The 5 Fundamentals for Startup Fundraising

Raising capital in 2024: From investment types to funding rounds, all you need to know to build your most optimal startup, from Angels Partners

In a post-pandemic landscape, economic uncertainty and investors’ narrowing their field of investment, fundraising for startups is not what it once was. Sure, booming industries like AI and healthcare are experiencing a hype in investor and market interest, yet, raising capital in other sectors has become challenging ever since the 2021 investment explosion catapulted into an investment slowdown. However, at the risk of solely promoting doom and gloom, data from Crunchbase suggests that despite the decline in global startup investment, 2023 saw $285 billion invested - not so gloomy after all! That’s why, here at Angels Partners, we’ve collated all you need to know on startup fundraising and attracting investors in the current startup climate, to give you the best shot at creating a stable foundation for successful fundraising.

1. What is fundraising for startups?

Before embarking on the rollercoaster adventure that is building a startup, it’s handy to understand what even is fundraising? What are the different ways of fundraising for startups? And even, which fundraising options are best for different businesses? In general, fundraising for startups is the procedure new companies implement to raise money to finance their business, particularly its growth and development. Businesses usually raise capital in several stages, known as ‘rounds’, and the amounts vary depending on the sector, startup stage and its scalability. 

2. What types of fundraising options are there for startups?

As with most things in life, there’s no “one shoe fits all” to the type of funding for your startup, however, depending on which stage you're in will influence the kind of funding you should consider. In general, startups raise enough capital in their first round for their ‘cash runway’, in other words, to keep them going until the next round. Usually, the amount of time between rounds is 24-30 months, so this becomes your cash runway.  Understanding and quantifying your company’s milestones (specific benchmarks on the path to growing a successful business) and what you require to get there (resources, team, time and cost) can help founders calculate how much funding they’ll need to get from one round to the next. The most frequently pursued financial avenues include the following: 

• Bootstrapped - Ever heard the saying, "to pull oneself up by one's bootstraps", well, bootstrapping a startup means pretty much just that; founders have “done it themselves”, by tucking into their own personal pockets (or friends/family) to get the business started.
• Angel Investors - As the name implies, these individuals are like ‘guardian angels’, helping early stage startups with initial capital, except these angels aren’t doing it just out of good will, they're looking for equity or returns on investment.
• Venture Capital (VC) - For the businesses intended to scale, investment VC firms are able to inject larger sums of money to facilitate high growth and scalability.
• Crowdfunding - If founders have limited access to an investor network, crowdfunding is a more accessible option; smaller sums of money are crowdsourced from a large pool of individuals via platforms, like Kickstarter. 
• Accelerators & Incubators - For some startups, joining programs offered by accelerators and incubators can help with the fundraising process, usually in exchange for equity or financial return.

For a more comprehensive breakdown of the nuances between raising funds or bootstrapping a startup, check out our previous article here.

3. What are the different stages of a startup?

Now that we’ve got the basics under our belt, understanding the different stages of a successful startup is our next port of call. Most successful startups have likely gone through the following different stages, in order to build and refine their products, eventually leading to conquering their respective markets. Each stage comes with its own set of priorities and, with that, its own set of funding preferences. In general, startups can be grouped into the following stages:

• Pre-seed Stage - After the initial ideation stage, pre-seed stage focuses on building a minimum viable product (MVP) and market testing. Many startups begin this process by bootstrapping the business, otherwise, investment from angel investors, accelerators or crowdfunding is prevalent at this point.
• Seed Stage - Initial customer traction shifts the focus on improving the product and growing the user network. Investors reportedly injected around $3 million for seed stage startups on average in 2023, according to data from Carta.
• Early Stage (Series A) - Having established a substantial user base, the product and team is now ready to scale and perhaps enter new markets. VCs usually pump in large amounts of capital (somewhere between $1 and $10 million) to boost growth, likely with immediate ownership equity or preferred stock.
• Growth Stage (Series B, C…) - As the name suggests, this stage is all about growing further, including developing higher spec products, increasing acquisition of new users and taking on even larger investments.
• Late Stage/Exit - At this point of the process, the focus is on maintaining dominance in the market and even shifting towards an IPO.

4. What’s Fundraising like for startups in 2024?

Despite only being a year after the pandemic pressed pause on global activity, 2021 saw a funding boom like no other; records were broken and investment was up more than 10x compared to just a decade earlier. In fact, according to Crunchbase, unicorn startups (private companies valued over $1 billion) were averaging more than 10 per week! But, as we know, all good things must come to an end, and so did that meteoric boom in funding. 

Fastword to the first quarter of 2024, and the world of startup investment was still enduring its slow down, with global investment at its second-worst since 2018. However, despite this downbeat data, early-stage startups actually saw a 6% increase in investment funding from the previous year, with seed and angel investment dominating over late stage, indicating younger startups are being funded. 

Moving into the mid-way point of 2024 and things seemed to be looking up - according to Excluto, June witnessed a stunning improvement in startup funding, an increase of 148% compared to the same period the previous year. With a staggering increase in investment funding, it signals a boost in confidence among VCs and investors and a tentative move away from the cautionary and withheld investments of previous years. 

5. Angels Partners' expertise in raising funds for startups

While investors have maintained a tighter hold on their wallets and become more selective in their ventures, it hasn’t meant funding has halted entirely. If you want to raise funds in the current startup ecosystem, startups are encouraged to develop financial resilience and showcase clear growth potential. In the face of a more competitive and selective environment, successful startups will need to develop long-term strategies that adapt to fluctuating markets, backed up by convincing data, if they want to impress investors. 

Having clearly defined milestones and robust financial predictions based on tangible data can help startups secure funding. At Angels Partners we specialize in helping founders succeed, with our one stop platform to research, reach and manage investors across the entire process. You can check out our different plans here.

While the startup ecosystem is still enduring a somewhat trepid time in comparison to pre 2018, the resurgence in appetite from VCs and investors might just mean we’ll be welcoming in brighter days next year.