Fundamentals of start-up financing: a descriptive literature review on financial alternatives

Abstract

The rapid expansion of the start-up ecosystem has made a increasing need to understand the financing options available for early-stage companies. Start-ups typically operate under high uncertainty, limited resources and fast growth expectations, which makes the selection of suitable funding models a critical strategic decision. The objective of the work was to examine the most common forms of start-up financing and to identify their advantages, disadvantages and implications for ownership and long-term development. In addition, the aim was to analyze the financial metrics used to measure the performance and financial sustainability of start-up companies. The work was carried out as a descriptive literature review, drawing on academic research, industry reports and theoretical frameworks related to start-up financing, investor decision making and financial performance indicators. The review included traditional financing models such as bank loans, angel investment and venture capital, as well as non-traditional methods including crowdfunding and initial coin offerings. Furthermore, central financial metrics such as burn rate, runway, customer acquisition cost, lifetime value and equity dilution were examined. The results indicated that financing options differ considerably in terms of ownership dilution, risk level, accessibility and strategic value. Debt based financing preserved ownership but caused challenges for startups lacking collateral and steady cash flow. Equity based models provided capital and expertise but reduced entrepreneur’s control by dilution. Nontraditional financing offered alternative opportunities yet involved regulatory uncertainty and market volatility. The analysis also highlighted the importance of key financial metrics in guiding strategic planning, supporting investor evaluations and improving a start-up’s ability to manage growth responsibly. The conclusions showed that no single financing option is universally optimal. Instead, the suitability of each method depends on the company’s development stage, strategic objectives and attitude toward risk. A clear understanding of financing mechanisms and financial metrics enables entrepreneurs to make more informed decisions and supports the sustainable growth and competitiveness of early-stage ventures.