I especially enjoy mentoring startup founders at the very earliest stages. They’re full of drive and enthusiasm, and more than a touch of naiveté.

Most founders assume developing the product will be their biggest challenge. A few recognize that finding customers willing to pay for their wonderful invention will be far tougher. But almost none seem to understand that funding will be their biggest challenge.

Entranced by stories of successful founders who started with big checks from VCs, there persists an enduring myth that with a brilliant vision and a great pitch deck, you can land a $2M investment to get your idea off the ground.

Too many people, from accelerators to mentors to the VCs themselves peddle the idea that VCs invest in visions. Yes, a vision of how you’re going to take over an industry and generate hundreds of millions in revenue is essential, but so is a working product already in customers’ hands.

This is the crux of the startup chicken-and-egg problem founders ask about every day — you need $2M to build the product. The VCs tell you to come back after you’ve built the product and demonstrated customer traction.

You think, oh, I’ll get angel investment instead. Unfortunately, angel investors, at least the type of angel investors who call themselves angel investors and who are looking for good investments, won’t help either. Angels invest earlier than VCs, but usually still require an MVP with some level of customer validation.

There are, of course, prominent exceptions that we all read about. If you are a Nobel Prize laureate, inventor of the lithium-ion battery, or co-founder of Tesla, you can walk into any VC and walk out with a check. For the other 99.9% of us, we need to find another way to fund our dreams.

For the most part, that means doing as much as possible with as little as possible until we get a basic version of the product into customer hands.

Ideally, we can build the product on nights and weekends with minimal out-of-pocket costs. In that regard, software is easy, which is why the vast majority of venture capital goes to software. But many products, especially hardtech and industrial products, will take a significant amount of funding to reach viability, and often quite a lot.

You need money to build the product. Investors don’t want to invest until the product is built and proven. It’s a difficult problem, a classic chicken-and-egg. So how do you crack that egg?

Start with personal funds

A startup is not a job. You’re not working for investors. You’re working for yourself. Which means the first place to turn for funding is your own bank account.

Building a startup means raiding the savings account, the retirement fund, taking a second mortgage on the house. It means asking grandma for an advance on your inheritance, or rich uncle Joe for a huge favor. If you aren’t convinced this is the greatest investment ever, worth going all-in yourself, it’ll be hard to convince others that you’re fully committed to the project.

But even that usually is not sufficient to get your rocket motor ignited. Where else can you get the funding you need to build the product and bring it to market?

Funding, funding where are you?

Where will you find the money you need to build your product and gain the customer validation that unlocks venture capital?

Friends and family: Yup, it’s time to go hat in hand to everyone you know and ask them for help. They’ll contribute, not because this is a great investment, but because they believe in your vision and want you to succeed.

Grants: Working on a better battery? A cure for cancer? Quantum computing encryption? The government will support you. If you’re in the US and doing anything related to climate or medicine, SBIR grants are your savior. Many other countries have similar programs.

Working on cybersecurity? The military will be your friend. Fighting forest fires? Call the Dept. of Agriculture. Removing space trash? NASA has funds for that.

Most SBIR grants are $250K for Phase 1 development followed by $1M for Phase 2 commercialization. You can stack multiple grants, $1.25M each, to develop different use cases for your technology. It’s not unusual to see hardtech startups with $5M in non-dilutive funding before raising any money from investors.

In addition to federal SBIR grants, many states and cities have their own grants as well. Many big companies and private foundations offer grants to support innovation and sustainability, or help build the local community of underrepresented founders.

For startups in hardtech, grants should be your first source of funding alongside personal funds.

Accelerators: Y-Combinator will invest $500K in every startup accepted into their program. Techstars invests $120K. Most for-profit accelerators provide investment for their cohorts, though they take a hefty chunk of equity in return.

The most useful accelerators are industry-specific programs that can provide useful feedback and insights while connecting you to potential customers. These accelerators are usually connected to specialized investors who focus on your sector and are often willing to invest at an earlier stage than generalists who need to see results first.

Customers: If you solve a big enough problem for your customers (and if you don’t, you ought to rethink the viability of the business) they may pre-pay for your product. They might give you NRE (non-recurring engineering) for you to develop specific features to their specifications. Perfect! Just what you need to get detailed customer requirements and feedback for your MVP.

Once you have an MVP, push for paid pilots. Not only does that generate a small amount of income, but a paid pilot provides far more validation to potential investors than free trials which are easy to sign up for and leave on the shelf.

In addition, some customers might be open to investing in the company at the earliest stages. Large corporations are unlikely to so, though it does happen, but medium-sized companies, especially ones that are founder or family-owned, may be interested in investing in a startup in their industry and where they can add value.

Suppliers and resellers: Your suppliers, distributors, and resellers can also be your financial partners. They have a vested interest in seeing you succeed. Even if they don’t write a cheque for equity, they may offer free materials, lab space, engineering assistance, trade show space, or attractive credit terms that can reduce the amount of capital you need to raise.

Many suppliers and distribution partners are medium-sized founder or family-owned businesses looking for new opportunities, but lack the team and skills to develop products themselves. They know your industry, know your customers, and understand the value you bring in the way a VC never can. Some may be willing to invest from the earliest stages. Strategic investors who know the customer and industry also provide validation to financial investors.

Industry network: From the very beginning of your journey, you should be developing a network of industry experts who can provide insights, mentorship, and feedback. Some may be able to introduce you to potential customers, others may be willing to invest or introduce you to their investing friends.

Look especially for retired executives from industry giants and founders and early employees of successful startups in the sector that have exited. The may be looking for ways to give back and will have a wealth of experience to offer.

Consulting and part-time work: If all else fails and there’s no way to build the product without more cash, the last resort is consulting. The company as a whole or the founders individually can take on outside part-time projects while continuing to work on the startup.

Many great products were developed over nights and weekends until the founders were far enough along to devote themselves to the startup full-time.

Ideally, only take on projects that will benefit the startup, either by building relationships with potential customers or developing pieces of the product.

In the end, you’ll have to do whatever it takes to get the product built, even if it isn’t the ideal path.

Raise only as much as you need for the next milestone

It takes scrappiness to build a startup. You’ll need to scrimp and save and find ways to get a product to market on a shoestring budget.

Many founders ask for $2M at the first stage which is unlikely to get a warm reception for a pre-product company. It’s better to find a way to do a small raise to get to the next major milestone in 12 to 18 months. Then you can raise a larger round at a higher valuation.

So before looking for investors, review your funding requirements to see not how you want, but how much you really need to complete the product and gain customer validation.

Stay Flexible and Resilient

The first round of funding is the toughest. Once you have customers and the business is growing, the revenues will speak for themselves. Until then, though, it can be a tough slog.

Ideally, you want to raise $2M or $10M from the start to hire a full team and begin marketing, but for most of us, that isn’t going to happen. So go through the plans and figure out the minimum you absolutely need to get the product built.

You can try pitching the VCs and angel investors. It’s good practice. Get feedback on what milestones they’d need to see before they’d be interested so you know where you need to go. But don’t put all your eggs in the venture basket because the odds are low.

Instead, look at alternative funding sources including grants, industry insiders, and strategic partners to get you over the hump. They not only give you the cash you so badly need, but can provide guidance and support to help you in the right direction.

But mostly remember to breathe deep and relax every so often. Nobody said startups were easy. Be flexible and resilient to find ways to get the impossible accomplished. And be sure to enjoy the ride.