Impact startups founded with a goal to contribute positively to society or the environment are on the rise. These early-stage enterprises are dedicated to generating tangible merits for their communities, ecosystems, and the world while also providing investors with financial returns.

The impact goals vary for companies, commonly including climate action, promoting affordable and clean energy, the development of sustainable cities and communities, facilitating quality education, and more. HealthTech has become a pivotal theme of the decade, striving to improve healthcare accessibility and patient outcomes.

It’s worth mentioning that while impact-oriented startups typically have a higher risk of failure than other businesses, the potential rewards in case of a successful launch are also much higher. Plus, you can drive and lead meaningful change in the world. In today’s article, we’ll delve into the various aspects of tech startup funding: how and where early-stage companies can raise money and what strategies they can implement to attract investment.

Getting funding for a tech startup: Ways to raise capital

2023 presented significant venture capital challenges for founders due to a decline in available funds from risk-averse investors. Despite the year concluding on a high with record stock market performances, the beginning of 2024 is putting startup resilience to the test as private companies navigate through a global economic downturn and increased cautiousness from VCs. The effects of a capital oversupply in 2023, prompted by new tech venture funds in a low-interest-rate environment, became apparent, with over 3,200 venture-backed startups closing worldwide, according to Pitchbook.

Although ideas may not always materialize as planned, it’s important not to be disheartened. Knowing where to look can secure the necessary investment to start your enterprise and lead it to success. Let’s delve into the options available for obtaining tech startup funding.

“Friends, fools and family”

Launching a startup with personal savings or borrowing money from family and friends is often the most straightforward method of securing capital, used by about 10% of entrepreneurs. This approach, commonly called “FFF” (“Friends, fools, and family”), relies on individuals close to you or those who believe in your vision enough to invest their private money. But be careful when mixing personal relationships with business. Even when dealing with friends and family, it’s vital to clearly define repayment terms, including ownership stakes, interest rates, or other conditions, to maintain transparency and prevent misunderstandings that could cost you dearly in strained relationships.

Crowdfunding

Crowdfunding allows startups to raise money from numerous individuals in amounts varying from a few dozen to several hundred dollars, so successful campaigns can accumulate significant funding. Kickstarter, GoFundMe, and Indiegogo are among the most popular crowdfunding platforms, which typically involve either donations in exchange for future products or investments in return for a small equity share in the company. Some of the most successful campaigns internationally have garnered tens of millions of dollars.

Business incubators & accelerators

By partnering with established companies or incubators, startups can open access to new markets, customers, and resources. Incubators support startups with means to navigate early growth hurdles by offering mentorship, office space, networking, and access to capital. They might invest a modest sum for a 5-10% equity stake, with incubation ranging from several months to a year to prepare the startup for further funding rounds.

If no incubation programs are available in your area, consider online platforms. The most popular online incubators are Techstars and YCombinator. The latter has already funded over 4,000 startups with a combined valuation totaling 600B dollars.

Like incubators, accelerator programs offer extensive resources but collaborate with established companies rather than concepts. These programs, privately funded by investors, corporate entities, or educational institutions (like SET), provide financial backing, expertise, training, and other resources to aid startups in launching. Look into local options and online platforms such as Gust to find accelerators. While offering a less competitive environment, regional accelerators might have a more personalized support system.

Bootstrapping

Bootstrapping refers to growing a business using its cash flow, where a startup operates with limited initial capital and scales up by reinvesting earnings from sales of its products or services. This approach is often viable for companies developing innovative software or cost-effective tools, as it requires a minimal upfront investment. However, ventures that need substantial investment in infrastructure typically require external funding. Since startups usually do not generate significant cash flow in their early stages, achieving high growth through bootstrapping is relatively uncommon.

Grants for startup funding

Startups in the early stages of exploring their concept and validating their business idea may qualify for grants. A grant is a form of financial support that does not require giving up any equity in the company. The availability and type of grants can differ depending on the country. Still, various grants are generally designed to support startups in their initial phase, often with certain conditions related to the company’s age. Grants typically fund a specific part of a project, necessitating that the company has some funding in place. For example, if a prototype’s development costs $120,000, up to 70% ($84,000) could be grant-funded, with the startup needing $36,000 in existing funds.

Loans

Debt financing poses challenges for early-stage startup funding but evolves into a strategic option as companies mature. As startups reach later stages and demonstrate product/market fit, debt financing can become a viable option to raise funds without diluting equity, complementing traditional venture capital. Recognizing this, many banks have introduced finance departments that offer startup loans, with support from programs like the Small Business Administration (SBA).

