Raising capital for a startup involves securing funding to support the growth and development of a new business venture. Startups often require substantial funding to cover initial expenses such as product development, market research, staffing, and operational growth.

Below, we’ll cover how to raise capital for startups, including fundraising stages, common sources of funding, and funding plans that work for your startup’s goals and stage of development.

What’s in this article?

• What are the funding stages of a startup?
  
• 7 sources of funding for startups
  
• How to build a funding plan for a startup
  
• How Stripe Atlas can help
  

What are the funding stages of a startup?

The funding stages of a startup represent different phases in a company’s lifecycle, each with distinct characteristics, goals, and types of investors. Funding stages also come with different levels of funding: Crunchbase reported that the average seed round in 2025 for US startups was $3 million, while the average Series A round was $15 million. Here’s an overview of these stages:

• Pre-seed funding
  This is considered the earliest funding stage. It typically involves the founders using their own resources or funds from friends and family to launch the business. Pre-seed funding often comes before product development. At this stage, startups might also receive support from accelerators and incubators—programs like Y Combinator or Techstars that provide capital, mentorship, and resources in exchange for a small equity stake. Because there is little to value at this stage, funding is frequently structured as a SAFE (Simple Agreement for Future Equity), a convertible security that gives the investor the right to receive equity in a future priced round rather than locking in a valuation today.

• Seed funding
  Seed funding is the first official funding stage, typically taking place after a startup has a small amount of traction. Investors in this stage include angel investors—high-net-worth individuals who invest their own money, often providing industry connections and mentorship in addition to capital—as well as incubators, and venture capital firms specializing in early-stage investments. Seed rounds are commonly funded using convertible securities: either a SAFE or a convertible note, which is a short-term debt instrument that converts into equity at the next priced round, typically at a discount or with a valuation cap to reward early investors for their risk.

• Series A funding
  At this stage, startups have developed a track record, usually consisting of an established user base, consistent revenue figures, or some other key performance indicator. Venture capital (VC) firms are the primary investors in Series A rounds. These are professionally managed funds that pool capital from limited partners, such as pension funds, endowments, and family offices, and invest it in high-growth startups in exchange for equity. VC firms expect a developed business model and a clear strategy for turning a profit. Series A is typically the first priced equity round, meaning investors receive preferred shares at an agreed-upon valuation, although convertible notes from the seed stage will often convert into equity here.

• Series B funding
  Companies that reach this stage are well-established and seek to expand their market reach. Series B funding usually comes from venture capital firms, often larger and later-stage funds than those involved in Series A, and may begin to attract institutional investors. These are organizations such as pension funds, sovereign wealth funds, and insurance companies that deploy large pools of capital and typically look for lower risk than earlier-stage VCs.

• Series C funding and beyond
  These funding rounds (Series C, D, and beyond) are typically larger since the company has a proven track record. They typically involve institutional investors, private equity firms, investment banks, and in some cases hedge funds. At these stages, the capital raised is used to scale aggressively, enter new markets, or pursue acquisitions. The end goal is often to prepare the company for an initial public offering (IPO) or an acquisition.

Each stage reflects a step in the growth of a startup, from idea conception to market expansion, and requires different amounts of capital and types of investors. The expectations, risks, and investor involvement vary significantly across these stages.

7 sources of funding for startups

Beyond securing capital, fundraising can help startups build credibility, network with industry experts, and gain valuable insights and mentorship from experienced investors.

Fundraising needs evolve as a startup matures. In the early pre-seed and seed stages, capital goes toward foundational activities to validate the business concept, such as market research, product development, building an MVP, and hiring initial employees. Once traction is established, Series A funding shifts focus to scaling: refining the product, growing the customer base, and developing a repeatable business model.

As the company matures, Series B and C funding fuel more aggressive expansion, such as entering new markets, investing in talent and infrastructure, and solidifying competitive positioning. Later-stage rounds may also support acquisitions or new product lines, ultimately building the valuation needed for an exit via IPO or acquisition.

Understanding what you want to gain from a funding round will help you determine which sources of capital are the best fit. Here’s an overview of the main sources of funding:

1. Self-funding and bootstrapping

What it is: Self-funding and bootstrapping refer to the practice of starting a company with your own financial resources instead of external funds. The company reinvests its initial revenues back into the business to continue growing.

Self-funding and bootstrapping are particularly effective for startups that can be launched and grown without significant up-front capital. It’s ideal for entrepreneurs who wish to maintain control and for businesses with a clear path to profitability.

Self-financing can be useful for service-oriented startups or those with minimal initial capital requirements, as it permits entrepreneurs to scale operations at a self-determined pace.

However, for ventures that are capital-intensive or need to grow rapidly to secure market dominance, this approach may be less effective.

2. Friends and family

What it is: Friends and family funding involves seeking financial support from personal connections. This type of funding is often one of the first sources entrepreneurs consider.

Friends and family funding is effective for early-stage startups that need a relatively small amount of capital to get off the ground or reach the next milestone. It’s ideal for entrepreneurs who have a strong personal network willing to invest in their vision.

It is less effective for startups that require significant capital, want to avoid personal relationship risks, or need strategic business expertise and connections.

3. Angel investors

What it is: Angel investing is when affluent individuals provide capital for a business startup, usually in exchange for convertible debt or ownership equity. Along with financial support, these investors typically offer expertise, mentorship, and access to their networks.

Angel investing is particularly effective for early-stage startups that need capital to prove their concept or reach a certain milestone. It’s ideal for startups that can demonstrate potential for high returns and are open to mentorship. It’s less ideal for ventures that need large amounts of capital right away or those that wish to retain complete control over their business.

