English
Did you know that many thriving startups got their big knock after getting their first funding?
In today's motivated startup world, getting early funding is pivotal to turning a terrific idea into a efficacious business The first step of funding is very critical which is Seed funding, a lifeline for the startups providing the resources to innovate and establish a solid foundation for growth.
In this blog, we will cover all you need to know about the understanding of seed funding, its types, the preparation process, and navigating the process of each stage successfully.
Seed funding, also called seed capital, is an initial financial investment that a startup receives to turn its own idea into operable product or service.
This funding is specifically use for the activities like market research, product development and establish a core team.
The venture capital, which comes at later stage and at that time the startup is already grow and there is less likable to loss something,
while the seed funding assist startup to clarify their idea and prove their potential for long term growth.
Read more about: Venture Capital vs. Venture debt
The founder of the startup can get access to various seed funding from various sources, and each source have different purposes.
- Personal Saving: Many founders utilize their own personal money to bootstrap their startups, especially in the early stage of startup development.
- Friends and Family: Mostly close connections are always willing to invest in the startup because of their trust in the founder vision and determination.
- Angel Investors: There are many investors who have high net-worth, invest in early stage startup in exchange for equity or debt.
- Incubators and Accelerators: These are the organizations that often offer funding, along with mentorship and networking opportunities.
- Crowdfunding: There are many crowdfunding platforms that allow startups to raise funds from a large number of small investors, often acting as co-founders because they have shares of that particular startup.
- Venture Studios: These kind of venture did not only fund the startup but they also create and manage the operations as co-founders.
Read more about: Angel Investing: A Guide to investing in early stage venture
In the seed funding stage, the amount can be vary and it is widely based on the industry, geography location and the startup specific requirements. In general, seed funding rounds ranges from $50k to $2 million.
In this stage, the investments is in small scale or bootstrapping funded by either founder savings or friends and family.
During this stage, the focus is on developing products or services, attracting the market demand and achieving early success.
Achieving a breakthrough during the seed stage is very significant for a startup to seek larger investments, such as Series A funding.
If you want to be successful in fundraising journey, you have to be prepared before taking any funding. Here’s how to get ready;
1- Refine your Business Model: First of all, clearly define certain key points such as what is the problem you are solving? who is your target audience? And what makes your product or service unique.
2- Develop a Product/ Service: The founder have to create a basic version of product/ service to showcase feasibility and market demand.
3- Create a Pitch Deck: In the pitch deck you communicate your vision, the problem, market opportunity, and business model and team strength effectively.
4- Validate your Idea: You must collect data from early customers/ users or focus groups to prove that there is genuine demand for your product.
5- Set Clear Goals: Define the amount of funds required and how it will utilize to achieve the goals.
To find the right investor in early startup fundraising process is very crucial and it will significantly impact you startup future. Here is what to look for;
- Professional Network: You have to use the platforms like LinkedIn and Angel List to connect with the potential investor.
- Startup Events and Pitch Competitions: These kind of events allow you to demonstrate your startup idea and network with the interested investors.
- Industry Specific Investors: For greater alignment, always seek out investors with industry experience.
- Warm Introduction: Use your network to suggest investors, which can dramatically boost your chances of getting a meeting.
If you want to fundraise your startup, you have to go through some multiple steps.
1- Research and Shortlist Investors: First of all, you have to identify the potential investors that are aligned with your industry, vision and financial requirements.
2- Outreach: Send an emails to the potential investors explaining why your startup fits inside their portfolio.
3- Investor Meetings: Some investors will be interested in your startup and want to invest but they will first meet and ask some tough questions regarding the business model, revenue potential, growth potential and scalability in depth.
4- Due Diligence: Investor will evaluate your business model thoroughly, so ensure that all financial and legal documents are in order.
5- Negotiation and Closing: Before concluding the contract, both parties must reach an agreement on conditions such as equity percentage, valuation, and funding amount.
Do you realize that securing the funding is just the beginning? To optimize its impact you have to do something additional, such as;
- Efficiently Allocate Resources: Allocating the funds is very difficult, but you have to utilize the funds that you mentioned during the pitch and planned to maintain trust with investors.
- Establish as Strong Team: The funds you get from fundraising, also utilize it to hire individuals who can implement your vision effectively.
- Emphasis on Growth: If you want to attract more investments in the following rounds, you have to work on the startup financials such as; user attainment, growth in revenue and market share.
- Retain Investor Relationship: The final step is to gain trust from Investor in the form of success and improves the growth on timely.
References
- https://www.brex.com/spend-trends/startup/how-to-find-angel-investors
- https://www.ycombinator.com/library/4T-how-to-design-a-better-pitch-deck
- https://www.cbinsights.com/research/venture-capital-funnel-2/
Disclamer:
This post is for educational purposes only, and the Firm does not directly or indirectly provide these services.
