues cover expenses in a sustainable way.
Thousands of practical founders started by investing THEIR OWN MONEY AND TIME, not someone else’s. None of this was “free” for these resourceful founders.
Most up-and-running software companies in the world never took big institutional funding. Most funded software companies actually start this way.
Very few professional investors invest in pre-revenue companies either. They are waiting to get revenues and prove something.
Big funding or not, almost all founders have to deal with not making any salary/income from their new startup for many years.
How are you funding your startup without “getting big outside investors” first?
#practicalfounders
