Quite a few startups in London are based around an innovative idea or product, yours probably is too. But the vast majority still fail to get off the ground. The difference between achieving scalable growth and failure? For many startups, it’s finding adequate funding, a journey that often begins with seed funding.
In this blog we’ll explore:
- What is Seed Funding
- Types of seed funding
- How long should seed funding last
- How to choose the right seed investor
What is seed funding
Seed funding is the money raised to begin developing an idea for your business or product. This funding generally covers only the costs of creating a proposal. After securing seed funding in London, startups may approach venture capitalists to obtain additional financing.
The earliest stage of funding a startup or a new company is known as “pre-seed” funding. This stage typically refers to the period in which you as the founders are getting your operations off the ground. The most common pre-seed funders are obviously the founders themselves, as well as close friends, supporters and family.
Seed funding is the first official equity funding stage. It typically represents the first official money that your business manages to raise. Some companies never extend beyond seed funding into Series A rounds or beyond whereas some do. It all depends on how much was raised and what was or is needed.
Types of seed funding
Many startups have turned to crowdfunding platforms. Despite your industry, there’s a platform that can help you raise the funds you need to get to the next level. But as with any business venture, it’s essential to pay attention to the details. Some platforms have specific timeframes for raising funds.
Crowdfunding platforms offer companies like yours a way to raise large sums of capital from a variety of minority investors, customers or lenders in a short time frame.
Crowdfunding makes investing more personal and impactful – giving you direct access to information and opportunities that were once the exclusive domain of people “in the know” or the privileged one percent of accredited investors.
Often aimed at early-stage startups, incubators focus on nurturing innovation and idea generation. They typically offer smaller investments as well as workspace support, networking and mentorship opportunities, and demo days or pitch events.
Accelerators focus on helping you grow. They offer selected companies a set funding amount in exchange for a set percentage of equity. Many also deliver indirect access to funding through mentorship opportunities or by hosting networking events. Some accelerators also offer workspace support, including access to technology and services that can drive growth.
Angel investors are high net worth individuals who invest seed capital for startups in exchange for equity in a company. Many angel investors use convertible debt, which allows the funds loaned to be converted into equity. Angel investors may also join together in angel groups. This lets them invest more significant sums, benefit from larger ownership shares, and receive larger potential returns. Angel groups often include investors from a range of industries and markets and will often decide as a group whether to invest, how much they should invest, and under what terms.
How long should seed funding last
As a general rule of thumb, funding should normally last somewhere between 12 and 18 months. It should be enough capital to allow you to comfortably hit your goals and forecast you laid out during your pitching and fundraising process. Raising seed stage funding is a major accomplishment for a startup. Seed stage funding is the initial surge of capital into the business. At this point, a startup is largely an idea and will have little to no revenue. This stage is generally when a product and go-to-market strategy are being built and developed.
How to choose the right seed investor
When choosing an investor, don’t just choose anyone or the first one that shows an interest in your business. Decide what type of investor you want. Do you want an investor who plays an active role, or would you like them to stay in the background? Most likely the latter, yes?
Do your research. Look at their net worth and past investments. Have the businesses they’ve invested in been successful?
Set a funding goal and incorporate that funding into your business plan. Look beyond funding and think about what expertise or advice would be most helpful for your business.
At the end of the day you need more than just money. Think carefully about each potential investor. Are they a good fit for your business?
It’s no secret that acquiring seed funding in London or anywhere else isn’t easy. Want to give your startup the best chance to grow? Ultimately, it comes down to understanding and partnering with Drop Studio.