Dual-use funding: government grants and contracts

One of the most overlooked avenues for startup funding is the US government’s Small Business Innovation Research (SBIR) programme, which provides contracts and grants for research and development. Unlike traditional grants, many SBIR funds come in the form of contracts, requiring certain deliverables but offering a clearer path to revenue.

Startups can pursue Phase 1 SBIR contracts, typically offering around $100,000 to explore and validate an innovative solution. If successful, Phase 2 funding can provide significantly larger sums to develop a working prototype, and in some cases, you can skip Phase 1 and receive a direct to Phase 2 contract. However, the biggest challenge remains moving beyond Phase 2 – what many refer to as the "valley of death," where a startup must transition from government-funded research to full-scale deployment with commercial customers.

Despite this challenge, government contracts can provide early-stage capital for startups developing innovative, mission-driven technologies that align with national security, healthcare, and other public sector needs.

Pitch competitions: pick your battles

For very early-stage startups, pitch competitions can offer both funding and exposure. These events often provide cash prizes ranging from $20,000 to over $100,000 – amounts that can significantly extend the runway of a lean startup.

However, success in pitch competitions requires more than just a solid business model. Startups with strong mission-driven narratives tend to perform best when paired with a path to revenue. Investors and judges are often drawn to compelling stories of innovation that address urgent societal or technological needs. Companies focused on healthcare, AI or sustainability have found success with pitch competitions as both a fundraising and marketing strategy.

Pitch competitions do come with some risks. The time and money spent traveling, preparing and networking can be significant, and startups should weigh the opportunity cost before diving in. Founders must ensure that their participation aligns with broader business goals, whether refining their pitch, expanding their network or securing non-dilutive funding. Founders can also look at the ratio of prize money to competition. For example, a $20,000 prize with 20 finalists is less valuable than a $100,000 prize with 5 finalists.

Family offices and angel investor networks: 100x growth not required

While VC firms are the go-to funding source for startups, family offices and angel investor groups have emerged as attractive alternatives. Unlike VCs, which prioritise rapid growth and high-multiples exits, family offices may take a long-term wealth preservation approach. This difference in incentives means that startups working on industries with longer development cycles – such as healthcare and deeptech – may find family offices more patient, supportive and better aligned with your company’s mission.

Similarly, angel investor syndicates provide a valuable funding mechanism, pooling smaller investments from multiple individuals into a single entity known as a Special Purpose Vehicle (SPV). These SPVs allow startups to deal with one lead investor as a point of contact rather than managing multiple angel investors directly. Additionally, angels tend to be more mission-driven and engaged, offering strategic guidance without the aggressive growth pressures typical of VC investors.

Non-Recurring Engineering (NRE) and customer-funded development

Another creative funding method for startups is Non-Recurring Engineering (NRE), where larger companies pay startups to develop solutions that align with their business needs. Essentially, startups can bootstrap by securing paid development work that closely relates to their long-term product vision.

Although there’s a risk of becoming a service-based business rather than a scalable product company, those who navigate NRE strategically can use these early contracts to refine their offerings while generating revenue without giving up equity.

For founders looking beyond the high-pressure world of VC-backed hypergrowth, these alternative funding sources provide a more sustainable way to scale – allowing them to maintain control of their vision while securing the necessary capital to bring their innovations to life.

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