April, 2025
Exploring Funding Options for Scaling Growth Companies
All the companies I work with require funds to grow and scale at some point. And so I spend a lot of time working with the Founders and leaders to understand the options available and decide which is best for them. Not all dollars are the same, that's for sure.
As my clients look to scale, they all require capital: to fund expansion, build a talented team, develop and expand their products and services, or enter new markets. Identifying the right funding option is critical to scaling successfully.
One thing I always look to build early is an "always on capital" approach, bringing future investors and strategic advisors into my clients universe, making sure they are constantly informed of the businesses growth, successes and needs, so when capital is required, we do not need to spend valuable time creating pitch decks and documents to inform investors what we are up to and the great opportunity my clients present. Interested investors are already "inside the tent" so to speak which makes discussions and negotiations far more productive and efficient.
In this article, I explore and compare various funding options, including venture capital, angel investment and syndication, debt financing, crowdfunding, and bootstrapping. Each option has unique benefits and drawbacks, making it important to align the choice with your company's goals and circumstances.
1. Venture Capital (VC)
Venture capital is a popular funding choice for companies with high growth potential, particularly in industries such as technology, healthcare, and fintech. VC firms provide capital in exchange for equity in the business. This type of funding often comes with the promise of added value, as VC firms typically offer mentorship, networking opportunities, and advice. But part of the control of the company is also attached to the equity, and depdning on the amount, the VC may take a Board seat and therefore be able to influence decisions impacting on the companies growth and direction.
VC investments are also seen as risky by nature, and therefore the expected returns are large. This can drive a narrow focus of the VC firm on returns only and at pace so the VC fund can satiate the appetite of the Limited Partners (LPs) who are the actual investors.
- Upside: Large and diverse amounts of funding available, access to experienced investors and mentors, assistance with scaling strategies, can make future fund raises easier if your cap table includes known and respected VC entities, can help with exit and liquidity realisation for Founders as the VC LPs also need an exit (shared liquidity risk).
- Downside: Loss of equity (future liquidity value) and control, intense pressure to achieve high growth metrics, competitive acceptance process, "pitch parade" process can distract from core operations and growth, VCs have incentive to push down valuation to increase % equity, term sheets can be complicated and require legal interpretation and negotiation.
2. Angel or Syndicate Investment
Angel investors are individuals who invest their own money into startups and early-stage businesses. Unlike venture capital firms, angel investors are often more flexible and willing to work with smaller, less established businesses. More recently, a trend has emerged of angel investors coming together in more coordinated syndicates to pool funds into larger investment tranches.
Angel investors often bring industry experience and connections that can benefit a growing company. However, their funding capacity is usually smaller compared to venture capital, making it a better option for companies in the early stages of growth.
- Upside: More flexibility, smaller investments (but can be larger if pooled via syndicates), easier access for early-stage companies, most likely will not be a lead investor so a cornerstone investor is still required.
- Downside: Limited funding capacity, often will only invest if a lead investor is engaged, potential for diluted equity if multiple rounds are needed, often can't raise enough capital to create a long operational runway for the company.
3. Debt Financing (via a bank loans or a corporate debt broker)
Traditional bank grade loans remain a reliable funding option for businesses scaling their operations. Loans are typically secured through assets or revenue projections and require a defined repayment schedule with interest. There are more creative debt financiers emerging who understand deep tech better than traditional banks and are willing to take risk others will not.
Debt financing is best suited for companies with a solid financial history and predictable cash flow. So startups with limited financial records may find it challenging to qualify for these loans without providing significant collateral or a solid business pipeline backed by contracts and letters of understanding.
- Upside: No dilution of ownership, straightforward terms (although with deep technology companies these terms can become more complicated), fixed repayment schedules.
- Downside: Strict eligibility criteria, requirement for collateral, potential cash flow strain from repayment obligations, governance and operational process and stability will be more of a requirement than with equity investors.
4. Crowdfunding
Crowdfunding (direct retail or wholesale through platform syndication) has emerged as an innovative funding option for scaling companies. It involves raising capital from a large number of people (typically investing small amounts each), typically through online platforms. For. retail crowdfunding, it also requires the platforms to have specific licences to protect "mum and dad" investors from the higher risk profile of early stage investments.
Crowdfunding works well for businesses with unique and compelling products or services that resonate with a community or niche market.
- Upside: Increased market visibility via retail campaigns which is good for B2C and some B2B offerings, validation of the product or idea, no onerous pitching to investors, no complicated term sheets.
- Downside: Intense competition for attention, reduction in funding success rates for larger-scale needs, and possible delays in delivery expectations from backers.
5. Bootstrapping
Bootstrapping refers to funding growth through internally generated profits, personal savings or family and friends not looking for equity, rather than seeking external funding. This option allows business owners to retain full control and equity in their company.
Bootstrapping is an ideal choice for founders who prioritise ownership and independence over rapid expansion. While it may take longer to achieve growth, many successful companies have used this approach to scale sustainably.
- Upside: Full ownership and control retained, reduced dependency on external investors or lenders, retained flexibility in decision-making.
- Downside: Slower growth due to limited resources, higher personal financial risk and stress, restricted scalability, future investors may want to see other strategic investors already engaged.
6. Government Grants
In my experience, one of the most under-utilised source of funding is the government ... be that local, state or federal. There are hundreds of grants available in Australia for startups and early-stage companies, with new opportunities regularly announced and others closing throughout the year. The exact number fluctuates, but the landscape is broad and dynamic, spanning all levels of government and many industry sectors. And the amounts range from as little as $1,000 to over $5 million for some manufacturing and heavy industry sectors.
- Upside: Full ownership and control retained, reduced dependency on external investors or lenders, retained flexibility in decision-making, often access to other government resources like advisors or third party accelerators.
- Downside: Amounts are often not large and so other funding sources may be needed, grant writing is an art and a science and can take time, and it is hard to stay on top of all of the grants available. Many grants come with reporting requirements to ensure the money us being spent as intended.
7. Research and Development (R&D) Rebates
The only funding source more under-utilised than government grants is R&D Rebates or the Tax Incentive scheme. This is the federal government’s principal program to encourage businesses to invest in research and development activities by providing tax offsets for eligible R&D expenditure. Its goal is to stimulate innovation, boost competitiveness, and improve productivity across the Australian economy by reducing the after-tax cost of R&D for companies.
- Upside: For companies with an aggregated turnover of less than $20 million, the scheme provides a refundable tax offset equal to the company tax rate plus an 18.5% premium. This can be up to 43.5% for eligible small businesses, meaning if the offset exceeds the tax liability, the excess is paid as a cash refund. And for companies with an aggregated turnover of $20 million or more, a non-refundable tax offset applies, calculated as the company tax rate plus an incremental premium based on R&D intensity (the proportion of eligible R&D expenditure to total expenditure). Up to 2% R&D intensity, the premium is 8.5%; above 2%, it is 16.5%
- Downside: None really, but many early stage companies are not tracking and monitoring their expenditure in the "right way" for the government to apply the rebate. So some operational and process changes are often needed. The way contractors are used, offshore resources engaged, and invoices paid and recorded need to be within the guidelines, and many companies find they are non-compliant. But with some simple interventions they can get back ion track and benefit from the incentive.
Conclusion
Choosing the right funding option is one of the most critical decisions for scaling growth companies. Each method comes with its unique advantages and challenges. Entrepreneurs must carefully consider their business model, growth goals, and appetite for risk when selecting a funding path.
Ultimately, a combination of funding sources is often the best approach to balance risk, ownership, and growth potential. As your company scales, periodically reassessing funding strategies ensures that your business remains financially healthy while achieving long-term success.