Beyond Venture Capital: Navigating the Diverse Funding Landscape for Startups

Insights from the "Venture Capital is the Only Capital that Matters" debate hosted by Invest & Trade Western Australia, ahead of Australia House at SXSW 2025 in Austin, Texas.

As founders embark on their capital-raising journey, the allure of venture capital often dominates conversations. However, when I was in Austin earlier this year for SXSW 2025, I attended a panel discussion featuring experts from various funding backgrounds who revealed a more nuanced reality: venture capital is just one option in a diverse funding ecosystem, each with unique advantages and considerations for growing businesses.

Strategic Capital Partners: Choose Wisely

"Many companies rush to take capital from anyone willing to provide it. Think of it more like dating—be selective about who you take money from. Find investors who understand your market, appreciate your growth trajectory, and can provide the skillsets you need," advised Kyle Asman, Backswing Ventures, during the panel.

This sentiment was echoed by other speakers who emphasised the importance of finding investors who bring more than just money to the table. Jonathon Marcel, from Capital Factory, reinforced that as founders you should "know your business plan, understand how you're going to execute it, and be patient throughout the process."

Angel Investors: More Than Just Money

Gary Forni, Central Texas Angel Network, provided valuable insights into the world of angel investing:

"There are over 350 angel groups in the US, ranging from informal soccer clubs investing in nephews' projects, to large institutions that conduct 40 years of due diligence before making any investment."

Angel investors typically invest early, when a startup has more substance than just a PowerPoint presentation but needs help smoothing out the initial challenges. According to Forni, angels look for committed teams where "at least three founders have quit their day jobs and are fully committed to the company's success."

What sets angels apart? "The real value we bring is our network and battle scars, which are far more valuable than the actual funding," noted Forni. Angels frequently take board seats to share their wisdom and connections without seeking control or day-to-day involvement.

Return Expectations Across Funding Types

Return expectations vary significantly across investor types:

• Angel investors target 7-10x returns but average 2.4x in reality, according to Gary Forni, from Central Texas Angel Network
• Venture capital firms typically look for 10-15x potential, particularly for Series A investments, with expectations varying by investment stage
• Corporate venture capital and private equity have different timeframes and expectations typically aligned with their strategic objectives

Corporate Venture Capital: Strategic Beyond Money

Camille Manso, Silicon Foundry, outlined three key types of corporate venture capital (CVC):

1. Financially driven CVCs: Operating like traditional VCs but with corporate backing
2. Strategic CVCs: Delivering value beyond capital by exploring new products, educating executives, and leveraging corporate resources
3. Hybrid models: Balancing financial returns with strategic objectives

CVCs often focus on later-stage companies (Series B and C) to ensure they're enterprise-ready. Many prefer to run pilot projects before investing, and while they can offer tremendous resources, their involvement often depends on executive support and may change during economic downturns.

Non-Dilutive Funding: Preserving Equity

Joe Mauser, from American Defence International, highlighted several non-dilutive funding options:

• R&D programmes like Small Business Innovation Research (SBIR) in the United States
• Prize challenges run by not-for-profits
• Government grants
• Regular contracts
• Other Transaction Authorities (OTAs) in the US that allow direct work with federal governments

For those considering non-dilutive government funding, Mauser noted that the US Army and Air Force tend to provide quicker access to capital compared to other branches.

Timing Expectations: Plan Accordingly

Understanding timeline differences is crucial when selecting funding sources:

• VCs: Can be 2-4 weeks for the fastest deals
• Private Equity: 6+ months (they'll likely end up owning the asset)
• CVCs: 5x longer than typical VC processes
• Government: Can range from days (at pitch events) to significantly longer

What Investors Look For in Founders

Ben Pfeffer, from Elsewhere Partners, emphasised capital efficiency and clean cap tables are preferred by private equity, ideally from bootstrapped companies.

All panelists agreed on frustration with founders who cannot clearly define their differentiators.

For Australian and New Zealand startups specifically, they recommended:

• Proving your concept in your home market first
• Developing a clear US market entry strategy
• Establishing some US presence, even if just intellectual property
• Understanding the regulatory environments of different countries and states
• Researching potential investors' theses before meetings

One panelist highlighted the importance of self-aware founders: "Very few people have the complete package like Mark Zuckerberg—the vision, technical skills, and operational abilities all in one. Be honest about what you excel at, and where you need support."

Final Thoughts

The debate made clear that while venture capital plays a crucial role in the startup ecosystem, it's not the only option—nor is it always the best one. Different capital sources serve different purposes, and the ideal funding path depends on your specific business model, growth trajectory, and long-term vision.

As Camille Manso aptly concluded, "With the proliferation of AI and automation, we're all being forced to move up the stack and embrace our humanity. Take the time to be intentional in your actions."

This article is based on notes from a panel event hosted by the Invest & Trade Western Australian ahead of the official SXSW 2025 Australia House (9-11 March) – hosted by the American Australian Association, in Austin, Texas.