Startup and seed funding is a concept that anyone planning to start a venture but does not have sufficient capital, should look at for raising early stage funding.
The company may need funds for product development, marketing, hiring key resources and operational expenses.
Majority of startups use their own funds at the initial stages. Not all businesses can be funded with own capital as some ideas may require product development and testing.
Ideally seed funding should be sought only after gaining traction in the market. The proof of concept has to be established before a startup can seek funds.
There may be investors who see a large potential for the idea and may support the startup with funds to develop products and establish proof of concept. The credibility of a startup team should be high in terms of domain knowledge and skill sets. In reality it is very difficult to raise seed funds as the risks involved are quite high.
Image Source: Idea from freedigital photos
Paul Graham -Founder Y Combinator
" Do Not raise money unless you want it and it wants you."
Matthew Hollow- Academia
Seed money, sometimes known as seed funding or seed capital, is a form of securities offering in which an investor invests capital in exchange for an equity stake in the company. The term seed suggests that this is a very early investment, meant to support the business until it can generate cash of its own or until it is ready for further investments. Seed money options include friends and family funding, angel funding and crowd funding.
What is seed funding: Pitch Data Team
Seed funding, taken from the word "seed" is the capital needed to start / expand your business. It often comes from the company founders' personal assets, from friends and family or other investors.
The amount of money is usually relatively small because the business is still in the idea or conceptual stage.
The sources of seed funding include the startup team’s personal savings and investments from family and friends. Banks usually do not lend to startup companies because of high risks and venture capitalists tend to stay away from seed funding. However, a startup entrepreneur might have more success with angel investors and private equity funds. Angels are former entrepreneurs and other wealthy investors who get involved in some startup companies.
This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing.
Lenders often view seed capital as a risky investment by the promoters of a new venture, which represents a meaningful and tangible commitment on their part to making the business a success.
2) Proof of Concept (need to prove that is a market for it + monetization methods)
3) Get your first customers and get feedback
4) Clear Milestones for the funds required
5) Pitch to potential Lenders
In the present business climate, to obtain seed funds is difficult where investors want to minimize the risks. A good team, execution capabilities, innovativeness of the product and market potential still attract investors.
Seed funding investment can happen only if the startup team can demonstrate traction.
The following quote by Sriskandarajah at The Collective Elevator sums up how one can get seed funds
“Most companies need to understand who their potential end users are and the approximate market size. We do not back companies who aren’t solving a problem. If you don’t understand who your market is then you are not solving a problem, you are creating a solution and then hoping to find a problem.”