5 Creative Ways to Secure Start Up Funding

Pre-Seed Funding

Pre-seed is the first stage in startup funding, and comes before seed funding, before Series A, and before venture capital. It can look different for different businesses, too: at the pre-seed stage, you might be raising anywhere from a few thousand dollars to a few hundred thousand, depending on what’s needed to build, test, and develop a minimum viable product (MVP).

With most financing options, traditional lenders (banks, SBA lenders, angel investors, etc.) often want to see business history and revenue before they'll approve a loan. But with pre-seed fundraising, you're pitching a vision and a solvable problem rather than a ready-to-go product, so there's more flexibility. more flexibility.

The good news is that there's a whole ecosystem of funding options built specifically for this stage of business. Here are five of the options.

1. Equity crowdfunding

Equity crowdfunding helps you raise startup funding from a group of investors in exchange for small ownership stakes in your company. These investors are regular people who are interested in pre-IPO funding, not just accredited investors (think your next-door neighbor, not Mark Cuban and the rest of the Sharks).

Platforms like Republic, Wefunder, and StartEngine have made equity crowdfunding possible for many early-stage startup business. This is different from donation-based crowdfunding (like GoFundMe) or rewards-based crowdfunding (like Kickstarter) because with equity crowdfunding, your backers become actual shareholders who own a part of your company. They're making a capital investment in your business and your product, because they believe in what you're building.

This form of startup funding may work at the early stage because you don't need a finished product to run an equity crowdfunding campaign. Many successful campaigns launch with nothing more than a prototype, a pitch deck, and a strong community. Plus, the fundraising process itself can generate momentum for your business. A live campaign adds visibility, and a number of small investors can become not only early adopters but also brand advocates and even a built-in customer base.

What to note

It’s important to understand that you are giving up company equity with this type of crowdfunding. Even if the equity you're offering feels small, those little percentages will add up quickly over time... especially if you plan to go through multiple rounds of startup funding. Plus, running a successful equity crowdfunding campaign takes a lot of time and effort, from campaign management to investor updates, communication, and regulatory compliance.

2. Pre-sale campaigns

A pre-sale campaign on a platform like Kickstarter or Indiegogo may be a great way to raise startup funding for a product you haven't built yet, and you don't have to give up any of your company’s equity to do it.

With these campaigns, you essentially sell your product before it exists. Rather than selling shares, you’re offering early product access, perks, or discounted pricing in exchange for backers' upfront support. This serves to accomplish two big things: It raises the money you need to build your product, and it establishes that there's market demand for your product before you ever spend a dollar of your own on production.

If people are willing to pay for your product before it even exists — based on an online campaign, demo, etc. — it says that your idea is probably worth building.

And unlike equity crowdfunding, you keep 100% ownership with these platforms. There's no repayment required, since backers get their promised perks (like a first version of your product) when you deliver, instead of getting their investment back. And the fundraising campaign itself can serve to create marketing momentum, generate press coverage, and build a community of early adopters who have a personal stake in seeing you succeed.

Some of the most recognizable consumer products got their start on Kickstarter with nothing but a prototype and a compelling pitch. The platform is also well-suited to hardware, consumer tech, apps, games, and physical products of almost any kind.

What to note

Unlike selling equity shares, you have to build the product and deliver when raising money through one of these campaign platforms. If you raise $200,000 on Kickstarter and can't produce the product in the end, you'll not only ruin your reputation but customers will demand refunds. Be conservative about your delivery timeline and your cost estimates before you ever go live with your ask.

3. Incubator stipend

Startup incubators are programs run by universities, nonprofits, corporations, and independent organizations that support early-stage startups. They can provide everything from funding to resources, mentorship, and necessary workspaces, and many incubators also offer stipends (a small cash grant to cover basic living and startup costs while you work on building your business).

While accelerators are typically short, intensive programs for startups that already have some traction, incubators are designed for the very earliest stage companies. They exist to help entrepreneurs get their product from “idea” to “proof of concept,” which describes many pre-seed companies.

