According to Carta's analysis released in Q1 2025, the number of startup funding rounds during Q1 2025 (1,122) was the lowest number of funding rounds in any Q1 from 2018 until now, and that the average duration (or time between) a Series A to Series B round has extended to 2.8 years, which has changed the way that founders think about their financial runway calculation.
This article provides a comprehensive look at how companies select their funding tool(s), determine what they want to raise for each funding round and match their capital strategy with the company's technology milestones when evaluating how to raise money for a tech startup.
Investing in Startups Today
Selectivity has become the theme in the finance of start-up businesses.
There are ample amounts of capital available for start-up companies to access; however, investors require much more evidence of demand from potential customers before they begin pricing rounds.
The Changes in Volume and Valuations
Carta's private markets platform data indicates that there is a significant split between early-stage volume and early-stage valuations. While total deal count has decreased, the valuations of the start-up companies that have secured funding have increased. Based on this data from Q1 2025, the following trends can be noted:
The median seed pre-money valuation has risen to $16 million, which is a year-over-year increase of 18 percent.
New seed deal volume has decreased by 28 percent compared to last year with 401 deals.
The total seed capital raised has decreased by 37 percent to $1.2 billion.
The total percentage of down rounds in Q1 2025 is over 19 percent of all deals closed during the quarter.
The New Planning Timeline
Due to the delay in the funding process, it is no longer feasible for founders to expect to receive funding within a short 12-month window. According to the views of both J.P. Morgan and Carta, the usual time between a Series A and a Series B is approximately 2.8 years; therefore, when planning out your fundraising strategy, you should expect to be raising money for a minimum of 18 to 24 months after closing your Series A.
Additionally, you need to account for the 2.8-year wait period, and raise an adequate amount of funds to see through to the achievement of that next milestone for raising additional capital. If a startup runs out of capital before it achieves its milestone metric for the next round of funding, the founders will end up suffering excessive dilution, face a down round of financing, or risk going bankrupt.
Target Amount of Capital Needed to Raise Money for a Tech Startup
Most founders make an error in determining the target amount of capital to raise by using a random number they saw in the news as a guideline. When raising capital, you should derive the actual target amount mathematically based on the future value of your company.
Factors to Consider in Calculating the Target Amount
In order to determine the target amount of capital needed to fund your business, you should base it on your total burn rate (the total amount of cash used in a monthly period), the amount of time left until reaching your next fundable milestone, the one-time expense incurred at the milestone event, and the additional amount needed to support any contingencies.
You can create an operating formula using this information as follows: total amount of capital needed = monthly burn amount x number of months until the milestone + one-time expense to achieve the milestone + contingency fund.
Let's say a particular software startup has a monthly burn of €45,000 and will need 18 months to get to the revenue milestone to qualify for Series A financing. In addition to that, the company will incur €120,000 of one-time regulatory and pilot expense to achieve that milestone and will want to maintain a contingency fund of €150,000.
The operating formula in this example would look like this: €45,000 x 18 months, in addition to the €120,000 one-time expense, plus €150,000 contingency, would equal a target operating raise of €1.08 million for this milestone. This is a financial calculation, not a universal market benchmark, so you must replace the number with your own actual cost amounts.
Reaching Your Next Milestone
Investors will invest capital based on the achievement of milestones, and not simply on the elapsed time between the two funding rounds. Milestones are significant events that decrease the risk of your business—such as launching an MVP, securing your first 10 paying B2B customers, or reaching $1 million in ARR.
As such, your capital must allow for you to pass that milestone slightly ahead, leaving enough time to begin a new strategy on how to raise money for a tech startup that can take 6 months to accomplish.
Picking the Right Funding for Your Stage
You need to make sure that the source of your capital aligns with the stage of your business when exploring how to raise money for a tech startup. If you ask for funds from the wrong type of investor, at the wrong time, you will be quickly rejected.
Idea and Early Prototype Stage
During this stage, you have no evidence to support your need for institutional investment. There is a high reliance on bootstrapping (personal savings) and friends and family. A technical co-founder will be very helpful in this phase.
For example, in one case study, a founder of KERB indicated that building the product without a technical co-founder would have cost them AUD $500,000. Instead, they self-funded for nine months to build the product before raising $3 million from 27 investors.
Minimum Viable Product and First Users
Once you have begun to develop early users, you can pursue angel investors, pre-seed funds and accelerators, such as Y Combinator and Techstars. Accelerators usually provide $50,000 to $150,000 in exchange for 3-7% equity. They will put founders through an intensive three to twelve-month program. Admission into these programs usually is less than 10%.
Equity crowdfunding is also an option for companies to consider. Under SEC Regulation Crowdfunding, U.S.-based companies may raise $5 million in a rolling 12-month period from accredited investors only. For unaccredited investors, the investment limits are based on the investor’s income or net worth. If their income or net worth is less than $124,000, their limit is $2,500 or 5% of that total, whichever is higher, and where both are over $124,000, the limit will be at 10%.
Repeatable Software Revenue
Also, after acquiring paying customers a B2B SaaS company will require funds to hire sales personnel and distribute products to the enterprise marketplace. This stage typically falls into seed stage VC, angel syndicates and strategic investors. The median size of a U.S. seed deal is approximately $3 million, which means that a founder would have to give up approximately 20% of the equity in their company.
