Seed Funding for Startups - How to Raise Funds Explained
Let’s say you have a brilliant idea, developed a product but got lost along the way because of financial crisis. Well, you are not alone. Most new startups and entrepreneurs seek funding to develop their product and gain traction within the market. And seed funding is the type of funding available for such startups who have already demonstrated a market need for their product.
In this blog, you will learn how to get seed funding, types of seed funding available for startups and more.
01. What is seed funding for startups?
02. What is a seed round?
03. What is the difference between seed funding and pre-seed funding for startups?
04. How to raise seed funding?
05. Key Takeaways
Seed funding is the first round of the official funding process for startups. This is when investors provide funds to businesses in return for adjustable debt or equity in the company. This also mean that entrepreneurs must be willing to give up a portion of their company for the sake of raising funds. And raising funds for startups could be from family, friends, angel investors, incubators, venture capital firms and so on.
Since startups cannot depend on a single round of seed funding, there’s funding rounds as Series A, B and C funding rounds and more. For example, a plant needs water several times in order to grow as a tree. Likewise, a startup also requires several seed rounds to fund the development till it reaches its point to become a unicorn startup.
Although both types of investment work similarly, businesses seeking pre-seed funding are at a growing stage yet to demonstrate a market fit product for their idea. On the contrary, seed funding is for businesses who have developed a product but seeking funds for development. And a startup can begin seeking their capital during pre-seed round or at series A seed funding round depending on their product and the amount of investment.
Do you actually need funding? If so, is the timing perfect?
This can be decided based on two criterias : i) Are you prepared to give up shares of your company? ii) Can you persuade an investor that your startup consists of everything they're looking for? In terms of persuading your investor, startups must showcase that the product has excellent traction, (consumer acceptance), meets a large market need and driven by a capable team. If you can meet these requirements, then the time is perfect to meet investors.
A single round of seed funding is insufficient. This means that especially tech startups would frequently require a follow-on round to continue till they reach financial profits. To determine how much to raise, consider, the growth rate brought by the funding amount, the startup burn rate per month, time period it takes to survive and trustworthiness of the investor.
When evaluating investment opportunities, seed investors expect to see pitch decks. A pitch deck is supposed to attract the investors to invest in your product. Keep it simple and include the story of your company, the founders, present position and future plans. And for the investors to invest, include the services, products and how you're solving issues. Be persuasive and convince them with a story. An interesting story is more likely to be remembered than pointless facts and figures.
When it comes to investors, you must figure out the ideal investor who is more likely to consider investing in your startup. Seeking investors through business networks, incubators and accelerators are some of the common few methods of seed funding. But how do you know who has a better chance of succeeding?
In order to find the ideal investor, determine whether you prefer someone who would help as a partner with capital or as an adviser. The potential investor should have the capability to fund, success rate of startups, expertise, connections for your startup to scale and be a good fit to the company. You can also find investors on sites such as crunchbase and visible connect.
Meeting with investors can be nerve-wrecking but with time, you will develop your competence naturally in dealing with them. There’s also a good learning and experience here because you get to meet and communicate with a number of different investors before finally signing a deal. When meeting with potential seed investors ensure you understand the investor and their interested fields, how they analyse and make decisions.
Negotiating may seem risky when dealing with VC or angel investors who are far more experienced. First offer will be tempting but it’s worth it to bargain on variables like equity compensation if you have the chance. But more importantly, having funds in your account as soon as possible should be the priority. So, once you and your partner have agreed, sign the documents and settle up.
With the basic understanding of seed funding, you now know how to raise funds for your business. Your startup journey can be accelerated with the help of the ideal investor and figuring out the right moment. Finding investors for startups may take time and along the way, you will experience how to build pitch decks and how to target the investors suitable for you. Look ahead of the journey and never give up!
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