If you're developing a tech startup, chances are you'll need outside funding to get your idea off the ground or take it to the next level. Often the initial funding comes from family and friends but there comes a point where you need to look elsewhere. One of the most common ways to raise that money is through equity fundraising – the process of securing funding from investors in exchange for a share in your business.
This article is designed to give you a clear introduction to equity fundraising. We’ll explain what it is, who the typical investors are, and the different stages of fundraising. Whether you're at the idea stage or preparing to raise your first round of funding, this guide will help you understand the basics and feel more confident about your next steps.
What is equity fundraising?
Equity fundraising is the process of raising money for your business by selling shares to investors. In return, those investors become part-owners and share in the future success of your company. It’s not just about securing funds - it’s about bringing in people who believe in your vision and can offer support, experience, and connections.
To understand equity fundraising, it helps to first know what equity finance means. This is a way of getting money into your business without taking out a loan. Instead of borrowing and having to pay interest and repay the loan, you sell a portion of your business in exchange. (You can learn more about how this funding method works with our article on equity finance).
Why tech startups choose equity finance
For tech startups, equity fundraising is often one of the only viable funding options in the early stages. Without steady income, tangible assets, or a proven track record, traditional loans are usually out of reach. That’s why many founders turn to equity finance.
Yes, this will mean letting others have a stake in your business but equity investment can bring significant advantages. Beyond the funding itself, it can give you access to experienced partners who can offer strategic guidance, open doors to new opportunities, and help accelerate your growth. Investors risk their money based on your potential, and if your business succeeds, they share in the upside - most commonly through increased company value. As your business grows, shares become more valuable, which can lead to significant returns for both you and your investors when you sell your stakes during a future funding round, acquisition, or IPO. Of course, they also share the risk with you so may lose their money if the business fails.
So, while equity finance is the type of funding itself, equity fundraising is the journey of securing it. That journey includes finding the right investors, sharing your story, and agreeing on how much of your business you’re offering in return for their backing. Equity fundraising usually happens in stages - like pre-seed, seed, and Series A - and each stage brings different opportunities, challenges, and expectations.
Types of equity investors
There are several types of equity investors, each offering different levels of funding, involvement, and expertise:
Angel investors
These are individuals who invest their own money, often at the very early stages of a business - usually pre-seed or seed - and can therefore be instrumental in helping a startup get off the ground. Many angels have experience as entrepreneurs themselves and can offer valuable advice, mentorship, and introductions.
Angels often invest as part of a group of angels, known as a syndicate. This allows them to pool their resources together, which can increase the total investment and bring a wider range of expertise and connections. Read our article on angel investors to find out more.
Things to consider: angels are willing to take a high level of risk and can provide crucial early-stage support. They also often bring other benefits like flexible terms and mentorship. However, they tend to invest smaller amounts than venture capitalists and may have more limited resources.
Things to consider: VCs typically provide larger amounts of funding, strategic guidance, and strong networks. Bear in mind, though, that VCs often expect rapid growth and a clear path to exit. Their involvement can come with more structured oversight and performance expectations.
Equity crowdfunding platforms
These platforms allow many investors to contribute small amounts of money to a business via a regulated online platform. This model works best for startups with a strong consumer brand or an engaged community, as success often depends on public interest and trust. Crowdfunding can also double as a marketing tool, helping to build awareness and loyalty. Read our article on equity crowdfunding to find out more.
Things to consider: Equity crowdfunding can offer a fast way to raise money from many small investors and provide a valuable marketing boost. Success, however, depends heavily on your ability to mobilise interest - you often need to bring the crowd yourself. Campaign management and compliance can be complex, and investors are typically less strategically involved than other types. Also, many platforms operate on an “all-or-nothing” basis: if you don’t reach your funding target, the money is returned to investors and you get nothing.
Corporate or strategic investors
These are companies that invest in startups (often at later stages) aligned with their own strategic goals, such as gaining access to innovative technology, entering new markets, strengthening their supply chain, or enhancing their existing product offering. In addition to funding, they may offer access to customers, distribution channels, or technical expertise.
Things to consider: Corporate or strategic investors can offer valuable benefits such as industry insight, credibility, and access to customers or distribution channels. These partnerships can help accelerate growth may even lead to future exit opportunities. However, strategic investors may seek influence over your decisions to align with their own goals. Their involvement could limit your flexibility or create tension if priorities shift.
Institutional investors
In Wales, for example, the Development Bank of Wales offers equity investment to tech ventures from pre-seed to Series A, always taking a minority stake.
Things to consider: Institutional investors can bring credibility, professionalism, and access to larger pools of capital. Their involvement can help validate your business to other funders and support long-term growth. However, they often operate through formal processes and may have specific requirements around governance, reporting, and performance. While they typically take a minority stake, they may still seek oversight to ensure their investment aligns with expected returns, which can influence how you structure and scale your business.
Often, different types of investors will co-invest in a business, pooling their money, experience, and networks to support a startup’s growth. For example, a venture capital firm might invest alongside an institutional investor and/or a group of business angels. Co-investment helps to spread the risk, increase the total funding available, and bring a wide range of support to the business.
Having other investors already committed can make your business more appealing to new funders, as it signals confidence in your idea and helps to reduce the perceived risk. When investors see that others have already chosen to back your business, they’re often more willing to engage.
The stages of equity fundraising
Equity fundraising typically happens in stages, with each round designed to support a different phase of your business journey. These stages help investors understand where your business is in its development, and what kind of risk and return they might expect.
Pre-seed
This is the very beginning of the journey. At this stage, you’re likely pre-revenue and may still be developing your idea, building a prototype, or testing the market. Funding often comes from personal savings, friends and family, or early angel investors.
Purpose:
Typical investors:
Seed
Once you’ve validated your idea and built a minimum viable product, seed funding helps you take the next step - usually launching your product, gaining early users, and proving there’s demand.
Purpose:
Typical investors:
Series A
At this point, your business has traction and a clear plan for growth. Series A funding is about scaling - hiring a team, expanding into new markets, and improving your product. VCs at this stage often look for clear unit economics or repeatable sales models.
Purpose:
Typical investors:
Venture capital firms
Strategic investors
Larger seed funds
Institutional investors
Series B and beyond
These later rounds are for businesses that are experiencing strong growth and are looking for significant amounts of money to expand further - whether that’s internationally, through acquisitions, or by launching new products.
Purpose:
Typical investors:
Larger VC firms
Private equity
Corporate investors
Conclusion
Equity fundraising can be a powerful way for tech startups to access the capital, expertise, and networks they need to grow. By understanding how it works, who the investors are, and what the different funding stages involve, founders can make more informed decisions about their next steps.
