Businesses require funds to execute the operations and survive in the market. If we talk about Startups, the founders are often left with very few resources or very less sources through which they can acquire the initial level of investment required. Before fully executing a start-up, there are certain expenses that are incurred such as the business plan, the market research, office rent, etc. These are the initial stages for which funds are not granted directly unless the business owner has a strong record in the past. In such cases, start-ups often go for Seed Funding.
Let’s skip right to the definition of Seed Funding. Seed Funding or Seed Capital is the type of financing used in the formation stage of a Start-up. The funds provided by investors are granted in return for an equity stake in the company or for a profit share. This type of capital is not a large sum and is usually granted by individual investors or by near and dear ones. Seed Funding is one of the initial approaches towards funds, and after acquiring Seed Capital, entrepreneurs often approach Venture Capitalists for further funds.
As we realize from the above definition that Seed Funding or commonly known as Seed Capital is only utilized in the initial stages of a Start-up and hence an entrepreneur must be able to calculate the necessary Seed Capital that should be raised. There are certain factors that should be taken into consideration while deciding the amount of capital to seek for.
1. Avoiding Undervalue or Overvaluing
In case you approach an investor who is willing to provide you with Seed Capital, then you must keep in mind that the Amount of money you ask for should not be too less than the necessary amount. It also should not be overvalued, that it is more than the necessary amount, this may make the investor uncomfortable with your plan. Ask for the precise amount required.
2. Calculate your Expenses
If you are making an attempt to acquire Seed Funding or convincing the investors, you need to have some solid plan to present them with. They would not grant you capital just on the basis of a rough estimate, you need to calculate your initial expenses with meticulous detail and jot it down in a diary. Calculating your expenses and planning would give you an exact sum that would be required for your start-up.
3. Consult with Investors
Many may suggest avoiding this point of consulting with the investors whom you plan to approach, but it would be a wise decision to speak and consult directly with the experts. Investors face a lot of entrepreneurs who seek Seed funding and hence they have far better knowledge at the estimation of funds or capital that may be required for a start-up.
From the above definition, we can understand that Seed Funding is a unique type of investment that is assigned to the initial level of expenses for a start-up. You cannot acquire Seed Capital through most of the banks and the Financial institutions, in fact very few venture capitalists would endorse or agree to go for Seed Funding. Although, there are various sources through which you can acquire this type of funding, let us talk about the most common and easiest types of Sources.
1. Friends and Family
One of the first preferences of almost every entrepreneur or a start-up founder is to approach his or her friends and family members for acquiring Seed Capital. They are obviously one of the easiest sources through which you can acquire the desired capital.
The trust factor, as well as the confidence attribute, is already developed in this case, you do not have to worry about winning their trust. However, you need to ensure that they are well informed about the road which they are willing to take by helping you out. On the other hand, even you as an entrepreneur should be completely positive about your decision for acquiring funds from your close ones.
2. Individual Investors
There are many investors who would be willing to grant or involve themselves in Seed Funding. However, most of the investors do not entertain many prospects that wish to acquire Seed Capital from them. Hence your start-up needs to sound very convincing to them, only then would you receive funds from investors at a very less rate of interest.
Yes, you can also raise your Seed Capital through the source of Crowdfunding. Generally, Crowdfunding is believed to be an entirely different source of acquiring capital for your business, however, there are various Crowdfunding platforms through which you can acquire Seed Capital for your business. Logically, it is easier to acquire Seed Capital through this source, but given the fact that your start-up has a rock-solid plan and you are able to convince people that it is worth opting for.
4. Events and Platforms
Nowadays, with increasing awareness and importance of Startups and the potential which a Start-up holds, there have been various websites and entities that support these start-ups by organizing events and sources through which Seed Capital can be acquired. You can watch out for these types of platforms and participate in the events that are held, if your plan is good enough, you can succeed and acquire Seed Capital through these sources.
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5. Government Provision
Honorable Prime Minister has frequently talked about the importance of Startups in India, and hence the government had developed various measures, sources through which a Start-up can acquire Seed Capital through the government itself. You can check with your city or state provisions and find out the necessary criteria for acquiring Seed Capital through government sources.
Seed Capital is the initial level of capital that is required in a Start-up for covering expenses that are faced in the initial stages, such as Market research, business plan, etc. Various sources through which you can acquire Seed Capital are Friends & Family, Individual Investors, Events & Platforms, Crowdfunding, and Government Provisions.
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