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Most founders don't fail to finance their startup because they can't find investors or grants. They fail because they walk into those conversations without knowing exactly what they're building or what it costs to build it.
Asking for financing without a realistic technical estimate is like applying for a mortgage without knowing the price of the house. The result is almost always the same: they ask for too much, too little or funding for something that isn't even the product they need to validate first.
The most effective way to finance software development isn't always raising more money. It's needing less.
A tightly scoped MVP - with a single functional flow and no secondary features - can cost a fraction of what a poorly defined "complete product" does. This isn't about cutting quality, it's about sequencing what gets built first.
Working with a provider that delivers in phases, rather than one closed project, also changes the equation: instead of needing the full budget on day one, you can validate with the first phase before committing the rest.
There is no single correct answer. The right route depends on what stage the startup is at, whether it already has revenue and how much control it's willing to give up.
The most common route in the early stage. It has the advantage of not diluting equity or creating debt, but it limits the pace of development to available cash.
It works well when the MVP is tightly scoped and the goal is to validate before scaling. It's the most honest way to test whether the product makes sense before asking third parties for money.
Informal rounds from people close to the founder. They tend to close quickly, but should still be formalized like any investment, with clear terms in writing.
The risk isn't only financial: mixing personal relationships with return expectations can strain things if the product doesn't move forward as expected.
Individual investors who provide capital in exchange for equity, usually at early stages. Beyond money, they typically bring contacts and sector experience.
Securing this kind of funding takes more than an idea: a functional MVP, even a basic one, along with minimal validation data, usually makes the difference between closing the round or not.
Appropriate once the product already has traction and the goal is to scale fast. It's not the usual route for financing the first MVP, but rather later rounds once there's something to show.
Approaching VCs before having a validated product is usually a waste of time: most funds evaluate metrics, not just the team or the idea.
In Spain there are several relevant options for tech startups: ENISA's participatory loans, CDTI grants for R&D&I projects and the Kit Digital program for SME digitalization (see what it actually covers and how to use it).
Their main advantage is that they don't dilute equity. Their main drawback is time: resolution periods can take several months, so it's best to apply in parallel with development, not as a precondition to starting. With Kit Digital specifically, it's worth being clear that it covers standard catalog solutions, not custom development - it complements a project, it doesn't fund the full MVP.
These make sense once the startup already has revenue and needs to finance an improvement or expansion of existing software, less so for a first MVP in the pre-revenue stage.
Repayment is fixed regardless of whether the product generates income, so it's worth being realistic about repayment capacity before committing.
Some development providers accept payments split across phases or milestones, especially when the project has a well-defined scope and predictable billing.
It doesn't replace external financing, but it reduces the need to have the full budget available on day one and it aligns payments with actual deliverables instead of arbitrary dates.
Useful when the product has a strong brand component or appeals directly to an end consumer, more so than for B2B or internal SaaS products.
It also works as market validation: if nobody is willing to put money down before the product exists, that's a signal worth paying attention to.
It's not about picking a single route, but combining the right one for each stage:
Initial MVP with no revenue: self-funding, friends & family or public grants.
Validated product with early users: business angels.
Product with traction that needs to scale: venture capital.
Already-billing company improving its software: bank loan or government credit line.
Any stage, to ease cash flow: phased payments with the development provider.
Everything above is aimed at early-stage startups, but many already-running businesses need to finance an improvement to existing software, not a from-scratch MVP. If that's your case, you have additional routes a pre-revenue startup can't use:
Kit Digital: if your company qualifies, it's the fastest route to cover the standard part of the project (website, basic CRM, process management), though it doesn't cover custom development or complex integrations.
Working capital lines or credit facilities: useful when the project is a targeted improvement and the company already has recurring revenue to support repayment.
Equipment leasing: when the project includes hardware or infrastructure alongside software, financing that part separately reduces the upfront development investment.
Phased budgeting with the provider: just like with a startup, splitting the project into billable phases reduces the need to commit the full budget at once.
The main difference from a startup is that a revenue-generating company can take on debt more comfortably, because it has a way to repay it. That doesn't mean it should do so without discipline: the same "asking without a real estimate" mistake applies just the same.
Certain patterns keep repeating among poorly financed startups - not for lack of options, but because of how they approach them.
Asking for financing before having a real technical estimate: without a clear cost and scope breakdown, any figure you ask for is a guess.
Chasing the biggest possible round "just in case": more capital dilutes more equity and pressures the team to grow faster than the product can sustain.
Treating development as a one-time expense: software needs maintenance and evolution after launch and that has to be budgeted too.
Not validating before scaling budget: investing in scalability or advanced features before confirming the product works is the most common way to burn financing without results.
Before looking for external financing, it makes sense to talk to the technical team that will build the product. A serious provider can help you:
Define what genuinely fits into the first development phase.
Give a cost estimate based on real scope, not a generic figure.
Propose a phased payment plan that reduces the need for upfront capital.
Identify which parts of the project can wait for a second round of financing.
Framed correctly, this conversation usually reduces the amount you actually need to ask for, because it separates what's essential from what's dispensable before committing budget.
There is no single correct way to finance a startup's software development. There is the right combination for each stage, each type of product and each level of risk the founder is willing to take on.
What stays constant is this: the clearer the technical definition of the project, the easier it is to secure the right financing and the less money you actually need to ask for.
It depends on scope and whether it's an app, a web platform or both. As a real reference: a simple MVP, with one functional flow and no complex integrations, typically runs between 1,500€ and 6,000€. An intermediate MVP, with an admin panel, multiple flows and an external integration, sits between 5,000€ and 25,000€. And a complex platform, with advanced logic and multiple integrations, usually starts at 25,000€. What moves the price most isn't app vs. web - it's how clearly the scope is defined before starting.
The most relevant are ENISA's participatory loans, CDTI grants for R&D&I projects and the Kit Digital program for SME digitalization. Each has different eligibility requirements and resolution timelines.
It can make sense if the startup already has revenue and needs short-term liquidity, but it's rarely the best option pre-revenue, since it requires fixed repayment regardless of whether the product validates or not.
Some accept deferred or phased payments, especially when the project has clear milestones and predictable billing. It's not external financing, but it does ease initial cash pressure.
By defining the MVP scope tightly, cutting non-essential features from the first phase and working with a team that delivers in measurable phases instead of one closed, all-or-nothing project.
A clear product definition, a realistic technical estimate (not an improvised figure) and a breakdown of where every euro will go. Without this, any funding conversation starts at a disadvantage.
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