This story appears in the February issue of Utah Business. Subscribe.
The path to raising capital looks very different than it did just a few years ago. With new funding models emerging, evolving investor preferences and modern technologies, the process has become more diverse and accessible than ever before. What can founders expect in 2025?
The evolution of raising capital
“It used to be very uncommon that a founder would get funding from an investor they hadn’t met with in person,” says Jeff Erickson, director of strategic partnerships at Forecastr and the founder of Founders N’ Funders. That dynamic changed with the COVID-19 pandemic when digital meeting platforms such as Zoom became a convenient and safe way to make connections. In many ways, platforms like Zoom have leveled the playing field, allowing founders to connect with investors worldwide.
Buoyed by this shift, more funding options are now available to founders. For example, companies like Lighter Capital — a revenue-based financing lender founded in 2010 — are expanding access to non-dilutive financing. Another is Kickfurther, a resource for consumer product companies looking to access funding for new inventory without giving up equity.
To survive, founders should continue to focus on core business fundamentals like team strength and path to profitability.
— Cory Cozzens
The rise of SAFE agreements
A Simple Agreement for Future Equity (SAFE) is a contractual agreement between a startup and its investors. This contract grants investors the right to purchase preferred shares in the startup when the company raises a future round of funding.
“You’ve seen SAFEs, in general, become the instrument of choice for fundraising at the early stages,” Erickson says. SAFEs offer a more founder-friendly alternative to convertible notes, and investors are becoming more comfortable with them as a method of financing.
According to Peter Zwyssig, co-founder and CEO of the Zürich-based tech venture builder Axelra AG, SAFEs constituted the majority of financing rounds under $3 million in the United States as of Q2 2024. Ninety percent of rounds under $1 million were executed through SAFEs rather than priced equity.
The expansion of AI
“While investment in foundational AI technologies like large language models (LLM) may begin to plateau in the near future, we’re only beginning to explore the businesses that can be built on top of these models,” says Cory Cozzens, founder of Altaport and co-founder and partner of Philo Ventures.
According to Sequoia Capital, as the LLM market stabilizes, the focus will shift to developing AI’s reasoning layer. AI systems are moving from pre-trained instinctual responses (“System 1”) to more deliberate reasoning (“System 2”). This trend offers an opportunity for venture capitalists to capitalize on the growing demand for advanced AI applications, as well as for founders looking to integrate AI into their business models.
A focus on wellness brands
Like AI, the health and wellness industry is also receiving a lot of attention from investors and consumers.
“‘Essentials’ are being redefined as products once seen as indulgences become daily staples,” says Jaxon Stuart, an investor at Spacestation Investments. “In food, Magic Spoon turned cereal into a high-protein, low-sugar option, while OLIPOP made soda healthier with prebiotics and less sugar. In tech, the Oura Ring is a must-have for tracking sleep, activity and even ovulation, integrating personalized health monitoring into everyday life. Consumers are making physical and mental wellness a top priority.”
Startup funding from now on
2024 was a challenging year for startups raising capital, Cozzens says, with investment levels dropping to their lowest since 2017. He predicts that, while the IPO market is likely to open up next year, it will take time for that capital to cycle back into venture funding.
“To survive, founders should continue to focus on core business fundamentals like team strength and path to profitability,” Cozzens continues. “All that said, this is an incredibly exciting time for the startup and tech worlds. … I expect to see another year marked by a strong flow of capital directed toward innovative, AI-enabled business models that redefine industries.”