You may have the greatest idea for a product or startup in the world, but ultimately, without money, it is going to be difficult to make your idea grow and reach new audiences. One of the best ways to fast track the growth of your business is to seek seed funding from an investor. Below we look at how to get seed funding as a startup.
What is seed funding?
Seed funding is an initial form of investment made into a company purely to get it to grow to a self-sustainable level, or until it is ready for a larger round of investment. Seed funding is typically the second stage of investment, after start-up funding, which usually involves small amounts of money from family and friends. Seed funding, on the other hand, is done through angel investors, and they will typically take equity in return for offering investment.
Although it would be nice to maintain full control of your startup, this is not always practical, and seed funding offers a great alternative for keeping your business alive and up with the competition.
Should I raise seed funding?
Despite the above point, not every startup will need seed funding. Before you take this route, carefully consider whether you need seed funding or not. Paul Graham, the founder of Y Combinator, one of the most successful investment platforms, says “don’t raise money unless you want it, and it wants you.”
What this means is that if you’re going to be successful in pitching for investment, you have to show the investors that you want it enough and that your business wants it to. Investment is best for businesses that are fast-growing or are planning to grow fast with the investment, so if you fall into neither category, then seed funding is not for you.
How much seed funding should I raise?
Generally, “as much as you can” is the most common answer that you will find to this question, but remember that bigger does not necessarily mean better. Extra money can, more often than not, mean extra pressure, such as more due diligence, more control being passed over to the investors, and more questions that need to be answered about where the money is going.
But, the more money that you receive, the more likely it is that you can get your startup to a profitable point at which you may not need investment again in the future. As with the last point of considering whether investment is right for your business, carefully consider how much seed funding you need as well.
When you pitch to investors to get seed funding, you want to show them exactly why you want the amount that you do, and show them exactly what impact this will have on your startup. You need to convince the investors that they should be parting with their money for your startup. For this, consider what your burn rate is and what your milestones and goals will be, as investors are likely to ask you these questions.
Sourcing seed funding for your startup
Once you have carefully considered both why you want investment and what you will do with it, you can carefully craft your pitch to deliver to investors. There are hundreds of investors, funding platforms and crowdfunding campaigns available for you to source the necessary seed funding for your startup.
You could use crowdfunding websites such as Kickstarter or accelerators such as Y Combinator, as mentioned earlier. Each of the different types of platforms offer its own unique benefits, targets and levels of investment, and you need to find the one that best reflects your startup interests, goals and funding required. Resources such as this are a great place to start to see the different platforms available to you.
Also, considering reading guides such as A Guide to Seed Fundraising for further detailed information on the process. Seed funding, while a big commitment, can help scale and grow your startup immensely to help it reach new heights. Carefully think about where you want your business to go over the next few years, and from there you can decide just how and why you want to seek seed funding.
If you fully believe that you both need and want seed funding, then this will come across in any pitch that you make to investors, securing you that much-needed investment.