Startups can also explore loans from investors, FFF, or support organizations, which usually do not require personal guarantees and collateral as opposed to bank loans. However, we advise you to be cautious when securing loans against personal assets due to the risk of business failure.

Convertible loans represent another financing avenue, mainly when a company’s valuation is unclear or needs interim funding between investment rounds. This form of financing, essentially an unsecured loan, offers investors preferential rights to future equity, often at a discount to the next round’s valuation.

Angel investors

Angel investors, often successful entrepreneurs themselves, invest private money in early-stage startups they believe have future potential. Beyond providing capital, they offer valuable business insights, mentorship, and industry connections to support startup growth. While similar to venture capitalists in their association with investment platforms (e.g., the Angel Capital Association), business angels typically invest smaller amounts in fewer companies. As they are individual investors, their investment styles can vary widely. So, when considering angel startup funding, you need to understand the investor’s unique approach and method of work.

Venture capital for tech startup funding

Venture capitalists (VCs) are firms or investor groups that fund startups in exchange for equity, often suitable for mature startups poised for growth that require substantial resources. Beyond financial support, VCs offer mentorship, networking opportunities, and assistance in building the startup team, including recruiting key employees. Many have introduced micro-venture capital accelerator programs to capture high-potential startups early.

When exploring financing options, consider that experienced early-stage VCs bring valuable insight and have likely navigated similar challenges. Conducting thorough research on potential VC partners can help ensure they align with your startup’s needs and growth objectives, fostering productive partnerships.

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How tech startup investment works: Startup funding stages

But before any investment round begins, a company needs to undergo a valuation that directly impacts investor interest and the potential capital a startup can secure. Generally, a valuation considers the following factors:

  • Market size: The total dollar value of the market in which the company operates.
  • Market share: The % of the total market the company captures (e.g., 0.3%).
  • Revenue: A projection of the company’s earnings, calculated as market size multiplied by market share.
  • Multiple: A valuation metric investors use to gauge the company’s worth, typically a factor of the revenue like 10x or 12x.
  • Return: The expected percentage increase in investment value derived from projected growth in market size, share, and revenue.

Businesses go through various stages of capital raising, known as funding rounds. These start with pre-seed and seed funding, followed by Series A, B, and C. Some ventures might even advance to Series D and E. The four official funding stages include the seed round and Series A, B, and C, each designed to raise progressively more equity. It’s more complex, though: less than 10% of startups succeed in Series A funding rounds. 

Funding round Capital sources Product Investment size About
Pre-seed FFF, bootstrapping, angel investors, accelerator programs, grants, crowdfunding Proof of concept/prototype, MVP, demo, mockups $10K-$1M The stage of exploring and validating your idea before the official funding rounds. Similar to planting a seed in terms of growth (using capital to start a business).
Seed Business angels, grants, accelerators, seed funds, VCs, crowdfunding MVP, beta, product launch $250K-$5M The first official startup funding stage to finance the company’s first steps, including market research and product development (akin to watering the “seed” so it “bears fruit”).
Pre-series A Angel investors, seed and VC funds, grants, crowdfunding Product-market fit, product on the market $250K-$1M
Series A Mainly VCs and business angels Proven product-market fit, ready product $1M-$10M This stage requires a startup to have a business plan and develop a business model for long-term profit and a strong strategy for monetizing the business.
Series B Late-stage investment VCs, corporates, tech-oriented private equity funds Mature product $5M-$50M Taking business to the next level past the development stage, expanding market reach, and scaling to meet the growing demand levels.
Series C Tech-oriented private equity funds, corporates, VCs, hedge funds, investment banks, large secondary market groups Mature product, new products, M&A $20M-$70M Series C funding targets successful companies seeking extra investment for rapid scaling through product development, entering new markets, or acquiring other businesses.
IPO Banks, IPO investors Mature product (s) with substantial revenue potential $30M-$100M An initial public offering (IPO) marks the last stage of a startup development when the company’s shares go public in the stock market.
Sources: Visible, Investopedia, Relevant

Each stage of the tech startup funding process follows the same principle, requiring the company to establish its valuation and have clear plans for using the obtained money. Each funding round will inevitably dilute the company’s equity. As a rule of thumb, funding should cover 12 to 18 months, providing sufficient capital to achieve your goals and fulfill the forecasts made during your pitch and fundraising efforts.

