In this solo mentorship video, Ozan Sonmez walks founders through the realities of startup fundraising, emphasizing that raising capital is not a prerequisite for building a successful business. He outlines why external funding has become harder in the post‑pandemic, inflation‑driven environment, and then breaks down the main sources of capital: angel investors, accelerators (distinguishing genuine programs from vanity‑accelerators), government and corporate grants, venture capital, crowdfunding, and bootstrapping/friends‑and‑family. For each source he explains the typical motivations, structures, and pitfalls—e.g., angels seek learning, fame, or giving‑back; VCs demand a 10× return and are driven by financial mandates; accelerators should provide cash for equity, not just mentorship; grants often involve heavy bureaucracy. Sonmez also warns about the hidden costs of fundraising: a 3‑6 month, founder‑time‑intensive process that can stall product work, creating a chicken‑and‑egg resource dilemma. Finally, he stresses that taking external money usually means planning an eventual exit (sale) rather than building a profitable, dividend‑paying company, and that founders must align expectations with investors early on. The video ends with a call for questions and acknowledges the contentious nature of the topic.
Chapters
Hey, welcome back to the Brutally Honest Mentor. My name is Ozan. Yeah, well, you probably figured it out already, but we're going to talk about one of the most concerned topics that you guys have as founders, which is how am I going to raise capital? How am I going to fund my startup? It's a topic that we have been helping startups with for the last more than 10 years, and it never is a topic that I take lightly.
Before diving into the nitty-gritty of the topic, let me be clear about one thing. If you're a startup founder, you need to understand that you don't need to fundraise. You can have a great business, You can have a lot of people working for you, you can have a great product and service. If you're not scaling exponentially, or if you don't want to scale exponentially, or sometimes even if you do, funding comes as an external source of help.
Startups who don't fundraise, there are so many successful examples. Billion-dollar companies have been able to grow with revenue Without fundraising externally from venture capital or angels. On the other hand, over the— before the crisis hits, before the economic recession that we're not calling it yet an economic recession that started in the U.S., spread around the globe with the increase— increasing of inflation, funding rounds have been much harder to get. So even before that, A lot of people started thinking, oh, I'm going to have a 20-slide deck, there's so much money available, I'm going to go and fundraise and I'll see if it works. There was a time, and I'm not going to joke about it as much, but there was a time where actually people in Silicon Valley, in San Francisco could raise a lot of money with almost nothing. Those days are gone. The amount of capital coming into the startups have been falling. The amount of fundraising availability for early-stage companies without revenue, without product, is falling. So if you're a startup and if you think you need money to create a company, think again. This is not the right time maybe for you to start a business. Be more safe if you believe the only way you can create value is through other people's money. Because you're going to have a really hard time doing that. So, but if not, let's say you have a product, you have some customers, early traction, you have built a good team, you're completely dedicated, so let's talk about how you can start thinking about fundraising. First and foremost will come the angel investors. As an angel investor myself who hasn't got a return on investment yet, but I still have some teams that I really trust, put my faith in, I can tell you that it's not an easy job to attract angels in this economic environment. Angel investors are individuals. They're not part of a large company. They don't fundraise from others. It's their own hard-earned cash. They give money to early-stage entrepreneurs, and it's not money that they don't expect back. It is money that they truly want to get back. So it's not charity. It's not, oh, this guy is rich, this woman is rich, she can afford giving me $20,000. Don't ever think about that. It's my money. I earned it however I earned it. Maybe I'm a founder, I sold my company. Maybe I'm a great corporate entrepreneur or corporate person that was paid a lot of money. Or maybe I had inherited from my family.
It doesn't matter.
It's not your problem. It's my problem. It's my money. And if I'm going to give it to you— You need to be very honest about your expectations, and we need to meet in those expectations. So angel investors have 3 to 4 motivations. One is fun. No kidding. They want to learn from the founders. They want to experience the journey with the founder. They don't want to just put the money in and disappear as if it's a bank. No, they will be very active, and they'll be enjoying this learning experience through your pain in a way. The other one is like fame. Some people will like call themselves as angel investors for whatever reasons, for publicity reasons, to satisfy their ego, or just to show off, maybe use that title of an angel investor for other businesses.
Doesn't matter. Some just want to brag about being an angel investor. I wouldn't try to fundraise from those people necessarily. And the last piece is give back. It is true that they are very interested in financial returns and financial returns is something they'll be looking for.
However, they are pretty okay if they lose their money or they should be because the success rate of angels getting money in return of their investments is pretty low. So they should be smart enough to accept that risk, but also should be willing to commit to help you move forward because somebody else helped them move forward. So giving back as a way of supporting something they're interested in, supporting a young entrepreneur or a fellow founder, is something they'll be motivated with. Yes, of course, the financial motivation always there. If they don't have any financial motivation, they'll probably not be good angels. You can still get their money, Yeah. but they're not going to give you anything else except for their money and that's not necessarily a good thing for an early-stage founder. The second most common way of fundraising these days, although it's like becoming a tricky point, is the accelerator programs. There are a lot of programs that call themselves accelerators, but there is a group called Global Accelerator Network and within their realm of descriptions, A real accelerator, or the way we describe a real accelerator, is the one that gives a certain amount of cash for a certain amount of equity. It could be in the form of a SAFE, it could be in the form of a convertible loan, it could be in the form of an equity round. However they have designed their programs, they give out cash. So it's not like I'm going to give you a desk and a table and access to 10 mentors, and I'm going to get 5% to 8% of your company.
