Seed money funds your business in its infancy and may even be necessary to launch your product or service. Businesses often use seed money for product development, market research, hiring, obtaining equipment and facilities, and initial production and distribution. Raising seed money can also have a far-reaching impact on your business, as it demonstrates to venture capitalists that there is consumer interest and confidence in your idea.
If you’ve never raised capital before, you may not know where to begin in your search for seed funding. Here’s an overview of what you need to know about seed money and how to get it for your business.
Where do you get seed funding?
There are multiple different sources of funding your startup can explore, including investors, crowdfunding, and borrowing from family or friends. In the world of investment capital, seed funding typically refers to an initial round of capital raised to get a startup to profitability, usually over the course of 12 to 18 months. The amount of money you will need depends on your estimated operating expenses and how many people you will need to hire to get your product or service off the ground, but most seed rounds range from $500,000 to $2 million.
There are two main sources of investor seed money:
- Venture capitalists: High-profile investment firms may fund businesses in exchange for a portion of the stock or a position in the company. Their decision to fund a business is dependent on several factors, including growth potential, market circumstances, the founder’s vision of the business, and the business concept and execution. They are also one of the most traditional ways to receive funding.
- Angel investors: Wealthy individuals may choose to provide funds for business in exchange for ownership equity or convertible debt using their own capital. They are called angel investors because they provide finance at the early stages when a business is most likely to fail.
If your business isn’t looking for millions of dollars worth of capital, you may wish to borrow money from family or friends, take out a business loan, or turn to crowdfunding for a smaller amount of “seed money.”
[Read more: Small Business Funding Guide]
Obtaining seed funding may require multiple meetings with various investors.
How to pitch investors for seed money
Prepare your pitch deck
To feel good about investing in your business, investors need evidence that it is on the right track. Plan to present an executive summary and pitch deck that includes:
- Your company name, logo, and tagline.
- Your long-term vision for the company.
- The problem your product or service will solve.
- Your ideal audience and your business’s market.
- Why the timing is right for your product.
- Your company’s current traction.
- Your business model and financial projections.
- A thorough breakdown of the overhead costs.
- Long-term product development plans.
- Current fundraising efforts.
- Your current team.
Meet with potential investors
Obtaining seed funding may require multiple meetings with various investors. It’s best to first make a list of potential investors interested in your business. Then, prioritize the leads most likely to fund you, and meet with them until you are able to make and close a deal for the investment.
Meeting with investors may feel intimidating at first; however, it is a skill that you can refine over time in your quest for funding. Some important meeting tips are:
- Know your audience.
- Keep your pitch short and sweet.
- Listen carefully to what they say.
- Find a balance between confidence and humility.
Negotiate and seal the deal
Negotiating is often difficult for first-time founders. Because investors have regular experience with these interactions, avoid negotiating in real time. While it’s tempting to jump at the first offer you receive, it’s important to take the time to negotiate where you can. Keep your company’s future value in mind as you negotiate and close the deal.
[Read more: 3 Investors Discuss Successful Startup Traits]
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