How to pitch your impact technology startup to investors

Pitching your startup to potential investors is the most crucial (and dreaded) step in securing the funding necessary for your company’s growth and development. It’s an opportunity to showcase the value of your business, the problem it solves, and its potential for future success. A well-crafted pitch not only highlights the strengths of your startup but also demonstrates your commitment to the vision and the strategic planning behind it. Here’s how to make your pitch stand out:

Validate your idea

Before anything else, confirm the viability of your business concept. Understand your market size and segment it into Total Available Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM). This analysis will help you demonstrate your startup’s potential scope and scalability. Creating a customer persona can further illustrate your deep understanding of your target audience.

Prepare a killer elevator pitch

Your elevator pitch is your first impression, designed to spark interest in 30-60 seconds. Keep it concise, focusing on what makes your startup unique and worth exploring. Remember, the goal is to intrigue, inviting more detailed discussions.

Craft a compelling pitch deck

For more formal presentations, a pitch deck is essential. It should briefly cover the main aspects of your business: vision and value proposition, problem and solution, target market, revenue model, marketing and sales strategy, your team, financial projections, competitive landscape, and where the investment will apply. Use visuals to enhance your narrative and keep text minimal.

Showcase your MVP

An MVP (minimum viable product) proves your concept in action. It’s a critical tool for demonstrating the functionality of your product and its market appeal. Presenting an MVP shows investors your commitment to solving a real problem and your capability to execute your vision.

If creating a compelling MVP is on your agenda, consider leveraging our expertise at Beetroot. Our dedicated developers are here to bridge any expertise gaps where they exist and deliver swift, effective solutions poised to pique the investors’ interest and scale in the future.

What metrics do investors want to see in an impact tech startup?

Investors interested in impact tech startups generally look for a blend of traditional business performance indicators and impact-specific metrics to evaluate a venture’s potential success and sustainability. Here’s a breakdown of the key metrics they typically consider:

Traditional business metrics

  • Revenue growth: Measures the startup’s ability to increase sales over time, indicating market demand and scalability.
  • Customer acquisition cost (CAC) and lifetime value (LTV): The efficiency of acquiring new customers and the expected revenue a customer will produce throughout their engagement with the company. A good LTV to CAC benchmark is 3:1 and higher.
  • Gross margin: Indicates a business’s financial health and sustainability by showing the share of revenue (in %) that exceeds the cost of goods sold.
  • Burn rate and runway: Details how quickly your company spends capital before generating positive cash flow and how long it can operate before needing additional funding.
  • Market size and share: Demonstrates the company’s growth potential within its target market, showing investors the opportunity for scale.

Impact-specific metrics

  • Social or environmental impact measurement: Quantifies the direct impact of the startup’s products or services on its target issues, such as the number of students benefiting from an educational tool, carbon emissions reduced by a GreenTech solution, or the number of individuals gaining access to healthcare.
  • Impact depth and scalability: Assesses not just the breadth of the impact but also its depth—how profoundly the solution affects each beneficiary—and its potential to scale.
  • Sustainability and ESG (Environmental, Social, and Governance) criteria: How the startup manages its operations in sustainable ways, including its environmental footprint, social practices, and governance structures. In 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. This new EU directive will cover nearly 50,000 companies that will be required to report on sustainability. The new regulations will guarantee that investors and stakeholders get essential information to evaluate companies’ impact on people and the environment and to assess related financial risks.
  • Alignment with SDGs (Sustainable Development Goals): Demonstrates how the startup’s mission and operations align with the United Nations’ SDGs, offering a globally recognized framework for measuring impact.
  • Outcome and impact metrics: Investors look at longer-term outcomes and impacts beyond immediate outputs, preferring evidence-based measures that reflect the causal relationship between the startup’s activities and its social or environmental effects.

Combining metrics for a comprehensive picture

Investors seek a comprehensive understanding of both the startup’s financial viability and social/environmental impact. This dual lens ensures that the investment can offer competitive returns and significant societal benefits. Given that, startups should be ready to:

  • Track and report regularly: Maintain rigorous data collection and reporting systems for both sets of metrics.
  • Tell a compelling story: Beyond numbers, articulate how the startup’s mission, strategy, and operations contribute to tangible, positive change.
  • Demonstrate alignment: Show how the startup’s impact goals align with its business model, indicating that impact and profit are mutually reinforcing.

Summing up, impact tech investors want to see a startup that promises good financial returns and contributes meaningfully to addressing societal or environmental challenges. Effectively managing these metrics can significantly enhance a startup’s appeal to the expanding pool of impact-oriented investors.

