To build a Tough Tech company and raise capital, you’ll need a clear hypothesis about how you will create revenue through a profitable business model.
Even if you are considering a nonprofit structure, you will have to create a sustainable way to bring in more money (including philanthropic funding) than you spend.
As a starting point, it’s helpful to understand who else is working in a similar solution space and how they are generating revenue. Having a broad awareness of your competitive landscape will help you articulate how your approach is differentiated and why your company is positioned to succeed.
Venture capitalists will want to see the potential for a $1B return for them before they invest. You will need real data about your potential market size and customers to convince investors that your team not only has a key insight and solution to an important problem, but also that you will be profitable over time. In Tough Tech, that timeline could be 10 years or more down the road, but investors will still want to see the potential for eventual profit.
Most successful Tough Tech startups have a diverse funding strategy that combines non-dilutive funding, strategic partnerships, early monetization, and venture capital funding.
Here’s how to build your business as Tough Tech startup:
Non-dilutive government funding (e.g. SBIR/STTR, ARPA-E, DoD, NIH)
Grants are critical in the early stages. They help you de-risk technology without giving up equity, funding early R&D, and pursuing technical milestones that make you venture-ready.
Paid pilots and demonstration projects
Work with early adopters in industry or government to validate and demonstrate your tech in the real world. These pilots can open the door to follow-on commercial contracts or larger-scale deployments.
Joint Development Agreements (JDAs) with strategic partners
Partner with corporations to co-develop, fund, and potentially commercialize your solution together. This brings in both capital and credibility with investors.
Technology licensing
If your innovation integrates into existing systems, licensing your IP to established players can generate revenue and broaden your impact without scaling manufacturing yourself.
R&D services and consulting
Offering limited technical services can generate cash and fund your core mission. These are useful early on for learning, but hard to scale, so they must be carefully scoped to avoid distraction.
Early product sales or niche applications
Look for near-term revenue opportunities via low-barrier markets, pilot-scale systems, or premium early adopters willing to pay for access to cutting-edge innovation.
Hardware-as-a-Service or outcome-based models
In capital-heavy sectors like energy and manufacturing, these models can reduce adoption friction and create recurring revenue streams.
Venture capital: fuel for scale
Once you’ve mitigated key technical and market risks, venture capital becomes critical for scaling production, hiring talent, and accelerating commercialization. The best VCs in Tough Tech understand long timelines, deep IP, and infrastructure-heavy growth. VCs often want to see early traction or validated use cases (via grants, pilots, or partners) before investing. Revenue isn't always required, but clear de-risking is.
