Crowdsourced Funding Models

“Up and to the right, Sam. That’s what we need—Revenue this year has to go up and to the right.” That’s how a CEO opened our first meeting. No charts. No decks. Just pure urgency. I asked the obvious question: “Are you looking for capital to fund that growth?” She said yes—then immediately mentioned her pitch deck, a few family offices, and two conversations with lenders. But she missed a third option… One hiding in plain sight. One that doesn’t dilute your equity or put debt on the books. One that doesn’t depend on gatekeepers. The dilemma? Everyone wants “hockey stick” growth. But too few fund it like operators. They fund it like hopefuls. ⸻ Let’s talk about my “3 Legs of Venture Funding”: ➤ Capital Raise: Useful—but slow, political, and dilution-heavy. Most overshoot or underprice it. ➤ Debt Funding: Faster, but not for the faint of cashflow. Miss a covenant and your lender gets religion. ➤ Customer Funding (The overlooked lever): Leaders talk “customer obsession” but forget customers can also fund growth. As in: real cash → real time → no dilution. ⸻ I’m constantly surprised by how few know the 5 Customer Funding Models I learned at the University of London: ➤ Pay-in-Advance: Your customer fronts the cash. You deliver later. Think pre-orders, retainers, subscriptions. ➤ Service-to-Product: Start with services → evolve into products. They pay for your R&D, you get signal-rich insights. ➤ Time-and-Materials: Bill by the hour or project milestones. Cash rolls in as you build. ➤ Recurring Revenue: Memberships, licensing, SaaS—revenue on repeat. Predictability = power. ➤ Matchmaker Model: Connect two parties, take a cut. Think Airbnb for services, B2B marketplaces, or sector-specific exchanges. ⸻ McKinsey & Company nailed it in “Strategy Beyond the Hockey Stick”: Executives overestimate the odds of breakout performance. Less than 1 in 12 companies move up a performance quintile in a decade. The solution? Bold moves, yes. But also smart structures that fund those moves. Customer funding is bold and smart. ⸻ Let’s be clear: I’m not anti-VC. I work with PE, VC, Family Offices, and Growth Equity every week. But I’ve also seen: ➤ Founders stuck in “pitch mode” while competitors ship ➤ Operators hand over 20% of their company because they never built a pricing model ➤ CEOs complain about debt covenants they signed ⸻ Here’s the play: ➤ First, build the machine ➤ Then, fund the machine ➤ Finally, scale the machine—with whoever gives you the best terms (including your customer) ⸻ Growth isn’t a fantasy. It’s a funded choice. If you’re scaling a business and haven’t explored the customer-funded path, you’re likely overpaying for growth. P.S. - DM me if you want to see how we build customer-funded models that actually scale. No theory. No pitch decks. Just practical velocity. Sam Palazzolo 🟢 Real Strategies. Real Results

Where to go when R&D funding dries up? *A LOT* of government funding for the sciences has been reappropriated or put on hold, and VCs don't like funding R&D. In my tech DD work, I've been fascinated by the creative ways some companies are raising R&D cash. Here are some interesting funding plays they are using: 1️⃣ Tokenized R&D (DeSci / DAO) - Issue governance or utility tokens so a global community bankrolls experiments and helps steer the roadmap. Example: VitaDAO pooled $4.1 M from token-holders to buy longevity IP-NFTs and license them back to researchers. 2️⃣ Crowdfunding 2.0 - Turn fans into shareholders or early customers with equity + reward tiers. Example: Kitchen-robot maker Miso Robotics raised $50M from over 18,000 retail investors on StartEngine (although the company has raised > $500 M from over 35,000 retail investors across several rounds, not exclusively through StartEngine). 3️⃣ Subscription “Discovery Clubs” - Members pay monthly for prototype drops, data dashboards, or private tastings. Example: Some cultivated meat companies advertise an insider waitlist for tours and preview dinners. 4️⃣ Advance Market Commitments (AMCs) - Secure a signed purchase promise before you finish the tech; cash releases on milestones. Example: Gavi, the Vaccine Alliance’s pneumococcal AMC unlocked rapid vaccine scale-up by guaranteeing future demand from 60 countries. 5️⃣ IP-Backed Credit Lines - Use patents or trade secrets as collateral for non-dilutive loans. Example: BlueIron IP structures $2-5 M facilities for startups against insured patent portfolios. 6️⃣ Royalty / Revenue-Share Financing - Investors take a slice of top-line until a cap is hit; cap table stays clean. Example: Meal-delivery brand Factor 75 used a Flow Capital royalty deal to fuel 10× growth before exiting to HelloFresh. 7️⃣ Venture Philanthropy - Impact-first funds blend grants with patient equity or recoverable loans. Example: The Gates Foundation’s Strategic Investment Fund backs drought-tolerant maize and other ag-tech targeting smallholders. 8️⃣ Venture Studios - Co-found alongside a studio that supplies labs, talent, and seed cash (for a bigger equity slice). Example: The Production Board incubated Cana - the molecular beverage printer - inside its food-and-ag studio (however, as of 2025, unfortunately, Cana didn't survive the current funding crisis). 9️⃣ A Donor-Advised Fund (DAF) is a charitable investment account that individuals, families, or organizations establish to support their philanthropic giving over time. Check out Jennifer Kan, PhD's post on this! What else have you seen that is helping to plug up the R&D funding gap? (Ha, maybe move to Europe, which just got a $350M infusion for biotech R&D? Or China - Who also dedicate a ton of government funding into biotech R&D?). Fig credit: Brian Buntz, R&D World - Might U.S. R&D spending crumple in 2025 and beyond? Likely not by much