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Strategies to secure funding if you are starting an impact-oriented business

Securing funding for an impact-oriented business, whether in education technology, GreenTech, or HealthTech, requires a strategic approach highlighting the potential for social impact and financial viability. Below are some sector-specific strategies for achieving this goal:

Funding for EdTech startups 

  • Government grants and subsidies: Look for government initiatives that support educational innovation, especially those that address accessibility, inclusion, or digital learning. Such grants often prioritize projects with a clear impact on educational outcomes. Look for regional and cross-border programs (like the pan-European IMPACT EdTech) to find financing opportunities.
  • Impact investors, EdTech angel investors, and venture philanthropy: Approach investors interested in funding ventures that deliver social and financial returns. Highlight how your EdTech solution can scale, improve educational outcomes, and generate sustainable revenue in the future.
  • Crowdfunding campaigns: Platforms like Kickstarter or GoFundMe can be particularly effective for EdTech projects that resonate with the general public. A compelling campaign showcasing the potential impact on education can attract small contributions from many people and a substantial following.
  • Partnerships with educational institutions: Partnering with schools, universities, or non-profit educational organizations can provide funding and pilot opportunities. These partnerships can also lend credibility and provide valuable feedback for refining your product.
  • Competitions and awards: Participate in EdTech competitions and apply for awards. Besides providing funding and support, these events increase visibility and validate your solution in the eyes of other potential investors.

Clean and green technology (GreenTech, CleanTech) startup funding

  • Government and international funds: Seek out government grants, tax incentives, and funding from international bodies focused on environmental sustainability. These are often substantial and designed to support green innovation.
  • Angel investors, GreenTech, and CleanTech venture capital: Target investors specifically interested in sustainable ventures. Emphasize your GreenTech solution’s environmental impact, scalability, and long-term profitability. The most prominent VCs in this domain are, among others, SEB Greentech VC, Green-Tech Ventures, Index Ventures, and True Ventures.
  • Strategic partnerships: Collaborate with larger corporations through their CSR (Corporate Social Responsibility) initiatives or sustainability departments. Many companies seek to invest in or partner with green technologies to improve their environmental footprint.
  • Incubators and accelerators: Join programs focused on sustainability and clean technology. These provide funding, mentorship, resources, and networking opportunities with potential investors and partners.
  • Crowdfunding and pre-sales: For product-based GreenTech solutions, platforms like Indiegogo can raise funds through pre-sales or donations, leveraging the growing public interest in environmental sustainability.

Raising investment for HealthTech companies

  • HealthTech venture capital and specialized investors: HealthTech ventures often require significant capital for development and trials. Look for VCs and investors focusing on healthcare innovation who understand the market and regulatory pathways (for example, Dreamit).
  • Government grants and innovation funds: Many governments offer grants for healthcare innovations, especially those that promise to reduce healthcare costs, improve access, or address significant health challenges.
  • Partnerships with healthcare providers: Collaborate with hospitals, clinics, and other healthcare providers. These partnerships can provide startup funding and a testbed for your solutions, demonstrating efficacy and value to users and investors.
  • Digital health incubators and accelerators: These programs are designed to support HealthTech startups with funding, mentorship, and access to healthcare networks, helping navigate the complex regulatory environment. Examples include RockHealth, The Cedars-Sinai Accelerator, Launchpad Digital Health, and more.
  • Patient advocacy groups and non-profit funding: For HealthTech ventures addressing specific diseases or patient needs, partnering with patient advocacy groups and relevant non-profits can provide funding, support, and access to communities.

Across all sectors, it’s crucial to articulate a clear value proposition, demonstrating how your solution addresses a significant problem, has a viable business model, and can achieve scale. Also, networking, building a solid team, and leveraging sector-specific resources are some strategic measures to increase your chances of securing funding.

Partnering with a sustainable vendor to support your venture 

Apart from securing funding, the success of any impact technology startup heavily depends on building a team with the right mix of skills, experience, and cultural fit and equipping them with the resources they need to grow and scale in a viable perspective.

Partnering with like-minded and impact-oriented vendors is crucial for impact-driven companies not only to ensure alignment of values but also to amplify their sustainability efforts: such partnerships foster synergy, as both parties are committed to creating ripples of positive change in their communities and broader ecosystems. This shared commitment ensures that all aspects of the business, from the supply chain to the end product, adhere to the highest sustainability standards.

Working with sustainable vendors also helps companies comply with increasingly stringent environmental regulations. It ensures that the business practices remain within legal frameworks and enhances a company’s reputation, as consumers are more inclined to support businesses that are genuinely committed to making a difference.

Such collaborations can spark innovation, leading to more sustainable products and practices that push the industry forward. And if you feel like this is the path you are eager to set off, Beetroot is here to help you at any stage of your journey. 

Find out how we can help extend your tech team for sustainable growth.

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