Founders are rethinking startup funding, and VC isn’t the default

Carlos Amarillo // Shutterstock

Founders are rethinking startup funding, and VC isn’t the default

Venture capital may still dominate Silicon Valley headlines, but most early-stage founders aren’t relying on it to fund their businesses. A May 2025 Mercury survey of 1,500 U.S. entrepreneurs running companies less than six years old found that VC investment ranked only fifth among top funding sources, behind self-funding, business loans, revenue-based financing, and support from friends and family. In fact, Mercury reports that more than half of early-stage tech companies surveyed reported they hadn’t raised any VC funding since their inception.

The AI capital chasm

Context matters: In the first half of 2025, investors poured $145 billion into U.S. and Canadian startups from seed through growth stage. Nearly $90 billion of that went to AI-focused companies. For founders outside AI, diversified funding strategies are, at least for now, quickly becoming the norm, combining debt, revenue, and personal networks rather than depending on venture dollars alone.

This echoes analysis from Eqvista, which noted that startups are increasingly looking to alternative options like government grants, debt financing, and crowdfunding to sustain growth.

Founders are adjusting — and staying resilient

Two-thirds of early-stage founders said they shifted their funding strategy in the past year, perhaps a sign that, as many VCs focus on AI companies, diversification may not just be an adaptation to market conditions. The data suggests founders are building more resilient, multichannel capital strategies to withstand volatility and keep growing.

And while capital is expensive and markets remain unpredictable, optimism is running high: 87% of entrepreneurs reported feeling more confident about their company’s financial prospects compared to last year. Only 3% said confidence had declined.

What this means for startup funding

Equity still plays heavily in the startup playbook, and venture funding remains an integral part of the ecosystem. But the data shows that it’s not the only path forward, even in tech. Founders are increasingly proving that growth can come from a mix of capital sources, blending self-funding, loans, revenue, and community support alongside VC.

In 2025, resilience may not be about choosing one funding strategy over another, but about the flexibility to combine them. For many founders, funding sources are expanding, and that diversity of options is helping them navigate uncertainty while continuing to grow.

This story was produced by Mercury and reviewed and distributed by Stacker.