Money for Startups: How Startups Get Funded

I had the privilege of learning about venture capital from some of the sharpest minds in the field — MIT professors, seasoned investors, and founders who have lived through the highs and lows of building companies. This series is my attempt to pass that knowledge on, in a way that's practical, honest, and useful whether you're from Silicon Valley or somewhere that looks nothing like it.

There's more than one way to fund a company

When you start thinking about money for your startup, most people's minds jump straight to venture capital. But before we get there, it's worth zooming all the way out.

How does money actually get into a company? The answer is broader than you might think.

Here's a quick tour of the landscape: angels, personal savings, SBA loans (that's the Small Business Administration, which makes cheap money available to certain kinds of entrepreneurs in the US), SBIR grants for technology commercialization, accelerators like Y Combinator, pitch competitions and prizes, consulting revenue on the side, fellowships and grants, and what's called a "venture client" — a larger company that strategically decides to buy from startups because it knows they're ahead of the curve.

Each of these deserves its own conversation, and we'll get there. But the deeper point is this: The way you fund your company is not a given. It depends on who you are, what you're building, and what ecosystem you're operating in.

The way you fund your company is not a given. It depends on who you are, what you're building, and what ecosystem you're operating in.

Every country has its own norms, its own networks, and its own rules. If you didn't grow up inside the American startup culture, that's worth knowing — because the US model isn't the only model, and it certainly isn't always the right one.

Most founders don't start on the right — they start wherever they can, and build their way across.

The world we're really focused on: venture capital and angels

Of all those funding paths, this series focuses most heavily on two: venture capital and angel investing, including the increasingly important world of family offices. Not because the others don't matter — they do — but because these two shape how the game is played for high-growth, technology-centric startups more than anything else.

And there's something you need to understand about this world before you try to enter it: it's small. Shockingly small!

Venture capital sounds like a monolith. You see the TV shows, the headlines, the billions. But compared to, say, Wall Street — with its institutional banks, tens of thousands of employees, and thick layers of regulation and compliance — venture capital is tiny.

There are roughly 3,500 VC firms in the US today. Of those, about 3,485 have fewer than 50 employees. And a majority of all venture firms have under ten investment professionals. Ten people. That's it.

This matters because it means the decisions being made about your startup are being made by human beings — specific, individual, quirky human beings — not by some algorithmic institution. If you've grown up in more structured, process-driven environments, this can be a surprise. Venture capital runs on relationships, pattern recognition, and personal judgment far more than it runs on spreadsheets.

Venture capital runs on relationships, pattern recognition, and personal judgment far more than it runs on spreadsheets.

The herd, the pattern, and the challenge for outsiders

Venture capital behaves like a momentum investor — it follows the wave. For the last 15 years the wave was E-commerce, and most investors couldn't fund those startups fast enough. Today it's AI.

In venture capital, everyone is watching what everyone else is funding.

The practical takeaway: if your idea isn't defined yet — let the wave guide you. If your idea is ready — find investors who have backed people like you.

The problem shows up here: when everyone knows everyone and comes from similar backgrounds, "pattern recognition" stops being a superpower and starts being a mirror — reflecting the same tight network back at itself. There's actual research on what's called the "Zuckerberg Effect" — the tendency of investors to bet on founders who look like them. And "look like them" doesn't just mean shared interests or market focus. Sometimes it means race, gender, nationality. Sometimes it's the same university, the same family circles, the same room.

The bias isn't always conscious — sometimes it's just "this person feels familiar" or "I trust my read on them." But the result is the same: people outside that circle hit an invisible wall.

I'm not saying this to discourage you. I'm saying it so you walk in with your eyes open and ask the right questions:

• Which investors are actively excited about my sector?

• Who has backed founders who look like me?

• Whose network overlaps with the problem I'm solving?

These are real questions, and they're worth asking before you start pitching.

The numbers tell the rest of the story. Crunchbase data shows a stark gap between who writes the checks and who receives them — across both gender and race. In 2024, just two deals accounted for a disproportionate share of all funding attributed to female founders. The headline numbers are misleading until you look underneath them.

The mechanics: how money actually moves

Once you're in the room with investors, the conversation shifts from relationships to documents. At the earliest stages, that usually means two instruments: SAFEs (Simple Agreements for Future Equity) and convertible notes. Both are ways of getting money into your company now while delaying the harder conversation about valuation until a future priced round - typically when venture capital comes in.

In short — you have an idea, you built a product from it, you have a co-founder or you're on your own, and you're looking for an investor (with no capital). Find a VC or Angel Investor who resembles you — who believes in what you're offering. Put in the work on choosing the right investor because it's a relationship that will stay with you for a long time. Then prepare how you'll present your idea, prepare your documents (we'll explain them in the future God willing — whether it's a SAFE or a Convertible Note). They'll ask you how you'll scale, how you'll sustain, and so on (we'll cover all of it God willing) — but for now we're just walking you through the sequence of events and the big picture.

These instruments matter because the terms buried inside them have real economic consequences. The legal language can feel distant and abstract, but provisions around valuation caps, pro-rata rights, and control mechanics will shape how your company grows and who has a say in the major decisions. Having a lawyer who can translate - not just sign off - is not optional.

The same is true for term sheets when venture capital does come in. A term sheet isn't just a price; it's a set of rights, preferences, and protections that a sophisticated investor is building into your relationship. The number that gets all the attention is valuation. But valuation is just one variable. The clauses around liquidation preferences, board composition, and anti-dilution provisions can matter just as much — sometimes more.

The transactional mindset is worth building early.

Every time you ask for something - advice, an introduction, a meeting - you're in a relationship that runs in both directions. Lawyers, advisors, investors: they all have something they want from you, and knowing that doesn't make the relationship adversarial. It makes it honest.

The Big Picture

This is just a big picture — a quick roadmap:

Start with your idea. Believe in it, refine it, and understand its real value before you think about its market value.

Then find a lawyer — before you find an investor. Work with them to understand the basic documents like a Term Sheet. And honestly, try to understand these documents yourself before you even walk into a lawyer's office. We'll help you with that in this series.

Then research the market you want to build in. If it's Saudi Arabia, for example — look up the active investors, study where they put their money, and you'll quickly understand what excites them. Study their track record, their personality, their portfolio. This is closer to a marriage than a business deal — a long relationship that your livelihood will depend on.

Then reach out.

Prepare your Pitch — how you tell your story, how you plan to grow, how you'll win. Be clear and be direct. No one invests out of generosity. This is business, and the sooner you internalize that, the better your conversations will be.

In the next posts we'll go deeper — on Angel Investors and why they're underrated, on how to read and negotiate the documents that govern these relationships, and on the very human dynamics of pitching to people who have their own biases and blind spots.

The goal isn't to make you an expert on every clause in a Term Sheet. The goal is to make sure that when you walk into any room — with an investor, a lawyer, or an advisor — you know exactly what questions to ask.

More soon ♡