In the world of early-stage startups, capital is the fuel, but the source of that fuel determines your speed, your steering, and who ultimately sits in the driver’s seat.
NextCorps recently hosted a panel discussion on funding strategies. Whether you are navigating the ‘time-tax’ of government funding or trying to survive the 30-second scrutiny of a VC’s pitch deck review, the following ten questions and answers offer a rare, unvarnished look at how founders can secure the right investment without accidentally pre-selling their future.
Experts:
- David Brown, founding managing partner, Impellent Ventures—a pre-seed / seed-stage venture capital firm based in upstate NY that invests nationally
- Matt Foley, managing director, NextCorps Incubation Services, and founder of multiple SaaS startups
- Jim Senall, president of NextCorps, and cofounder and managing director of the Rochester Angel Network
- Zach Helft, senior director of Funding Strategy, Intelispark— which specializes in helping startups secure non-dilutive funding, primarily through SBIR/STTR grants
Choosing your funding path
How should a founder choose between bootstrapping, grants, or going the VC route?
Matt: You need to do some soul-searching. You can build an amazing business that is growth-oriented and “crushing it” without outside capital. Especially with AI today, you can get really far.
If you take VC money, realize you’re going to have a boss who wants 70x to 80x returns. Are you okay with that lifestyle? If you value independence, try as hard as you can to bootstrap. You’ll retain more of the company and, honestly, you might be happier.
Understanding SAFEs vs. convertible notes
There are a lot of investment terms. What do they actually mean for a founder’s cap table?
David: When you’re early, we typically recommend SAFEs or convertible notes because it’s hard to put a specific value on a brand-new business. SAFEs were created by Y-Combinator to reduce legal friction—they are simple and fast. Convertible notes are more traditional; they sit as debt on your books.
One big thing to watch: in Upstate New York, many investors value QSBS (Qualified Small Business Stock) status. If you’re on a convertible note, you might not actually be eligible for those tax benefits. That’s a rabbit hole, but it’s why we often look at SAFEs first when investing in startups.
Finding a good investor balance
What should founders know about the different types of angel investors out there?
David: You have to distinguish between “Uncle Larry” and a professional angel group. Equity crowdfunding has also made it possible for hundreds of people to invest small amounts in a startup. The risk with having too many small, unaccredited investors early on is that it can “clutter” your cap table. When you eventually go for a Series A, a big VC firm might look at a list of 50 individual names on your ownership doc and see a legal headache.
Jim: That’s a great point. If you’re going the angel route, try to find a “Lead Angel”—someone who understands the terms, can help coordinate the other investors, and acts as a single point of contact. It keeps your business clean and professional for the next round.
The “free money” myth of grants
Grants like SBIRs and STTRs are often called “free money” because you don’t give up equity. What’s the catch?
Zach: You pay for the money, essentially, in time. If you apply for a grant today, you might hear back in six months for a $300,000 Phase I, which can be for six to 24 months. Then it’s another six-month gap before you even see the “real” capital in Phase II ($2M+). If you add the time up, it can be four years of your life. It’s a great technical validation, but don’t rely on winning grants alone. If you’re a capital-intensive company trying to preserve your piece of the pie through grants only, you’re going to end up with a big piece of a very small, undercooked pie.
Appealing to federal agency personalities
Federal agencies have totally different “personalities.” How does that affect how a founder should pitch to them?
Zach: You have to know if you’re talking to a granting agency, a contracting agency, or a combination of both.
- National Science Foundation (Granting): They are “blue sky.” They don’t want to buy your product; they want to see “high-risk, high-reward” innovation that helps society. You tell them what you want to build.
- Department of Defense (Contracting): They are a customer. They have a specific problem—like “we need a battery that works at -40 degrees”—and they want to buy a solution. If you’re pitching the DoD, you better show them exactly how you fit into their specific “topic.”
- National Institute of Health (the Hybrid): They sit in the middle. They care deeply about the scientific “specific aims,” but they also want to see a clear path to the patient.
What investors actually look for
What makes a founder stand out when they walk into an investor’s office?
David: At the early stage, 90% to 95% of the investment is the team. We look for curiosity to get to a solution.
I actually believe 100% of the companies we invest in are “wrong” at the start. Not because they’re stupid, but because they’re building around the customer, and that changes. We look for founders with the ‘right to win’—they have a unique viewpoint because they’ve been in the industry for 5-10 years. We also look for grit. I love a founder who has “died” three or four times and kept going.
Jim: From an angel investor perspective, it’s often much more personal. A VC is managing other people’s money and is bound by strict fund cycles. An angel is writing a check from their own bank account. They might be doing it to make money, however, they’re also often doing it because they want to mentor the next generation or they have a passion for a specific industry. Because it’s personal, the “likability” and “coachability” of the founder carry a huge amount of weight.
Calculating your valuation and “playing games”
How should founders think about the value of their company early on?
Matt: I took my company, PluggedIn, from idea to exit in five years. Our valuation only came after I had three bids to buy our company! Before that happens, the valuation is market-driven.
David: Be careful about “over-valuing” the company. The higher you set your valuation, the more you have to do to impress those people later. Also, don’t play games with “scarcity.” Some founders try to use Y-Combinator tactics to drive up the price, but you risk turning off professional investors who just want to find a fair market cap and build a business.
Developing your pitch
What’s the right length for a pitch deck?
David: I get 5,000 pitches a year. I give a deck about 30 seconds. Your only goal is to convince me that your story is worth 15 minutes of my time.
When we work with founders, we spend way more time reducing slides than adding them. So, keep your deck to problem, solution, and why you—that’s it. And, if you ask for an NDA, the conversation is over. It’s not personal—it’s a legal nightmare because we see thousands of pitches. To protect your company, only expose what is necessary to get the decision made. If you have a secret algorithm, show the results it drives, not the code itself.
Rethinking customer “no’s”
What is most often at the heart of a “no” when talking to potential customers?
Matt: I was able to bootstrap my company because I secured a big brand customer that was willing to give us money to develop our solution. When they say no, it’s usually one of two things: You’re in front of the wrong audience, or you haven’t done enough discovery. A customer might tell you your product is “nice,” but they won’t switch for a 30% improvement. They want a 10x improvement for it to be worth the hassle. Use those “no’s” as research to strengthen your solution and value proposition.
Using rejections to find the right relationships
What is the biggest mistake founders make when they start running out of money?
David: Not talking to enough people. You have to understand that this is a numbers game. Travis Kalanick did 200 pitches before he closed a round for Uber. So, don’t treat “no” as the end point. Most people don’t realize that the average VC relationship lasts 12 years—that’s longer than many marriages. So, another mistake is not finding the right relationship: You have to find a partner you actually want to work with for a decade.
Jim: The best way to vet an investor is the same way they vet you—time. If you start the relationship nine months before you need the money, you get to see how they react to your progress. Do they check in? Do they offer a helpful connection even before they’ve invested? Or do they only show up when they smell a “hot” round? Their actions will help you assess if they’re right for you.
The real secret of successful fundraising
The key takeaway is that fundraising is rarely a straight line; it’s a marathon of pivots, ‘no’s,’ and late-night soul-searching. Start your conversations early, treat every rejection as research, and remember that you aren’t just looking for capital—you’re looking for a partner that’s in it with you for the long haul.