Are you a startup founder? The vast majority of companies will require funding in order to get started, but how do you find the right investors? Seed funding offers start-ups the opportunity to raising funds, secure funding, sometimes before they’re even operational.
For small businesses and entrepreneurs, seed capital can be critical. Giving you the funds you need to undertake market research and development, this initial funding could be the first step towards commercial success.
Seed funding refers to a stage of investment, rather than a specific type of investor. In fact, almost anyone can be a potential investor when it comes to raise seed capital. The seed investment stage starts very early on, so you don’t need to wait until you’re operational before you can apply for funding.
In most cases, early-stage start-ups want to secure seed funding so that they can undertake research and development. This process gives entrepreneurs the opportunity to establish the product market fit, hone their USP and learn more about their target demographic.
Although there are no hard and fast rules about what seed capital should be spent on, some potential investors will want to specify exactly what type of activities their funds contribute towards.
Of course, all investors want to make a return on their money, so what do they get out of seed funding? Typically, seed funding enables entrepreneurs to obtain funding in exchange for an equity stake in the business. Ideally, the business will grow significantly within 1-3 years, which means that the investors will make a high return on their initial investment.
Obtaining seed capital within a business model is essential for many organisations, so you’ll want to examine the range of potential investors which are available to you. Although there are various different types of investors out there, you can increase your chances of obtaining funding by targeting the ones that are most likely to invest in your business at such an early stage.
Close friends and family members are, perhaps, the most common type of seed investors. Although a seed investor won’t contribute to the running of the business, they will take a share of the company’s equity in return for their investment.
As family members and friends know the company owner well and are likely to have in-depth knowledge about the business proposal, they can often be persuaded to invest. However, it’s important to remember that potential investors will require hard facts about your business proposal, regardless of whether they’re friends and family members.
While many people find that friends and family make ideal investors, there is potential for things to go wrong. If a potential investor expects a higher return than they get or assumes they will play a role in decision-making, for example, disagreements can arise. Due to this, it’s essential that any investment agreements are made in writing and clearly understood by all parties.
Angel investors are usually high net worth individuals who want to be part of the early stage of funding. By investing at the earliest opportunity, the seed stage, angel investors have the chance to make very high returns, providing the business performs well.
Most angel investors have extensive business experience or rely on independent advice to assist them in making investments. As a result, they’ll have a good understanding of what’s likely to work and are adept at choosing start-ups with potential. However, this also makes them savvy investors and hard to impress.
Before committing to seed funding, angel investors will want to do their due diligence. This means they’ll ask for independent evidence to confirm the validity of the claims you’re making. To ensure you move forward with seed funding, it’s important to have your business plan, projected accounts and documentation prepared prior to approaching potential investors.
Venture capitalists are generally larger organisations that invest in smaller firms. However, investments from venture capitalists are generally in the higher range and often start at £1 million +. Due to this, venture capital investment usually takes place later than the seed stage. Of course, there are no hard and fast rules to prevent a venture capitalist from investing at the seed stage, so it is something to bear in mind.
You’ll find that venture capitalists will undertake a significant amount of due diligence before making an investment and their requirements may be slightly different to friends and family or angel investors. Instead of or as well as taking a share of your equity, venture capitalists may also insist on a simple agreement for future equity, or SAFE. This guarantees them the right to buy shares in future rounds of funding and effectively gives them the option to increase their investment, depending on your performance.
Applying for seed funding can be a stressful time. Whether you’re hoping to persuade friends and family, angel investors, or venture capitalists to invest in your company, there’s a lot at stake. For many budding business owners, seed capital is the only way to get a start-up of the ground, so successfully obtain seed capital is vital.
To increase your chances of securing investment, you’ll need to know how to apply for seed funding. However, there are various different ways you can apply for funding at the seed stage, depending on your circumstances, the type of start-up you’re forming and your potential investors.
If you want to encourage family and friends to invest in your company, for example, the process will be less formal. Whilst you should always present the company’s financial information to any potential investors, you aren’t going to have to complete time-consuming applications before approaching your nearest and dearest! However, you will still need to market the investment opportunity to them and formalise any agreements that are made.
When it comes to applying to angel investors and venture capitalists, things are slightly different. While you could technically apply to potential investors individually, this is likely to be extremely time-consuming. Furthermore, venture capitalists and angel investors usually have strict guidelines regarding applications for potential investment.
To successfully raise money and secure funding, you’ll need to navigate your way through these complex application processes, whilst showcasing your company as an attractive investment opportunity.
Fortunately, help is at hand. When you apply for seed funding with help from experienced investment marketers, you can present your start-up in the best light and increase your chances of successfully obtaining seed capital.
At Audeo, we’re committed to helping our clients from day one, which is why we offer a range of services dedicated to early-stage start-ups. If you want to raise money for your company at the seed stage, our specialist team will work with you to market the investment opportunity.
By identifying potential sources of investment, preparing your marketing material and arranging your applications, our dedicated team can ensure you’re ready to begin the process of securing seed capital for your business.
Although attracting investment for start-ups can be a stressful and nerve-wracking time, it doesn’t have to be. As the first step towards success, it should be a process you anticipate and enjoy and, with the right support on board, it can be.
If you want to learn more about applying for seed funding, why not get in touch with us today? Contact Audeo now on 020 3105 5887 or email us at firstname.lastname@example.org and find out how we can help to grow your business.