It doesn't work that way.
Those are not real accelerators. But the real ones are global if you are searching for success, and real ones are vertical usually. So a lot of startup accelerators, it started with Y Combinator, which was based in Boston first, then in Bay Area, one of the most successful programs. In the world, there are other very reputable global companies like 500 Startups is doing a lot of programs with their accelerator model.
Techstars is doing a lot of programs with their accelerator model, and there's some other programs which give you grants. One of which is in the Middle East that I can—I'm a mentor. I'm happy to be a part of—is Takadam. So they give out grants, not equity in return of equity, and. Maybe in the future there will be a fund as well, but they're giving grants for startups who are willing to expand in the Middle East region. And they have great mentors, they have great structures. So take a look at accelerators, especially in your vertical, and try to talk to people who graduated from them before going out and just jumping out on an application process. For some, even the application process teaches you how investors think. Thing. Last but not least is the grants. There are a lot of government agencies, nonprofit or not-for-profit organizations, NGOs, private foundations, even corporates who are trying to find ways to engage with the innovation potential of startups. So for whatever reason they have, whatever mandate they have, these institutions can create application pools, where you can apply for grants, you can apply for in-kind sponsorships, you can get credits from institutions like technology companies like Google and Facebook and others. So that's something you could be aware of. One thing to be cautious about them is the level of bureaucracy.
Some of them have huge amounts of paperwork that you need to go through before you get a single penny in the bank. Try to avoid those. Who would require huge amounts of bureaucracy and paperwork. Red tape is something that you can kill yourself with if you get too deep into it. Of course, then comes the second most commonly used source of external investments, which is venture capital. Venture capital, although these days might not be very open to investing in new ideas, they have a mandate to do so. Regardless of the crisis, regardless of inflation, regardless of economic downturns, VCs are committed to invest money because they got their money from somebody else— large companies, family funds, retirement systems, or large institutions and economic development agencies. So venture capital partners get the money from somebody else and have a mandate to fulfill, which is one of which is like investing a certain amount of money in a certain amount of time. Their expectations are a lot difficult to figure out. They're much easier to figure out, but much difficult to align with for some founders, which is in every investment they make, they need to make sure it can give a 10 times more return than the original money they put in.
Right.
And maybe we'll cover that in another separate video, but when you're engaging with VCs, realize that financial-driven decision-making is a key for venture capitalists. They're not going to invest for fame, they're not going to invest for fun, they're not going to invest to give back. They are going to invest to get their money back. Lesser stressful kind of occasions that you can start thinking about fundraising is crowdfunding. So many methods have been developed over the last couple of years—
equity crowdfunding, debt crowdfunding, product crowdfunding, donation crowdfunding. Those are all different types of crowdfunding mechanisms that you can use, and you need to understand the right systems and right legalities when you're going to go for crowdfunding approaches. Last, which is usually the first, is bootstrapping as well. Bootstrapping is, as the word says, you're just strapping into your boots and using every resource you can subtract from your past, your network, to go and build something valuable.
One of which is going to your friends. We might call them like friends round, friends and family, people helping you to bootstrap as well. is another source of raising capital. So, it's not easy. It's never been easy. At some point, it was easy here, we should call between 2000— maybe 2012 and 2019, 2020, before the pandemic, it was easy. During the pandemic, a lot of people invested in new technologies because the pandemic changed the way of life and work and teaching and education. and in communication, so lots of startups fundraised during that period. But now these days it's a little bit more tricky. Whether you have chosen angels or VCs or bootstrapping or crowdfunding or accelerator models, you have to be ready. Fundraising is not an easy thing. It will take a lot of a founder's time. It will take 3 to 6 months to close a Series Round. And that time period is going to be very exhausting for whoever is going to be responsible. You cannot switch the baton in the middle of the fundraising effort. If a founder is focused on fundraising, that founder is not doing anything else, almost nothing else. So that function the founder is doing should have to be filled with somebody else, which is difficult because you don't have the resources, which is the classical chicken and the egg problem. You need more resources to do more work, you need more work to do more resources, and it just keeps on perpetuating until the moment where you convince somebody, an angel, a friend, or an accelerator to let you in, or better if you get your revenue, if you get your traction and you can convince a VC, but until that point, it's going to be exhaustion.
Last thing, most founders are not thinking through. When you get external people money, you commit to work harder, you commit to sell your company at a certain stage in the future, otherwise you can't give the money back to your investors. Most investors, especially VCs, do not care about you building a profitable company so that they get dividends. They would like you to create a growing company, hopefully profitably, but they're not going to get their money from dividend revenue, from a share of your equity. They're not banks. They will want you to sell your company at 10 times more to a valuation where they can get their money back. It's a different business model.
Angels are a little bit more different, but again, they don't care about building profitable companies. They probably have enough revenues or have accumulated enough wealth not to worry about profits. And if they do, they could just put their money in a stock exchange where they know some companies who are profitable. So they're investing in this risky endeavor and hoping to get some more additional exposure and get more multiples on their money. So they're not going to be pleased with a profitable company that's not growing as well. So you have to make peace with the fact that you need to sell your company if you fundraise from externals. And this is something you need to talk with your partners, with your founders, with the rest of the team, with everybody that is involved in the business. It's been too long of a video maybe, but it's very, very critical. So, but that's it. We have a lot of things to hear from you, probably. This is a very contentious topic.
