“What is seed funding?”
Generally, if you Google about seed funding, you will get a plethora of definitions.
In simple words, seed funding is a small amount of money that is used to start a business, fund research, or develop a product. It represents the first official money that an enterprise raises.
The best way to explain seed funding can be with the help of an analogy for planting a tree. This preliminary financial support is preferably the “seed” that will help the business to grow.
Let us give you insights into what seed funding is and how it works.
Seed funding is of different types. Some of them are Crowdfunders, Corporate Seed Funders, Angel Investors, and Convertible Securities.
One of the most known ways to get seed funding is crowdfunding. Startups can choose from over 500 different crowdfunding platforms providing financial support for up-and-coming companies. Working with these platforms often means putting forward an idea or a product and waiting for interested parties to fund it. Some of the remarkable products backed by crowd funders include Oculus Rift and Exploride.
Corporate Seed Funders
Startups with good products can take advantage of the opportunity for tech giants like Apple, Intel, and Google, which are known to provide seed money for remarkable projects. These big companies willingly extract out money if they know that a startup can be a good source of profit.
As the name goes, “angel investors” save startups at the risk of failing. They create a network of fellow angel investors to limit their risks by dividing the capital investment among many people.
Stricter than angel investors when qualifying startups because they offer a greater amount of capital. This is why they often inspect a startup’s portfolio and growth potential before investing. There are also instances where VCs take a more active role in running and controlling the company.
Depending upon the progress of the company, the loans provided as seed round changed to equity form. The change occurs from loan to shares. This change usually occurs when the revenue target has been achieved.
How lengthy is the process of getting Seed Funding?
Startups wanting to get seed funding should understand that receiving money can take a while. Usually, the seed funding process can take at least 3–6 months. The time taken is even longer for budding startups. Ones who receive previous funding often take a smaller waiting time, but only if they were successful in the last rodeo. That is why it is vital to complete all requirements early on and make fundraising a company-wide goal.
How long should seed funding last?
Generally, seed funding lasts for about six to eighteen months. From here onwards, the company moves further in the market or makes some separate arrangements for the fund. Seed funding is the primary official money raised by the founder. Ideally, a founder does not prolong the time for the seed funding process once he gets sufficient capital in his hand. In case, the founder had an exit in the past, the seed funding period may last for four weeks too. However, the fresh founder may take at least six weeks.
What is required for seed funding?
A lot depends on the founder’s skills in order to get seed funding. The founder has to sound convincing to make the investors believe in the business idea, his or her previous track record, product or service’s perks along with the advantage for the investors in the business.
Related links: 7 Practical Startup Funding Options in India
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Is there a difference between Seed Funding and Angel Investing?
This is because, angel investors participate in seed funding campaigns, making angel investing part of seed funding.