What is a seed round?
The seed round is the first round of capital for a company, typically occurring sometime within the first two years of founding. It is also referred to as an angel round. The term “seed” comes from crops like seeds, which are sown in the ground and grow into plants. Typically, the first round of financing occurs when a startup is young, highly speculative and risky. The next rounds of financing will take place before or after the startup has reached its main milestones for growth.
The seed round came about because too many people were having trouble getting funding for their startup because they didn’t yet have a product to sell. It’s much easier to sell people on an idea than on a product that doesn’t quite exist yet.
A seed round can be used for more than just R&D, though that is one of it’s more common uses. There are a lot of startups that have nothing to do with technology, but find themselves in dire straits because they need to hire people to help develop their product. These types of ideas can’t be sold in a traditional sense, so a seed round is the only way the startup can attract investors who want to invest in a business that doesn’t have a product.
The startup usually has to decide how much money it wants to raise, and will then approach other angel investors who have achieved success on their own. The idea behind this is that if you’ve made it before, you’ll probably know what you’re doing by now and can manage your own company’s finances better than someone new will.
How can investors interested in participating in a seed round get ready?
When investing in startups, investors should focus on assisting them to become self-sufficient by helping to grow their customer base. Investors should find out what pain points they are solving for their customers before you decide to invest. This gives you an idea of what investor ROI may look like if they decide to invest in the company at this early stage. It also helps investors evaluate how much capital they need based on what metrics they plan on reaching with investor help. The traction a business achieves will determine how much funding it gets in the coming rounds of startup funding.
Advice for startups seeking investors:
“Without a plan, it’s easy to make decisions that hurt business. A good plan will set you on the right path to scale your business.” Be prepared to return any investment received before finding new investors. Investors know that they have invested capital into a future company that has an average life span of 9 – 12 months before being acquired or being considered another exit strategy for them.
A seed round can be a significant investment for a company, even if it is only a small portion of the overall amount that it needs to raise to reach the main milestones. In this sense, it is crucial that management carefully selects investors for this round. That being said, obtaining funding from the wrong investor could sink a company before it even takes off.
The type and amount of funds raised via a seed round can vary depending on the startup’s stage and growth plan.
Tips for Getting Ready for a Seed Round
The first thing that you should do is to finish all the paperwork and ensure that it is to be in order. You might need to run financial projections, make sure your company structure is in order, and prepare company financials. It’s almost like an audit of your company. If you can, get friends or other startup founders to help you with this process because it can be pretty daunting when you’re just about starting up. Also, if there are any inaccuracies or issues with what you’ve built then it’s better that you find them before approaching investors than after.
The second thing that you’ll want to do is to just get your investors on board. There are a few things that you can do here. One of the most important things that you will need to do is to just get your investors on board. This means you need to start communicating with them and getting them prepared for the meeting such as doing their financial projections and preparing the company structure. You might also find it beneficial if they stop by your office or ask you questions about how your business works and what they can expect from the investment.
If you’re already in the process of raising money then there are other things that you need to do. You need to make sure that your legal documents are in order. You might find it beneficial if you can get legal advice so that you can really understand what the requirements are for raising money, especially when it comes to taxes. Your investors might also want to know whether or not your company is incorporated or not so this is something you should ask them about as well.One of the most important things that you will need to do before even approaching investors is just getting ready for the meeting itself. You need to understand the investors and what they’re looking for in a company. You’ll also want to align yourself with the investors and make sure you both want the same thing. You don’t want to go in there and ask for money with no expectations or you might not get it.
You also need to make sure that you understand your own business capabilities. If you can realize who your customers are and how they interact with your products then that will help in future fundraising rounds because it will give you more information on what you can do them and what is working well for the company. You can use this information to raise money or even to know if you want to redirect the company.The final thing that you’ll want to do is just prepare for any questions that might come up. You need to be ready for tough questions about the business, what you’ve done with it, or how everything works. You’ll also want to make sure that you have all your financial statements prepared so that they can see exactly where all the money has gone. If you have any issues with the finances then it’s better that they find out now rather than later.
