The terms ‘seed funding’ and ‘seed money’ are becoming more and more popular in the context of early stage businesses.. The concept of seed funding has been around for years as a lot of business founders rely on external financial resources to kick off their ventures.
This is both good and bad news for startups wanting to raise capital. The bad news is that getting your startup funded won’t be easy and will definitely require effort. The good news is that there is a high probability someone will eventually invest in your business if you demonstrate a certain amount of traction and a viable MVP.
For those of you who are not familiar with the term, let me first explain what ‘seed funding’ is.
Seed funding is an investment at the early stage which aims to help a business grow and generate more capital. Investors get an equity stake in exchange for the capital invested. Simply put, the money invested at the startup’s nascent stage is known as seed capital. Seed funding is the lifeblood of a growth-oriented startup. To make a business scale, founders have to get the maximum capital, which should cover development, employment, marketing, content, and other costs. The purpose of seed funding is to get a business up and running and off the ground. It is required for initial market research, product development, and other early-stage operations.
Why seed funding matters
Starting a business is a huge task for entrepreneurs and it is getting even tougher due to/for a lack of financial resources. Seed funding helps founders to get their business off the ground before it earns any revenue. Here are the main reasons why seed funding is important:
- Reduces founder risk
- Brings partners and mentors to the table
- Access to capital
- Makes it much easier to scale a business up
Types of seed funding
Crowdfunding has become a popular funding option for startups. Present your business idea on one of the crowdfunding platforms and see if it will be able to attract customers or just people potentially interested in buying from you. Successful crowdfunding campaigns include the Pebble E-Paper Watch (raised more than $10 million), the Ouya open-source game console (raised over $8.5 million), and Ponoover (raised more than $6 million in just 30 days).
Corporate seed funds
Mature companies such as Apple, Intel, Google, or FedEx offer seed funding to promising startups working on innovative projects. Big companies often look at startups as a potential source of profit or talent. Anyway, corporate seed funds are a great source of funding as it comes with visibility for the unknown startup brand.
Incubators typically provide small investments and offer services such as office space or mentorship and guidance. Most incubator programs do not take equity stakes from the business but do offer support beyond funding.
Accelerators are similar to incubators but more focused on helping startups scale up their business rather than nurturing early-stage innovation. Accelerators back startups through seed investments as well as networking opportunities, mentoring, and guidance. Unlike most incubators, accelerators usually take equity from businesses.
Angel investors are usually high-net-worth individuals who invest capital in startups to get an equity share in the business. They are called angel investors because they provide financial help at times when the risk of a startup failing is high.
Lay the groundwork for seed funding
To make any investments in any business, investors need to see potential in your product idea and business vision. This is your main goal to illustrate the clear benefits of launching your product.
Once investors get to know the product, the first thing that should be determined is product-market fit. It will be quite complicated to convince investors to support the product if the market-fit is not found.
Make sure you know the answers to the following questions:
- What is the market opportunity?
- What is the competitive advantage?
- Who is the target audience?
- How does the product solve an existing problem?
Preparing for a funding pitch deck
A seed funding deck, or a pitch deck, is a brief presentation used to provide the prospective investors with a quick overview of your business plan aiming to get capital for their startups. Here some tips on how to prepare for a pitch deck:
- Know the audience
To present your idea effectively, you need to know what seed investors might be looking for. If the pitch reaches the right investor, he/she will be glad to jump on board. Provide interesting market insights to keep them engaged throughout the pitch.
- Don’t make it a script
It’s not pleasant to listen to an entrepreneur reading his idea off a piece of paper. The pitch should sound vivid and natural as well as it should have numbers and insights beyond what’s on screen. Try to wrap up the pitch in as short a time frame as possible, without skipping over essential details.
- Focus on the core idea
Try to explain your main idea briefly and clearly. The aim and vision of the startup, the product strategy and milestones should be at the beginning of the presentation.
- Keep it consistent
All slides need to have a consistent design which includes the color scheme, the size of icons and boxes, fonts and text formatting throughout.
- Have a confident conclusion
A confident ending is something that will stay with the audience long after they’re out of the room. Make sure your pitch ending is powerful enough to cast a favorable impression.
Author’s bio: Anna Grechko is a marketing enthusiast and knows the field inside out. She is the marketing specialist at Smart IT. Sharing knowledge is a big part of her career, so Anna actively seeks to spread good vibes, and collaborates with the great tech and marketing minds of the world.