4. Venture capitalists

What it is: Venture capitalists (VCs) are professional investors or firms that invest pooled funds from high-net-worth individuals, corporations, pension funds, and other sources into high-growth potential startups. In 2025, global venture and growth investors invested $425 billion. In addition to funding, venture capitalists typically offer mentorship, strategic guidance, and access to a broader network of partners, clients, and future investors.

Startups best suited for VC funding include those that have a proven business model, demonstrated growth potential, and are in need of significant capital to scale quickly. VC funding is particularly relevant for technology startups, especially those in industries such as biotech, healthtech, and fintech, where large capital investments are often required for growth and development.

VCs are generally not as well-suited for small businesses or startups with modest growth ambitions, or those in the very early stages of development without a clear path to profitability.

5. Crowdfunding

What it is: Crowdfunding involves raising small amounts of money from a large number of people, typically through online platforms. There are different types of crowdfunding, including rewards-based, equity-based, donation-based, and debt crowdfunding.

Crowdfunding can work well for startups that have a compelling story or innovative product and want to validate their concept with a wider audience. This is especially true for startups offering consumer-focused products. But this type of funding might not be as appropriate for startups that are in the ideation phase without a concrete product or those that require large amounts of capital for research and development.

6. Government grants and subsidies

What it is: This funding source refers to financial support provided by government entities, which typically offer grants for specific projects, research, or initiatives and don’t require repayment. Subsidies may include tax breaks or other financial advantages to support businesses in certain industries or regions.

Startups that focus on sectors such as technology, health care, education, environmental sustainability, and social enterprises are often favored for government grants. This type of funding is particularly beneficial for businesses engaged in research-intensive projects or those contributing to societal goals. Subsidies might be more accessible to startups in designated industries or regions targeted for economic development.

7. Bank loans and lines of credit

What it is: This involves borrowing money from a bank or financial institution. A bank loan is a fixed amount of capital that is repaid with interest over a predetermined period of time. A line of credit is a flexible borrowing limit that can be used as needed and is often used for short-term working capital requirements.

Startups that have a steady cash flow or existing assets to use as collateral are better suited for bank loans. Lines of credit are useful for businesses that need flexible access to funds for operational expenses. This funding source is ideal for founders who want to retain complete ownership and control of their company and are confident in their ability to generate revenue to repay the loan. Bank loans and lines of credit are less suited for very early-stage startups with no revenue or assets to leverage.

How to build a funding plan for a startup

Creating a funding strategy for your startup involves developing a comprehensive approach that matches your business ambitions, risk appetite, and growth path. A thoughtfully crafted plan serves as a roadmap for obtaining and using financial resources to meet immediate goals and work toward long-term ambitions. Here’s how to approach it:

• Understand funding needs
  First, you need a clear picture of what you’re funding. Start by crafting a detailed budget that covers initial setup costs, operating expenses, and a runway that extends until you predict the business will generate sustainable revenue. Ground your budget in rigorous market research and realistic assumptions about growth rates and sales.

• Map funding stages
  Next, consider the stages of your startup’s development and the corresponding funding needs. Early stages may involve seed capital from personal savings, friends, family, or angel investors. As the business matures, funding from VCs might become a possibility—targeting more aggressive expansion and scaling efforts. Beyond this, funding could transition to strategic investments, private equity, or even public markets through an IPO.

• Diversify funding sources
  Relying on a single source of funding can be risky. A savvy funding strategy involves diversification. Combine traditional equity funding with grants, loans, or even revenue-based financing where repayments align with income streams. This reduces dependency on any single investor or lender and can reduce the cost of capital.

• Align with business milestones
  Your plan must link funding rounds with key business milestones. Investors want to see how their capital will lead to value-creating steps, whether that’s a product launch, user acquisition target, or profitability goal. Milestones also provide a framework for evaluating performance and making adjustments to your funding strategy.

• Prepare for diligence
  Investors conduct due diligence before committing funds. Prepare by organizing financial statements, business plans, market analyses, and legal documents so they’re ready for review. A strong pitch deck is central to this process. Cover the problem you're solving, your solution, market size, business model, traction, competitive landscape, team, and financials. Lead with the problem, and tailor the deck to your audience: early-stage angel investors often prioritize the founding team and vision, while later-stage VCs will scrutinize unit economics and growth metrics more closely.

• Negotiate terms
  Terms should protect the startup’s interests while also providing incentives for investors. This might involve negotiating valuation caps, voting rights, or liquidation preferences. Be ready to walk away if terms would put the startup at a disadvantage.

• Continuously monitor and adjust
  Regularly review your financial performance and adjust your funding plan accordingly. Market conditions change, and so will your startup’s financial needs. Flexibility allows you to capitalize on opportunities and mitigate risks as they arise.

• Foster investor relations
  Funding relationships are long term. Maintain open communication with investors, providing regular updates and fostering a sense of partnership. When pitching new investors, warm introductions from mutual connections (such as fellow founders, existing investors, or advisors) can help increase response rates compared to cold outreach. Build your network proactively before you need capital, not after. This can lead to further funding down the line and valuable strategic advice.

• Consider the exit strategy
  Finally, consider the exit strategy as part of the funding plan. Whether it’s an acquisition, IPO, or another form of exit, the strategy will influence the type of funding you seek and the investors you engage with.

When funding your startup, align your financial strategy with your long-term vision, business goals, and growth plans. Whether you choose bootstrapping, angel investors, or venture capital, each option has its own benefits and trade-offs. With a thoughtful approach to funding, your startup can build a strong foundation for future growth and success.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in the Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.