Beyond the cash stipend, incubators are known for providing valuable resources like

• Mentoring and coaching from experienced entrepreneurs and operators.
• Access to co-working spaces and shared resources.
• Connections with angel investors and venture capital firms.
• Help developing your business plan and product pitch.
• A network of other founders (mastermind) going through the same early-stage challenges.

That kind of support and insight can sometimes be worth more than the stipend itself. That's especially true for first-time entrepreneurs who are still learning how startup business development actually works.

What to note

Incubator programs are great, but they’re hard to win. These programs are known for being competitive, and even the application process itself can be prohibitively time-consuming. And while many incubator programs are entirely grant-based with no equity requirement, some do require a small equity stake of your company in exchange for your stipend and any offered resources.

4. Angel investors

Angel investors are individuals who invest their own money into early-stage startups in exchange for equity. These investors, often successful entrepreneurs or business owners themselves, can be more willing to invest at the pre-seed stage, when the company is still just an idea and a founder.

Beyond money, a good angel investor brings connections, industry knowledge, and credibility that can open doors to future funding options as you grow toward a seed round or Series A. The best way to connect with angel investors is through your existing network: founder communities, alumni networks, industry events, and incubator or accelerator programs. Platforms like AngelList and Gust help connect founders with angel investors directly.

When you pitch, keep in mind that angel investors at the pre-seed stage are investing in you as much as your idea. Your background, your hustle, and your ability to explain the problem you're solving matter as much as your pitch.

What to note

Angel investors don’t have to be strangers: friends and family can sometimes fill this role informally. This may work, but be even more careful about putting agreements in writing when personal relationships are involved. Also, an angel investor will likely want some say in how you run your business, and you’ll be giving up some equity in the process.

5. SBA startup funding and small business grants

The U.S. Small Business Administration (SBA) doesn't offer direct grants to most startups, but it does have a network of programs that offer money without requiring repayment or taking equity.

The most relevant for pre-seed founders is the Small Business Innovation Research (SBIR) program. This program provides three stages of federal government funding to small businesses that are developing technology with commercial potential.

Beyond SBA startup fund grant opportunities, there are many small business grants from state governments, nonprofits, foundations, and corporations available. Many of these are specifically designed to offer startup funding for new businesses in targeted industries, with certain demographics, or in specific locations. Grants.gov is a great place to start your search, along with your state's small business development center (SBDC), corporate grant programs (FedEx, Amazon, Visa, etc.), and private organizations.

When it comes to grants, there’s no repayment requirement and no equity taken from your company. Grant funding is essentially free money… but that’s why competition is fierce and applications are often time-consuming. But for startups in the right category (tech, biotech, clean energy, underserved communities, veteran-owned businesses, and more), grants can offer important startup funding at the proof-of-concept stage without any strings attached.

Which startup funding option is best?

There's no single answer, as the best option really depends on your stage, goals, network, and the nature of your business. That said, many pre-seed founders may use more than one funding approach at the same time. You might run a Kickstarter campaign to confirm market demand and raise initial capital, while also applying to an incubator program for mentorship and a stipend. You could even pursue a small angel investment to fill in the funding gaps.

The biggest thing to avoid at this stage is giving up too much equity, too early. Every bit of ownership you give away now will be worth more later if and when your business grows, so be intentional about which funding sources are worth giving away equity and which ones aren’t.

Bootstrapping your product with personal savings, or relying on friends and family for the time being, can also be good short-term startup funding strategies.

Related Article: The Pros and Cons of Using Startup Loans for Small Businesses

Final thoughts

The best startup funding strategy while you're in the pre-seed stage isn't necessarily the one that raises the most money. For many businesses, it's actually the one that means giving up the least equity while helping you reach your next big milestone.

Value comes from more than just dollars, too. A Kickstarter campaign that proves your product has customer demand and funds its development can be worth a lot more than a big angel check that costs you 30% of your company’s equity.

Just remember that the goal of pre-seed funding isn't to build a finished product: it's to get you further along in the process and help guide your next set of product decisions.