The pros and cons of different types of startup funding

Startup funding can seem complicated and overwhelming for new founders. In recent years, the options have exploded and we’ve seen the rise of alternative funding complementing the traditional VC pathway too.

At Atto, we champion an ‘indie way’ of building companies, which means not every company has to raise capital. Whether you bootstrap or raise multiple rounds of capital, all paths are valid. Considering a combination of multiple funding types is also an option.

We’ve created this list of the pros and cons of different funding models for early-stage female founders including: 

  • Bootstrapping & Self Funding

  • Loans and Credit

  • Grant Funding

  • Crowdfunding & Equity Crowdfunding

  • Angel Investment

  • Venture Capital

Bootstrapping & Self Funding

Bootstrapping or self-funding means you don’t raise outside investment or funds. You use your personal finances to fund your startup but this can also include using savings, credit cards or bank loans. It means you’re entirely responsible for finding the money yourself. 

This term originates from the saying “pull yourself up by bootstraps” which was used in the 19th century when someone achieved a seemingly impossible task. It’s acknowledged that bootstrapping can be a really hard journey for founders but there are benefits to remaining independent. 

Pros:

  • You remain independent and debt-free

  • You retain full ownership and control of the company

  • You focus on consistent and steady growth 

  • You become focused on creating a business that makes money (by necessity) 

  • You are mindful of your burn rate

  • You can hire contractors or employees to support your vision 

Cons:

  • You are limited by your own funds or company revenue to fuel growth 

  • It can make it hard to scale quickly  

  • You might not be able to afford the best team

  • You’ve got to budget wisely and use a lean approach to spending  

  • One of the top reasons startups fail is they run out of money

  • It can be hard and lonely

  • It’s less glamorous (unfortunately, the tech startup press doesn’t feature many bootstrapped founders)

Female founder example:

  • Laura Roeder of MeetEdgar

Loans and Credit 

Loans and credit can include money from banks, and friends and/or family often with interest. This is money that needs to be paid back.

Pros:

  • You remain semi-independent

  • You retain full ownership and control of the company

  • Usually fixed rates with predictable repayments 

  • Interest can be tax-deductible (talk to your accountant)

  • Banks are willing to give loans for a wide range of uses 

Cons:

  • You’re responsible for the debt so if you’ve tied assets to the loan, it can be really serious if you have cash flow problems and can’t pay back the debt 

  • Lots of admin and paperwork 

  • High-interest fees 

  • Depending on the bank and your use of the loan money, loans can be hard to get 

Female founder example:

  • Kate Morris of Adore Beauty started with a $12,000 loan from her father-in-law

Grant Funding 

Pros: 

  • These are often government-funded 

  • Potential support from gov or industry experts 

  • You’re usually not required to pay anything back or give away any equity 

  • These can be large amounts of cash 

  • You develop skills through the application process and once you’ve been given one grant, it’s more likely you’ll get another grant 

  • Good for branding visibility and credibility 

Cons: 

  • Relies on government initiatives and interest in your sector 

  • Application processes can be time-intensive 

  • You might need to hire someone to help with applications 

  • There could be conditions on being awarded the grant 

  • There’s lots of competition when applying for grants 

  • Grant money can be finite and you might need to apply for more grants for more funding down the track 

Female founder example:

  • Marita Cheng of Aubot

Grant example:

  • Boosting Female Founders Initiative (BFFI) program

Crowdfunding & Equity Crowdfunding

Pros: 

  • You choose the terms of the crowdfunding campaign

  • You often build or expand your community during crowdfunding campaigns

  • It’s a good marketing tactic to try to get more attention for your brand

Cons: 

  • With equity crowdfunding, you’re giving away part-ownership of your business

  • You need a backup plan in case the campaign doesn’t go well

Female founder example:

Example:

  • Birchal

  • Kickstarter

Angel Investment 

Angel investors are usually people who have acquired great wealth and want to invest some of that money into new businesses. There are a wide range of angel investors with varied experience who can operate as individual or within a syndicate.

Pros: 

  • Angels could be industry or niche experts you can turn to for advice

  • An angel syndicate can give you access to a wide range of talent  

Cons:

  • You can giveaway lots of equity in early stages

  • The structure of your cap table can have impacts down the line if you raise venture capital

  • You need to maintain a strong relationship with the angels

Female founder example:

  • Holly Cardew from Carted

Fund example:

  • Female Founders Fund

  • Flying Fox Ventures

Venture Capital 

Venture capital is often hero’d as the goal for startups but VC isn’t suited for every startup. Raising VC funding can mean that you’re destined for rapid growth and expansion which comes with it’s own challenges. 

Pros: 

  • You should have the resources and support for fast growth 

  • You might get access to a network of highly experienced investors and operators

  • VC funding gets lots of PR

Cons:

  • You share ownership of the company with the VCs

  • You need to be committed to fast growth 

Female founder example:

  • Melanie Perkins of Canva

VC examples: 

  • Blackbird: investing in the most ambitious founders in Aus & NZ 

  • BBG Ventures: investing in early-stage female founders who understand the dominant consumer 

  • Backstage Capital: investing in underrepresented founders

There’s no one right way to fund a business.

We encourage founders to think long-term and decide what’s best for them and their life.

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