Daniel Koren is CEO and founder at StartWise.
When launching my first business, it quickly became apparent that decisions about funding and when to raise capital (if you do) are among the most critical decisions a founder can make. A poorly planned or mismatched funding raise will not only affect your financial position, but it can also ruin your vision and cause you to lose control of your own company. It’s often said that around 90% of startups fail—typically due to challenges in managing their finances and sustaining long-term growth. I’ve personally seen how the wrong investor, at the wrong time, can slow or kill your momentum.
Here I would like to share the lessons I’ve learned throughout my own founder journey, as well as what I’ve learned from guiding startups.
The Funding Spectrum: What’s On The Table?
In my work with early-stage businesses as a founder and advisor, one of the most significant mistakes I see is companies pursuing the most attractive capital source rather than one that aligns with their stage and risk. All capital tools can serve a purpose, but none is a silver bullet. The trick is to find the one that gets you closer to the one thing you need today, whether that is validation of market demand, capital to build a minimal viable product (MVP) or capital to scale distribution. Don’t accept funding just because the source sounds good on LinkedIn.
Typically, startups commonly get capital from the following:
• Friends and family
• Angel investors
• Venture capitalists (VCs)
• Alternative sources: Bootstrapping, revenue-based financing, grants, accelerators, crowdfunding, strategic corporate investment and going into debt
Friends And Family
This includes financial help from those who are close to you, typically right before you have a product or traction. This type of funding gives startups a clear edge: You get instant access, there’s less friction, and it’s on more forgiving (and less formal) terms. This is ideal for validating core assumptions, building an MVP or funding early customer discovery.
However, the funding you receive can be limited—you may not receive sufficient funds for scaling. This type of funding can also lead to emotional strain, as losing money can strain a relationship. A lack of structure may lead to misunderstandings as well.
I recommend getting funding from friends and family only in small amounts or for small projects.
Angel Investors
These are investors who have a solid net worth and are most likely to invest in startups or companies in their early stages, often providing domain expertise and networking support. How does this benefit you? You often can make faster decisions with angel investors compared to VCs. Angel investors also may offer mentorship and industry experience, which benefits you in the long term.
There are some drawbacks to consider. Having various investors can complicate your capital table; you may face variations in questions. Some angel investors possess sound knowledge, while others do not, which can lead to less formal oversight and potentially misaligned expectations.
In my view, angel investors set the bar high for early startups, offering strategic guidance and capital without the heavy dilution and pressure of venture capital.
Venture Capitalists
Institutional funds typically invest in startups with high-growth potential in exchange for equity, oversight and influence. They provide access to large checks, enabling rapid scaling, hiring, marketing and expansion. Venture capitalists also support strategic networking and follow-on capital, which signals credibility to the market.
A survey of 885 institutional VCs found that management team strength ranks above product or market as the top factor in selecting investments. Venture capitalists also have complete reliance on their network; over 30% of their investment deals come from their professional contacts.
The best time to use VC funding is once you’ve achieved product-market fit and proven unit economics that can scale efficiently. VC funding is easy to scale and can operate in a market where time, speed and scale are crucial.
If your business is niche, cashflow-driven or isn’t expected to scale quickly, I don’t recommend this kind of funding. I’d also avoid it if you prefer to retain full control of your business rather than diluting it.
Alternative Sources
Beyond friends, angels and venture capitalists, there’s a booming ecosystem of alternative sources that fit perfectly with various startup models. Starting with crowdfunding platforms such as Kickstarter, Indiegogo or Republic, you can raise a significant amount from a large number of supportive investors while validating demand in real time.
These work well when a company has either a product that benefits from consumer exposure, a predictable stream or a technology that aligns with public policy or corporate guidelines. However, this type of funding is less suitable when your timeline is limited, you need a large amount or your business model isn’t clearly defined.
When To Raise, And When To Wait
Only pursue capital once you’ve established real customer demand from either paying customers, pilots or solid sign-ups. It also makes sense to pursue capital if your model requires real upfront investment (i.e., you need manufacturing, hardware or clinical trials).
Wait or skip external funding if your core assumptions, like customer needs, pricing or distribution, are still untested. Hold off when your unit economics remain unproven, or when you prefer maintaining control and building slowly and sustainably rather than chasing hypergrowth.
My opinion: Use this time to validate your model, collect data and strengthen fundamentals; the right funding later will be more effective and less risky. By “validate your model,” I mean turning assumptions into data-driven evidence.
Validate, Raise And Accelerate
Raising capital isn’t the true goal; it’s more about building impact and seeking the value that it provides. From my perspective, founders should run small, rapid experiments to test core hypotheses before seeking funding. This not only strengthens investor confidence but also prevents costly missteps down the line.
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