These investors are very focused on "hard metrics". They want to understand your customer acquisition cost, your retention rate, your payback periods and the strength of your sales pipeline. Raising large amounts of capital to build a large salesforce before the company is able to demonstrate a repeatable sales process is a critical error.
Deep Technology and Regulated Innovation
Companies that operate in the hardware, AI, biotech and deep technology sectors require substantial financing for R&D long before they are able to generate any commercial revenue. As with some DTC businesses, the venture capital model does not tend to fit well with early-stage deep technology because they may take years to bring to market.
As a result, grants would be the most appropriate funding source for these companies.
For Founders in Europe, the European Innovation Council (EIC) Accelerator is an extremely valuable resource. It provides grant funding of €2.5 million or less to support innovation activities at TRLs 6 to 8, as well as equity investments up to €10 million.
The funding application process is an extensive undertaking, with application materials including, at a minimum, a pitch presentation, a three-minute video and a twenty-page proposal, along with your implementation strategy and freedom-to-operate analysis.
Also eligible for the EIC Pre-Accelerator in European Union member countries are startups from growing EU member countries (for example, Hungary). EIC Pre-Accelerator grants range from €500,000 to €1 million, have a maximum duration of two years and require a minimum of 30% co-funding.
Evaluating Different Funding Options
When asking for financial assistance, you are effectively selling part of your business and will most likely enter into a binding legal agreement. The nature of the agreement defines future financial rights and control.
Instruments Used for Early-Stage Funding
The instruments most frequently used by early-stage companies are SAFEs and convertible notes. These two tools are often relatively inexpensive and very fast to execute. Instead of determining the fair market value of the business at the delivery of the funds, the investor is giving you cash now (based on the investor’s best guess) for the right to acquire common shares at a discount in the next priced round.
A valuation cap is an important aspect of a SAFE. The valuation cap can significantly limit the future upside of the investor’s investment, and if the company issues SAFEs without keeping accurate records of conversions into equity, it will lose a significant portion of its ownership during the pre-IPO stage.
Priced Equity Rounds
If the company chooses to sell shares in the form of a priced round (i.e. at a predetermined price), then the company is negotiating directly with the investor on the value of the company. As described in an earlier section, the term "Series A investment" refers to a group of early-stage investments that generally take place after a company's initial funding round.
In terms of median valuations for Series A investments, data from the National Venture Capital Association suggests that the median pre-money valuation for Series A companies is approximately $48 million, and that founders typically sell approximately 17.9% of their company during a Series A investment.
Pricing for Series A rounds, while legal and contractually complex, will result in the highest legal and transactional costs associated with closing an investment.
Investors will expect to receive a board seat, pro-rata rights to maintain their percentage holdings in any subsequent rounds of investment, and a liquidation preference that will allow them to be paid back first in the event of a future sale of the company.
Other Alternatives for Raising Capital
When considering alternative capital options, companies can utilize revenue-based financing and venture debt to extend the runway of their companies, without giving up equity. However, only companies with predictable, recurring revenue streams can service this form of financing.
In addition to revenue-based financing and venture debt, hardware companies can utilize Kickstarter campaigns to raise funds for product production. The Raine One Kickstarter campaign was able to raise over $596,789 based on a goal of $73,596 and was supported by 450 backers.
However, professional marketing for this form of launch generally carries an estimated cost of close to six figures and will incur fees of 8% to 10% of total gross funds raised by Kickstarter.
How to Raise Money for a Tech Startup: Running Your Campaign
A fundraising campaign operates as a B2B sales process. From establishing a pipeline, to developing qualification criteria, to implementing a structured follow-up procedure for tracking the progress of leads, you should take the necessary steps to set up an organized and consistent fundraising process.
Creating Your Investor Pipeline
As with any B2B sales process, you need to focus your pipeline on investors who invest in your industry sector, geographic area, growth stage, and startup portfolio.
For example, you should avoid contacting late-stage healthcare investors if your company is a pre-seed stage software company.
Establish a CRM that will allow you to track your investor contacts, track your warm introductions into investors, track your status, and track the requests and/or actions you have on an investor.
The Evidence Room and the Reality of Rejection
While a pitch deck is an important starting resource, the more important first step for any investor is the creation of an evidence room. Your evidence room should contain your financial models, cap table, legal documents, your customer retention cohort data, and a comprehensive go-to-market strategy. You should not begin to pitch until you have developed your evidence room.
Prepare for a significant amount of rejection. For example, Fillr had spent approximately AUD $18 million developing their product, and throughout the six-month capital-raising process, they received approximately 120 investor rejections before finally securing an AUD $5 million investment raise.
When navigating how to raise money for a tech startup, it is critical that you maintain your company's operations, as well as the morale of your team, despite hearing the word "no" for several months.
Final Verdict: Strategic Use of Capital in a Slow Market
Given the current financial environment, it is critical for founders to have a comprehensive operational and financial strategy in place before raising capital. With the gap between the seed and Series A stages of investment continuing to widen, and with median wait times for Series B fundraising approaching three years, the success of every startup is dependent upon matching the appropriate funding instrument to the appropriate stage of growth.
To successfully raise capital, founders must have a clearly defined target raise based on their actual net burn and a thorough understanding of dilution of the funding instruments, and be able to provide proof of technical and commercial milestones. When figuring out how to raise money for a tech startup, founders should view capital as a tool to expand a proven business model, rather than as a replacement for obtaining validation from early customers.