In the past week, I’ve seen ads on here and other social platforms for biotech crowdfunding rounds. Siren Biotechnology and Cizzle Bio, Inc. are both running public campaigns right now, and I love it. This year has been difficult for early-stage innovators trying to raise capital, so some teams are getting creative and moving beyond the usual VC pitch grind. The traditional route of raising early capital in biotech is brutal. Founders are often hustling through endless meetings, early conversations with VCs or angels who push terms that may demand 15 to 25 percent of the company for a $1 million seed round. That may feel manageable until dilution stacks up in future rounds. By Series A or B, founders often lose majority control, and by Series C many are down to 15 to 25 percent ownership. In some cases, equity drops from 50 percent at founding to 2 or 3 percent post-IPO. That reality is a slow grind and rewards a narrow network of insiders while forcing founders to give up huge chunks of their future for early capital. (Sources cited in comments). Crowdfunding offers a different path. It opens the door to individual investors, requires teams to communicate their vision clearly, and makes the fundraising process more transparent. If companies can raise enough to generate early proof-of-concept data, they can come back to institutional investors from a stronger position and hold onto more equity. I hope more teams try it. But because crowdfunding often targets a broader and less specialized audience, expectations need to be managed carefully. Biotech timelines are long, and contributors should understand that returns may take many years. Some investors might be bought out in later rounds and some may have to wait until a company IPOs or gets acquired. I’ve been in conversations with other operators who are thinking beyond the current system. Not just adding more VC firms or building more shared lab space (though both are still needed), but reimagining the structure entirely. We would all prefer a more stable economy and funding environment, but that’s not the reality right now. The upside is that these constraints are pushing founders and operators to rethink the system. If we can build new funding models that are more transparent, less extractive, and better aligned with long-term impact, we’ll have a stronger foundation for getting meaningful science to patients faster.

An open letter to VCs - Stop calling it “founder-friendly capital.” If 9 out of 10 startups you fund go to zero: that capital wasn’t founder-friendly. It was VC-friendly. Here’s the ugly truth: – VCs expect most founders to fail – They only need 1 win to make their returns. – The other 90%? Collateral damage You may have 100 other startups, but the founder has bet everything on that one, their own. We can genuinely do better. Here are alternative funding models that prioritize founder survival, not just fund returns: 1. Dividend-Based Returns Instead of demanding exits, let founders repay via dividends. Investors get 80% of earnings until they’ve doubled back (2×), then 20% thereafter, capped at 5×. This empowers founders to grow sustainably without being forced to sell or scale prematurely. 2. Revenue-Based Financing (RBF) Founders get funding in return for a slice of revenue: not equity. No dilution, only repayments when cash flows in. 3. Non-Dilutive Growth Financing  Funding tied to specific expenses like up to 80% of your marketing budget, based on expected future revenue. No dilution, no equity given up, just growth capital when you need it most.   4. Revenue & Equity Hybrid Funds These funds blend equity, revenue-share, and profit-sharing debt. They offer shorter timelines (4–6 years) and stable returns (~2–2.5×), while reducing failure risk (~40%). 5. Media-for-Equity Models Instead of pouring cash, media companies trade ad space for equity. Ideal for marketing-heavy startups like D2C or consumer brands: extends runway without burning cash. None of these are perfect. But they push us toward a healthier balance, where more companies can survive, more founders can win, and investors still see real returns. I would love a startup world where founder-friendly doesn’t mean betting on 1 unicorn out of 100. It means building systems where 60 out of 100 make it. That’s not just better for founders. It’s better for everyone. 👉 Curious to hear: which of these models feels most realistic to you and what else should be on this list?

💥 Is the VC Model Failing Africa? Let’s Talk About the Real Problem 🌍 The traditional Venture Capital (VC) model just doesn’t work for Africa. Let’s be real—it’s not about talent, innovation, or potential. It’s about who you know. As an entrepreneur with over 20 years of experience, and 10 years navigating the investment space, here’s what I’ve seen: 🎺 It’s a closed club: Most VCs don’t even let you contact them directly. No introductions? No funding. 🪄 The Ivy League Bias: If you didn’t go to a top-tier school or work at an investment firm, you’re probably not on their radar. ♣️ Gut-Based Decisions: Many VCs make decisions based on “feelings” about the founder or their network—not the strength of the idea. ♦️ Same High Failure Rates: VC-backed startups fail just as often as those without funding. So, where’s the magic? 👑 And here’s the kicker: This exclusivity excludes most of Africa’s entrepreneurs. Our continent is full of untapped talent, innovation, and grit, but the system wasn’t built to include us. So What’s the Solution? It’s time to embrace crowd investing. Imagine this: 🔔 10,000 people investing $100 each. No elite networks, no gatekeeping—just funding based on the strength of the idea, the founder’s tenacity, and the potential impact. An open system that gives real entrepreneurs a shot, not just those with Ivy League connections or a privileged background. Yes, startups will fail—but that’s the nature of risk. And the 10% that succeed will more than make up for it, driving real innovation and impact. Why This Matters Africa doesn’t need gatekeepers. We need opportunity. 🪫 The VC model isn’t designed for economic inclusion—it was built to preserve exclusivity. It doesn’t bet on grit, resilience, or creativity. But crowd investing could be the game-changer we need. 🔋 What if we stopped waiting for VCs to “discover” us and built a system that works for us? A system where it’s not about your background but about your ability to solve problems and execute ideas. This is the future I believe in. What about you? 💬 Let’s talk about it: Is crowd investing the answer Africa needs to unlock its entrepreneurial potential? #AfricaRising #CrowdInvesting #Entrepreneurship #VCModel #Innovation #InclusiveFunding 🚀