How to Raise Capital for a Software or AI Company Without Venture Capital

By Joel Arberman, founder of Prepared to Raise · 17 companies taken public, 30+ private placements prepared · Published November 9, 2026

Why you are probably not a venture fit, and why it does not matter

Venture funds need a portfolio of companies that can each return the fund, which means a credible path to hundreds of millions in revenue and a sale or listing. A vertical SaaS tool for dental offices, an AI workflow product for law firms, a niche marketplace or a services-plus-software business can be an excellent company and never meet that bar. Founders who spend a year pitching funds that were never going to say yes lose the year. Private investors who want a 20 to 30 percent annual return from a profitable software business are a different and larger market, and they are reachable through the people you already know.

What private software investors want to see

• Monthly recurring revenue and its history, with gross and net revenue retention. A company that keeps its customers and grows them is investable at almost any size; one that churns 5 percent a month is not.
• Gross margin, including hosting, AI model and inference costs, support and implementation. AI companies in particular need to show that margin holds as usage grows.
• Customer acquisition cost and payback. What a customer costs to win and how many months of gross profit it takes to recover it. This is the number the raise is a bet on.
• Concentration and contract terms. Annual contracts, month-to-month, the largest customer's share.
• The product and the team. Who builds it, what depends on the founder, what is proprietary versus built on someone else's model or platform, and the plan if a platform provider changes terms.
• A return without a unicorn. Distributions once profitable, a preferred return, a buyback right, and acquisition by a strategic or a private equity roll-up as upside. Software does sell, often at better multiples than services, so the upside is real; it just should not be the only plan. The structures.

Structures that fit

• Preferred equity with a preferred return and redemption right. Investors are paid from profits before common holders and can be bought out at a multiple; founders keep control. Works in an LLC or a corporation.
• Revenue-based financing from your own investors. A note repaid as a percentage of monthly revenue until a 1.5 to 2.5 times multiple is reached. No dilution, clear math, suits steady MRR.
• Common equity or a priced round if a sale within five to seven years is genuinely likely and investors are comfortable waiting for it.
• Convertible notes if you expect a venture round later and want to defer the valuation. Be honest with investors about whether that round is likely.

SAFEs are common in startup land and poor for this audience, because they pay off only at a priced round or a sale. Comparing the instruments. Entity choice matters: a profitable software company that will distribute cash is often better as an LLC; one that expects venture money or broad employee options wants a Delaware C corporation. LLC or corporation to raise.

Valuation without the startup fantasy

Private investors will not pay public SaaS multiples for a $1 million ARR company, and you should not ask. Profitable small software companies change hands at low to mid single-digit multiples of revenue or higher multiples of profit, depending on growth and retention. Price the raise so an investor's return works from the cash flow plan, test it with the return scenarios, and let the acquisition case be the upside. The math for $100,000.

Sizing the raise

Most non-venture software raises fund 18 to 24 months of engineering and go-to-market hiring to a profitability or revenue milestone: two engineers and a marketer, or a small sales team, often works out to $500,000 to $1.5 million. AI companies should add model and inference cost scenarios to the plan, because those can move faster than headcount. How to size it.

Where the investors come from

Software founders often underestimate their Pool 1: customers who run businesses, former colleagues now in senior roles, other founders who have exited, your industry's advisors and consultants, and family. Under Rule 506(b) you cannot advertise, so the raise is built on those relationships. Founders with a public profile and a larger target can use 506(c) and advertise to accredited investors, with verification. The three pools and 506(b) vs 506(c). Regulation Crowdfunding works for software companies with an engaged user community and a campaign budget.

Mistakes specific to software and AI raises

1. Pitching private individuals with a venture deck: market size slides, no return path, a valuation from a startup blog.
2. Gross margin that ignores inference or platform costs.
3. Posting the raise on LinkedIn or a founder community, then trying to use 506(b).
4. Using a SAFE because a template was free.
5. Describing an AI product's capabilities in the deck beyond what it does today; anti-fraud rules apply to product claims made to investors.

Preparation sequence

Metrics first (MRR, retention, margin, CAC payback, cohort data), then the plan and return scenarios, then entity and structure decisions, then materials, then securities counsel for the documents and filings, then the list. The 90-day preparation plan. Prepared to Raise prepares non-venture software raises on fixed fees, takes no equity, and never finds, solicits or introduces investors.

Related questions

Can a software company raise money without venture capital?

Yes. Private individuals who want a return from the business itself regularly fund profitable or near-profitable software companies with $250,000 to $5 million, usually from the founder's network under Rule 506(b), structured as preferred equity or revenue-based notes rather than venture-style rounds.

What metrics do private investors want from a SaaS or AI company?

Monthly recurring revenue and its retention, gross margin including hosting and model costs, customer acquisition cost and payback period, customer concentration and contract terms. Market size matters far less than it does to a venture fund.

Should a bootstrapped software company use a SAFE?

Usually not when raising from private individuals. A SAFE only pays at a priced round or a sale. Preferred equity with a return and redemption right, or a revenue-based note, gives investors a path to cash from the business.

How do I value a small software company for private investors?

On a blend of revenue and profit multiples that reflect growth and retention, well below public SaaS multiples, tested against the return an investor actually receives from the cash flow plan. Treat an acquisition as upside, not the valuation basis.

Where to start

Get the metrics in order, then follow the 90-day preparation plan. LLC or corporation and which instrument to offer are the two structural decisions to make before you build the deck.

This article is general information for founders, not legal, tax or investment advice. Securities rules depend on your facts; confirm your plan with a securities lawyer before you accept money.