Seed Funding for Startups | What, When and How?

 

In the last decade, especially since the Covid-19 outbreak, the world of startups and business has altered tremendously. As a result, it is critical for every one of us to be aware of and comprehend the current and future financial situation. Previously, getting seed funding for startups was the main goal for businesses and entrepreneurs. Bootstrapping was the only route forward if you didn't have enough traction.

Fortunately, startup fundraising has gotten more competitive in recent years, and new level funding categories have emerged. Pre-seed finance is one of the most popular ways for new startups and enterprises to get funding. This money necessitates special planning on your part in order to position yourself and your company for development and success.

Pre-seed investors have been a godsend to companies, allowing them to raise the capital they need to develop their minimum viable products (MVPs) but first the startup must apply for company registration online and be legally approved. This post will explain what pre-seed capital is and how you may obtain it for your business or startup in India.

 

Concepts to create a "Fundraising Funnel" 

• Get qualified potential investors to the top of your funnel. Cold outreach, warm introductions, or inbound interest are the most common sources of these investors. You'll want to double-check that these correspond to your "ideal investor persona" — the correct sector, stage, area, check size, and so on.
• Bringing in new investors and moving them through your funnel. You should always be working at the top of your funnel, even if you aren't actively seeking to close new investors and raise funds. Maintaining a positive image in the minds of potential investors When it's time to pull the trigger on a fresh round of money, adopting traditional marketing strategies 365 days a year will pay off. Send them a simplified version of your quarterly investor update as a bonus.
• Developing and maintaining ties with your present investors. Once consumers reach the bottom of the funnel, customer success is critical to establishing a solid relationship with them. It's the same with your investor funnel. Current investors are one of the first places a founder should search for funding. Your current investors will be one of the first people a new investor will turn to for advice. Your present investors should be the ultimate evangelists for your company at the end of the day.

 

You need "leads" coming to the top of your funnel, just like in a traditional B2B sales process, so you can progress them through the funnel and close them (read: close your round).

To begin, you must first determine who the proper investor for your company is, as well as how you fit into their larger goal and will benefit them (more on this below).

 

What is the Goal of Seed Capital?

The goal of seed money is straightforward. Its purpose is to provide enough funding to a founding team to explore a specific idea or market in order to establish that the concept works. Different investors may have different needs for a seed-stage company, but in general, "product-market fit" is what they're looking for. 

"Product/market fit" is defined by Marc Andreessen, founder of Andreessen Horowitz, as "being in a good market with a product that can fulfil that market."

The objective of seed size rounds is changing rapidly, and it varies greatly from firm to startup and investor to investor.

 

When Is It Appropriate to Raise Seed Capital?

Raising seed investment for a firm can be difficult to time. To begin, you should seek seed investors when you believe you have a strong enough product, market, or team (or a mix of all) to establish a venture-backed company. This means you can develop and grow your business to the point where an investor can make a good profit.

"Founders should raise money after they've figured out what the market opportunity is and who their client is, and when they've developed a solution that meets their needs and is being adopted at an unusually rapid rate," writes the Y Combinator team. How fast does it get interesting? This varies, but a weekly rate of 10% for several weeks is impressive. Founders must also impress in order to raise funds. 

Congratulations to founders who can persuade investors without these things. Work on your product and talk to your customers for the rest of us."

If you believe your company has what it takes to provide a large return to an investor, it's probably time to begin the fundraising process.

 

How to Get Seed funding for Startup?

Having a system and procedure in place to raise financing is critical to successfully raising a seed round. Just like you should approach your sales and marketing funnel in a systematic manner, you should approach your fundraising efforts in the same way.

When it comes to fundraising, we like to think of it as a B2B enterprise business's typical sales and marketing funnel. A standard sales and marketing process can be broken down into three parts in its most basic form:

• Continually attracting and adding qualified leads to your top of the funnel.
• Nurturing and moving leads through the funnel in order to convert them into customers. 
• Serving clients and providing a positive experience till they become evangelists or promoters (a.k.a. getting them into the buying process).

 

What is the best amount of seed money to raise?

It is totally up to you, the founder, to decide how much startup financing you should raise. As a general rule, you should raise enough to reach profitability or to the point that your next "funding milestone" may be easily reached. This can be a revenue figure, a user benchmark, or anything else, but it should be within the next 12 to 18 months.

To model this, you'll need a full understanding of how your company operates and what it'll take to reach the next milestone. Learn how much it costs to gain a new client, keep a customer, hire an engineer, a salesperson, and so on.

 

Different Types of Seed Funding for Startups

Seed money comes in a variety of forms. We'll focus on seeking venture financing for the purposes of this piece, but there are a few other possibilities to consider:

 

Family and friends

Friends and family are some of the most typical sources of seed money. This is generally comparable to the funnel outlined above, but less extensive because you, the entrepreneur, are likely to already have a relationship with this group. Keep in mind that you are putting their money into a high-risk asset class, and they must be informed of this.

 

Crowdfunding

Crowd fundraising is another type of "seed funding" that is gaining popularity. Startups can raise equity rounds from individuals using sites like Republic and StartEngine, with check sizes as little as $100.

 

Non-Traditional Businesses

More companies are developing new financial tools to compete with venture capital. One of our favourites is Earnest Capital. Earnest Capital helps innovators establish sustainable profitable businesses by providing early-stage investment, tools, and a network of experienced advisors. Earnest Capital uses a Shared Earnings Agreement, which is their own kind of financing (SEAL).

 

Incubators

"A startup incubator is a collaborative programme meant to assist emerging startups or private limited company registration online to succeed," says the Top MBA team. Incubators provide workspace, seed cash, coaching, and training to help entrepreneurs handle some of the issues that come with establishing a firm. A startup incubator's main objective is to assist entrepreneurs in growing their businesses."

If they come with money, incubators are hit or miss. Some may provide a little amount of seed funding for startups, while others will serve merely as resources to assist founders in getting their businesses off the ground.

 

Accelerators

"Private startup accelerators do give cash," according to the team at Silicon Valley Bank, "and the money helps cover early-stage business expenses, as well as travel and living expenses for the three-month residency at the in-person startup accelerators." 

The funding and guidance, however, come at a cost. Signing an accelerator agreement, like any other kind of equity capital, usually entails handing up a portion of your company. In exchange for training and a small amount of financing, startup accelerators often take between 5% and 10% of your ownership."

 

Angel Investors 

Angel investors are a terrific place to start for every entrepreneur. An angel investor, like friends and family investors, is someone who wants to diversify their investment portfolio by giving seed funding for startups. Angel investors are usually more experienced individuals who are familiar with the hazards of investing in a company.