A Guide to Seed Fundraising
What is Seed Funding?
When a startup is planned, the company needs finances for many things, including office, equipment, staff, etc. More importantly, they need investment to grow and flourish in the market. In most cases, they would need capital from outside to set these things straight. Such initial capital raised by any startup is known as ‘seed’ capital.
The initial capital raised by a startup is significant because it helps the company to get off the ground. Sometimes, some private investors help the startups; they are called angel investors. Startups can also ask for bank loans for seed funding, but angel investments are often preferred. Seed funding can come from angel investors, family, friends, or the company’s founders.
Seed funding is relatively high risk as it is the fund that needs to start a company that has not proven itself within the market. Many angel investors prefer to finance seed funding for startups to purchase a part of the company’s equity during the company’s lowest valuation.
How to get Seed Funding?
Seed funding is vital for any startup because it helps the company grab some ground. There are some essential tips for seed fundraising:
1. Funding target
You must identify your funding target before initializing any strategy. Calculating your target by keeping several essentials in mind would be best. A company may take 12 to 18 months to reach its next milestone. Hence, you must consider the cost of the rent, utilities, payroll for the staff, taxes, loans, inventory, and other miscellaneous expenses within this timeframe.
2. Funding pitch
A startup must be transparent about its mission and goals before looking for seed funding. You must be able to prepare your funding pitch for investment. You will have to discuss your company’s business model, target audience, current expenses, team members, financial projections, and long-term plans to qualify for that.
3. Target people
Several angel investors with a keen eye and a healthy risk appetite are looking for startups to invest in. It will be better for you to list such investors and approach them based on their potential importance to the company. While making a lot of investors, you must consider a few vital things, such as their preferred industry, portfolio, location, deal size, and others.
4. Start meetings
After making a checklist of all the above key points, you must start reaching out to the seed investors. Tailor your pitch according to the investor you meet and try understanding their interests to have a successful conclusion. Try to avoid pitching the most influential investors in the beginning. Schedule a few other meetings and observe your approach. If you think you have made any mistakes, you can rectify them before approaching your most critical potential investors.
How to Raise Seed Funding?
A system and method must be in place to raise money for a successful seed round. The fundraising process can be compared to a standard company sales and marketing funnel.
The sales and marketing process consists of three easy steps:
Ø Regularly draw in and add qualified leads to your top of the funnel.
Ø To convert leads into customers, nurture and advance them through the funnel.
Ø Till they become evangelists or promoters, serve clients and provide them with a wonderful experience.
To start with the seed funding process, it is crucial to identify who will be the right investor for your business. You will have to observe how those investors will fit into their more excellent vision and can benefit both your company and its purpose.
Most entrepreneurs must occasionally suffer the necessary and sometimes difficult task of fundraising. The objective of a founder should always be to raise money as rapidly as possible. That will frequently appear like a virtually impossible task, but it will feel like you climbed a very steep mountain when you finish it. However, as you return your focus to the future, you’ll realize that the severity of fundraising had only served as a temporary diversion from the real climb that lay ahead of you. It’s time to resume establishing your business.