Guide to Seed Funding
Do you know why many startups fail to get off the ground, let alone scale, despite having the potential to be market disrupto
Do you know why many startups fail to get off the ground, let alone scale, despite having the potential to be market disruptors? As a freshly blooming business, you may have handled pre-seed funding and committed yourself to a path of success. However, there are still many things left to consider and take care of before you can grow and play with the big kids in the garden. Most of it comes down to funding.
You need money to purchase, from buying equipment to renting a space to work. You also need to form a team to take your dreams off the paper and turn them into reality.
To drive growth in a startup, founders need to possess the necessary capital for profitability. Usually, neither the founders nor their friends and family have the funds to make it happen. Instead, private investors typically provide these funds, who in exchange may ask for a stake in the company or a share of a product’s profits.
If you are eager to learn more about seed funding and how to manage it, keep reading.
What Is Seed Funding and Why Do You Need It?
As its name suggests, seed funding refers to money that helps a startup get on its feet and establish itself in the crucial phase of its development. In its most basic form, this early-stage funding helps startups get their bearings, become viable, and grow into legitimate businesses.
What is the Goal of Seed Funding?
The goal of seed funding is to help startups scale to a point where they can attract venture capital and where investors can make a high return on investment. There are, of course, exceptions to the rule. For example, some startups may fund themselves. However, if you want to become a high-growth company, you must burn cash to maintain growth before becoming profitable. So, to put it simply: you need funds.
Money allows a startup to stay afloat and grow and provides an advantage in a competitive market. If you already have successful competitors, you may need more than a good idea to get ahead. Your company’s business plan, sales, marketing, growth strategy, public relations, social media management, and many other aspects depend on a competent team. You must also choose the tools and technologies most beneficial to your business. By securing sufficient funds to hire the most qualified team, use the right software and hardware, and maybe get a great office, you will gain an edge over your competitors.
Nevertheless, getting seed funding is not an easy process. But we’ll try to make it make sense to you.
How to Get Seed Funding
As an entrepreneur, you need to learn different ways to increase your chances of getting seed funding, But it is also valuable to know when you should seek to raise funds. Before anything else, you should know that investors are willing to offer funds when they believe in your ideas. To achieve this goal, the key is successfully telling your company’s story.
A concrete business plan, realistic projections for costs and profit, and a clear understanding of the company’s product-market fit are all indicators of a founder ready to tell their story. Thus, founders should seek funding to identify the market opportunity and target audience and provide a product that aligns with their needs and generates interest.
The magic happens when investors are convinced that the founders can realise their vision and that the prospect is real and substantial enough to justify their investment.
How do you get started?
The first step is to build your credibility. Participating in networking events, attending conferences, and using social media to promote your company increases your chances of attracting investors’ attention.
Moreover, you will also need to know how potential investors make their investment decisions so that you can prepare accordingly. Naturally, investors consider several factors, including the amount of funding your startup requires, how you will use the money, and whether or not you are willing to give up a portion of your business. So be sure to know the answers to these questions before you go to investors.
You may not be aware of it, but there are other ways to take advantage of investors besides raising seed capital. For example, your business can benefit if your investors take an active role in your operations and share their extensive knowledge and insights about the industry. Thus, matching the right investor is vital to get the most out of your seed funding.
Can You Ask for too Much Seed Funding?
Yes, you can. But, how much capital should you go after? Inherently, you need to raise as much money as you need at the moment, and your main goal should be to become profitable as quickly as possible. With loads of funding, you may never have to worry about seeking funding again or find it easier to raise funds in the future. Some startups could increase as high as £2M in the seed round, but it depends on your industry; on the other hand, it’s not a common practice. So, managing your finances is essential, especially in the early stages of your startup.
The easiest way to get started is to estimate your current monthly costs. Once you figure out your expenses, estimate how long it will take you to get your business up and running. After completing the initial calculations, you should consider any changes your business might undergo—positive and negative—and develop plans for various funding amounts.
The money raised by companies varies enormously. The average seed funding typically ranges from a few hundred thousand pounds to two million pounds. It is crucial to remember that investments in early rounds are often driven more by their growth potential than their value. So, you need to present a clear vision to your potential investors.
Create a Compelling Pitch Deck
You can rely on a pitch deck whilst creating an engaging narrative about your business. A pitch deck is a concise presentation that enables you to convey a crystal clear image of your business. Organising a pitch deck according to its audience is one of the most crucial aspects of making it effective. Knowing what your investors are looking for is vital.
Also, showcase your knowledge of your market and sector and convince them that you can control your business’ growth.
Considering it should be a concise presentation, rather than using tons of text, keep slides to one main idea each, and use plenty of visuals. ​​Furthermore, a demo of your product is an excellent way to show potential investors something tangible. It is also your chance to detail your future plans. Therefore, do not just focus on how the seed funding will help your company in the short term but also emphasise how it will help you grow the business in the long run.
However, perhaps the most vital part of the entire process is concluding with an explanation of how much seed funding you seek and what you can offer in return. Please also remember that you can benefit from your potential investors’ expertise. Therefore, you should be as specific as possible regarding what you need during your growth process.
Support Your Finances Before and After Seed Funding
As we’ve previously stated, being able to tell your business’ story to potential investors might be more critical than the business itself. However, figuring out certain elements is the key to creating a compelling narrative.
Your ideas, ambitions, and products need a voice, and that voice needs to reach the right ears. Therefore, having the right investor list to pitch to is imperative. Nonetheless, gathering information about your specific sector, competitors, market, and production is equally important as putting together a capable team that carries out your vision to convince them. All these aspects of preparation for seed funding require time, energy, and money.
So, managing your costs effectively is incredibly substantial during this phase. Ideally, you should keep your expenses to a minimum in areas to maximise the seed funding’s effect; later, you can use the excess money where it is needed.
How Debite Can Help You?
With Debite, you can achieve this goal. For example, Debite’s financing options enable you to subscribe to annual plans for the SaaS tools and take advantage of the discounts for yearly packages. Alternatively, unforeseen circumstances may require you to seek immediate external assistance, and Debite can provide you with a loan within 24 hours to cover the expenses. You can also take advantage of the Debite virtual card that allows you to spend now, pay later with an option to split repayments up to 12 months.
You can sign up to Debite in minutes and start using your virtual card immediately. Or, apply for loans in the range of £5K to £50K within 24 hours. Make Debite a valuable asset whilst preparing your business for seed funding, whether you need funding for research, creating a prototype for your product, or hiring the first team members.