How to Fundraise to Grow and Scale Your Startup

At growth and scale up stage, the sources of funding and sophistication of the funders and level of negotiation change too, so you need to make sure you are ready for each. Here are some of the key sources of funding used by growth startups and scale ups: 

Non-dilutive sources of funding (where you don’t give up any equity):

Grants at growth and scale stage, you may be eligible for major innovation, R&D or export focused grants provided at country or international level (eg in Europe, see EIC funding from the European Commission grow and scale); These types of grants tend to be highly competitive, with a lengthy application and due diligence process. The huge positive is that the money is non-dilutive, and investing the time and energy in submitting an excellent grant proposal (or hiring a grant expert with experience in those types of proposals for specific grants) are worth it. These types of grants also tend to be very prestigious and show the level of de-risking you have done, which can positively impact your valuation and attract more high-caliber later stage funders.

Loans: At growth stage, you will be looking at bigger size term loans, bridge loans, equipment financing, lines of credit and some SBA / Growth loans from your country bank, to help you manage liquidity and fund part of your growth stage. On the plus side, you will have a clear repayment plan (good for financing and budgeting) and you may get more favorable interest rates. Look for women focused loan programs, and SBA backed loans.

Strategic Partnerships: these can be a highly effective way for a you to grow or scale. They are usually mutually beneficial and go beyond mere financial transactions. You can come together with another business to share resources, knowledge and strengths to achieve common objectives and can range from joint ventures, co-marketing agreements to supply chain partnerships. The goals can include expanding into new markets, enhancing product offerings, sharing technological resources, or leveraging each other’s customer base and distribution networks. Eg partnering with a corporate to test your product in a new geographical territory or segment. Sharing resources can lead to reduced costs and increased operational efficiency and are a clear sign of traction, strategy and solidity, to external investors.

Customer revenue: At growth/scale up stage, you should be seeing significant, consistent monthly growth in revenue and very significant annual growth and profit/user rate.

Dilutive sources of funding:

Equity Crowdfunding: equity crowdfunding campaigns can be a good way to raise funding in the growth stage, especially if you have already raised money on that platform before and have a track record there. They still require attention and usually by this time, you’ll have a marketing team to manage a lot of the ground work, allowing you to be there for strategic investor meetings and presentations.

Angel Investors / Super Angels / Syndicates: At later growth and scale stage you may consider raising another round from your existing angels, or even bring in a super angel (who can write the $250K+ checks) to fill out your round. You may also buy out some earlier stage angels who can’t re-invest this round and keep that equity to propose to growth vcs and other funders.

Growth VCs (venture capitalists): Growth and scale stage is the preferred playground for many VC firms to play in. You will have by now built relationships with some VCs, either from first raises with earlier stage vcs or on-going conversations with growth stage vcs in view of raising your Series A+. Make sure the VCs you target are the right stage, geography and are still deploying capital from their fund. This is where leveraging your network (of investors, partners, founders) will come in, to help you identify the right VCs to accompany you on this next stage of growth. Remember they will want detailed financials and growth metrics as well as access to clients to do more detailed due diligence. Get good legal and financial advice to negotiate your term sheet and valuation.

Family Offices: A family office is a private wealth management advisory firm that serves ultra-high-net-worth individuals. It is set up to manage a family’s private wealth, handle investments, and provide other financial services, such as estate planning, tax services, and philanthropy management. Family offices are distinct in that they offer personalized services tailored to the specific needs of the family they represent and some invest in scale ups. Unlike venture capitalists, family offices often have a longer-term investment horizon. This aligns well with businesses that need patient capital to grow and scale without the pressure of quick returns. Family offices may often invest in companies that align with personal values or interests. Women founders with businesses focusing on social impact, sustainability or innovation can often find a good fit here. They can often operate more discreetly, which can be beneficial to companies who want to grow without much public attention.

Private Equity Firms: A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies, including leveraged buyouts, venture capital, and growth capital. These firms raise funds from institutional and individual investors and then use these funds, along with borrowed money, to invest in businesses they believe have high growth potential. They often can write very large checks (in multi-millions) and bring a wealth of experience and proven strategies in scaling businesses. They can also give access to vast networks of industry experts, potential customers or future funding sources.

At this growth/scale stage, the key is to find the right partners whose investment thesis, expectations, approach and values match the goals and needs of your business. Choose them wisely and you will go far. Remember to ask your network for introductions.