Seed funding is one of the most important stages of any StartUp. In fact, it is more like breast milk that babies need for the first few months of their lives. If you can’t raise funds at this stage you are more likely to go back to the 9 to 5 job you did and regret not trying enough to give wings to your idea. But most young entrepreneurs tend to have a vague idea about seed funding and often tend to confuse it with other forms of funding. Here we take a look at the basics of seed funding that you must know.
What Is Seed Funding?
By definition seed money or seed capital is the money an investor would put in your young business in exchange for equity stakes in your company. In most cases you would raise the seed money from your family, friends or people you know personally and this money would go towards covering the initial expense of your company. Since this comes from people you know you may be able to avoid the extensive contractual agreements that often come during other rounds of investment. As far as partying equity is concerned, make sure you keep it to a bare minimum as this will give you more space to accommodate investors in the future rounds.
Bootstrap – Plant The First Seeds
Entrepreneurs often think that seed funding starts when they attract a person to invest in their idea. But contrary to this popular notion, it starts a stage earlier where you bootstrap your business and invest the initial capital. It may be a small investment that goes towards the legal fees or getting a website designed. This can come from your savings or by way of credit cards. It is important as it makes you feel like a business owner and not just another person who has an idea. And ethically if you don’t invest some of your own money into the business you are on a weak ground to raise money from people you know.
Factors That Improve Odds in Seed Round
- Proven Career – If you have held a high executive post previously and connected at the highest level it makes it easy for you to attract seed capital as investors would consider you a lesser risk given your credentials.
- Patents – If you have been able to patent your idea you will improve the odds of finding investors. Intellectual Property always acts as a hook for investors.
- Good Team – Single entrepreneurs often find it difficult to raise money while those with a good team are relatively better placed to find investment.
- Growth Numbers – If your business has grown exponentially in terms of numbers or even in revenue (though unlikely for a StartUp) you can sell these growth numbers to attract investment.
- First Mover – When you are a ‘first mover’ and introduce something that is unique for the market your growth potential is huge and you can attract investments easily.
- Business Plan – Even if your rich uncle is investing in the business, he would review your business plan and hence you must work on preparing a good one.
Seed funding lays the perfect ground for your StartUp and future rounds of investments and you must approach it with enthusiasms and methodical approach.