Finding seed investments

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Imagine you have an idea for a business. The idea is solid and solves a tension in an industry promptly. Under the right circumstances, it can fill a niche role in the marketplace.

Even though this hypothetical business seems promising, you realize quickly that it cannot be bootstrapped. Your current funds are not enough to get your business off the ground.

A side-hustle or trying to fund your startup with your funds can be a recipe for disaster. Typically, startups take a long time to get reliable customer bases, which makes funding them through revenue at an early stage extremely difficult.

If you plan to work on your company in your spare time and keep your day job, beware that another company might beat you to market if they have a similar idea and more time to work on it.

It is a fact that if you want to start a business, you will probably need external capital. Here we will explain the basic concepts of startup funding and how it can benefit your startup.

SEED FUNDING

Getting a business off the ground can be quite costly. While the costs of starting a business can vary, it is safe to say that the list of possible costs for a nascent company seems endless. A deposit on a building needs to be paid in advance before staff can be hired, expensive equipment needs to be leased or purchased, or space needs to be rented.

Your business will fail if you do not secure external funding seed investments. Rather than bootstrapping your way through this time, why not get help?

A company’s first round of funding is called Seed Funding, Seed Capital, or Seed Investment. This round of funding is aimed at making the company appear attractive enough to investors to secure future funding.

Sources of seed funding:

There are various sources of seed funding, including the following:

Venture capitalists look for companies to invest in.

Angel investors have accredited investors with high net worth, respectively, who diversify their portfolios by investing in startups

Your friends and family might be willing to lend you money.
Get your business started with money from your account.
Crowdfunding on websites such as Kickstarter has become a popular means of raising seed capital in recent years.
Recent years have seen an increase in the popularity of accelerators and incubators.

A startup accelerator program is a fixed-term program designed to support selected ventures as they transition through their nascent stages, culminating in an event at which the ventures show their business to investors. Startup accelerators assist startups in developing products or services, identifying target markets, and obtaining funding.
The incubator is a company that provides space and capital to startups for an indefinite period.

Potential sources of raising seed capital:

These potential sources of capital are not in the business of giving away money.

Accelerators and Incubators:

Companies may need to provide equity to Accelerators and Incubators in exchange for their services. You can find out more by reading our guide about accelerators vs incubators.

As a reward for their capital contributions, angel investors expect equity from the company. Startups that haven’t proved themselves are risky investments. Angels usually accept more risk than venture capitalists, who often seek a proven product or service with a reliable customer base and revenue stream.

The main characteristic that distinguishes angel investors from venture capitalists is their tendency to value intangibles more than any other type of investor. A startup’s the product/service idea and management team are crucial to angel investors, since most startups lack a track record of success.

Friends and family:

Almost always, family and friends loan money, not give it to you. They will expect to be reimbursed.

Participants in a crowdfunding session expect a product or service that they can use later, and if you cannot deliver what they want, your reputation may be damaged. The equity crowdfunding trend has become popular lately, and your business may need to exchange securities for cash.

The company raising Seed Capital is likely to give away between 10-25% equity. As a result of the inherent risks associated with investing in the early stages of a startup, investors occasionally ask for preferred stock with anti-dilution provisions. Music investors like recording studios in LA also help in seed funding.

Angels:

In addition to giving advice and expertise, angels often like to interact with the founders of a company on a personal level. You need to understand that if they invest in your company and have a significant amount of equity in it, they will want their voices heard and acted upon.

Seed Capital can be used for a wide range of business purposes once acquired by a company:

Creating the product/service
The process of creating a product prototype
The payment of salaries and living expenses of employees
Research into the market
The research and development process
Employing more people
To grow operations, we need to purchase necessary assets
A small loan that needs to be repaid

Typically, a company completing Seed Funding is valued between $500,000 and $3,000,000. Since fundraising and industries present a wide range of variance, it is hard to gauge an average amount raised, so valuation is a better method of identifying businesses at this stage.

An ideal world would be one where every startup starts with Seed Funding and never needs to raise another dollar. Nevertheless, many startups inevitably require another influx of capital to expand and grow, meaning they must continue to receive funding.

At this stage, a business tends to be more developed than when it was raising capital at a much higher valuation.

Generally, the venture has achieved its revenue targets. Most likely, it will have a reliable consumer base, evident, perhaps, in the number of app users, or the number of widgets sold. The infrastructure of a successful business will be established, even if it is on a small scale.

That infrastructure will be sought out by investors. To determine if a business is potentially profitable to invest in, they will evaluate it. Every investor examines and values different aspects of a given company, but there are a few general criteria to meet before investing.

What is the market need for the company? Investors analyze the consumer base of the business, as well as if the product or service is solving any noticeable tensions or problems for customers.
Do they understand the market in which they operate? Those seeking this funding should be aware of their competitors, their ideal customer, and their addressable market. A viable exit strategy should also be in place.
Entrepreneurs with a passion for their business. Businesses are only as good as the people behind them.