Starting a business is exciting, but getting the right funding can be tough. Many entrepreneurs use startup grants because they provide free money that doesn’t need to be paid back. However, grants alone may not be enough to grow your business. The best way to succeed is to combine different funding sources for startups strategically.
In this guide, we’ll explain how to mix grants with other funding options, such as venture capital, crowdfunding, and bootstrapping, to ensure your startup’s success.
Understanding Startup Grants
What Are Startup Grants
Startup grants are funds provided by governments, nonprofits, and companies to help new businesses. Unlike loans, grants do not need to be repaid, and they do not require giving up business ownership.
Types of Startup Grants
- Government Grants – Offered at local, state, and national levels to support innovation and small businesses.
- Industry-Specific Grants – For startups in fields like healthcare, technology, or renewable energy.
- Research and Development Grants – Help businesses create new products or improve existing ones.
- Minority and Women-Owned Business Grants – Promote diversity in entrepreneurship.
- Nonprofit and Corporate Grants – Support startups working on social and environmental issues.
Other Key Funding Sources for Startups
Bootstrapping
Bootstrapping means using personal savings or business revenue to fund the company. Many successful businesses started this way.
Pros
- Full ownership and control over decisions
- No debt or investor pressure
- Encourages smart financial management
Cons
- Slower growth due to limited capital
- Higher financial risk for founders
Angel Investors
Angel investors are individuals who invest their own money in startups in exchange for business equity.
What Angel Investors Look For
- Strong founding team
- Business potential and market demand
- Opportunity for high returns
Pros
- Provides mentorship and industry connections
- Can invest at an early stage when banks may not lend
Cons
- Loss of some business ownership
- Investors may have influence over business decisions
Venture Capital Funding
Venture capital firms provide large investments in exchange for business equity. This funding is ideal for startups looking to grow quickly.
When to Consider VC Funding
- If the startup has a proven market and customer base
- When significant capital is needed for rapid expansion
- If the business is willing to give up some ownership
Pros
- Access to large amounts of funding
- Guidance from experienced investors
Cons
- Loss of ownership and control
- High expectations for fast growth and returns
Crowdfunding
Crowdfunding involves raising money from many people, usually through online platforms.
Types of Crowdfunding
- Rewards-Based Crowdfunding – Supporters receive a product or service.
- Equity Crowdfunding – Investors receive shares in the company.
- Donation-Based Crowdfunding – People donate money without expecting returns.
- Debt Crowdfunding – Individuals lend money with interest.
Pros
- Raises funds while promoting the business
- Helps validate product demand
- No need to give up business ownership for rewards-based crowdfunding
Cons
- Requires strong marketing and outreach efforts
- No guarantee of meeting the funding goal
Bank Loans and Business Credit
Startups can apply for different loan types:
- Term Loans – Borrow a fixed amount and repay over time.
- Lines of Credit – Flexible borrowing limit for ongoing expenses.
- SBA Loans – Government-backed loans with lower interest rates.
Pros
- Retain full business ownership
- Fixed repayment schedule makes budgeting easier
Cons
- Requires a good credit history and collateral
- Interest rates and loan terms can be expensive
How to Combine Grants with Other Funding Sources for Startups
Combining Grants with Other Funding Sources for Startups: a Funding Strategy
A smart funding mix can help a startup grow while keeping financial risks low. Steps to build a strong funding strategy:
- Start with Bootstrapping – Use personal funds to cover basic expenses.
- Apply for Grants – Secure non-repayable funding for research and development.
- Seek Angel Investors – Raise early-stage capital while gaining mentorship.
- Use Crowdfunding for Product Launches – Engage customers and raise money.
- Consider VC Funding for Scaling – If rapid expansion is needed.
Using Grants to Attract Investors
Grants help prove a startup’s potential, making it easier to attract investors and loans.
- Highlight grants in funding proposals to show credibility
- Use grant funding to develop prototypes before seeking investment
Timing Your Funding Sources
A structured funding timeline prevents cash shortages:
- Early Stage – Bootstrapping, grants, angel investment
- Growth Stage – Crowdfunding, venture capital, loans
- Expansion Stage – Scaling with additional investment
Best Practices for Combining Multiple Grants with Other Funding Sources for Startups
Budgeting and Smart Spending
- Track spending to avoid misusing grant money
- Prioritize revenue-generating activities
- Use financial management tools
Combining Grants with Other Funding Sources for Startups: Meeting Grant Requirements While Growing
- Keep detailed financial records
- Submit reports on time
- Align grant-funded projects with business goals
Avoiding Common Startup Funding Mistakes
- Relying too much on one funding source
- Mismanaging grant funds, leading to disqualification
- Giving up too much equity too early
Combining Grants with Other Funding Sources for Startups: Real-Life Success Stories
Tech Startup Combining Grants and Angel Investment
A SaaS company received a government grant to build its prototype. After proving market demand, angel investors provided seed funding. Later, the company secured venture capital for expansion.
Social Enterprise Using Crowdfunding and Grants
A sustainable fashion brand launched a Kickstarter campaign while applying for an environmental grant. The crowdfunding campaign proved customer interest, while the grant covered production costs.
Combining funding sources for startups is the best way for long-term success.
Combining funding sources for startups is the best way to secure long-term success. Grants provide a strong foundation, but using venture capital, crowdfunding, or loans creates a balanced funding strategy.
By mixing funding sources wisely, startups can maximize growth opportunities while maintaining financial stability.
