How do you find a seed investor?
At the early stages of your start-up’s life, you probably don't have many sales figures to prove the success of your idea.
That’s why the people most likely to invest will be those with confidence in you, who are fascinated by what you're working on, and willing to commit the funds.
Here are the types of investors most likely to provide seed funding.
Angel investors
The most common type of seed funders, angel investors are wealthy individuals who invest their own money in projects they believe in. The big advantage for you is that they can typically move quickly with their decision-making.
Incubator programs
These programs not only train you in how to run a business, but also give you access to a community full of expertise, plus exposure to high-level venture capitalists for additional funding rounds. They can be a great choice for finding seed investors while gaining essential knowledge about business.
Accelerator programs (such as Y Combinator or Techstars) are another possibility, but they're usually aimed at helping companies scale up, rather than supporting early-stage innovation.
Venture capital groups specializing in pre-seed and seed funding
Venture capital (VC) funds have the ability to make large seed investments, but the decision-making process can be long and drawn out. To find one that may suit you, look at what different VCs have funded in the past, and build a list of those who have previously worked with start-ups similar to yours. It's important to create a tailored campaign for each specific investor, rather than taking a scattershot approach.
Crowdfunding platforms
Crowdfunding platforms (such as Seedrs or Crowdcube) are growing in popularity, especially among new SaaS startups. In fact, 96% of SaaS companies securing equity via crowdfunding were in seed or venture stage at the time of raising, according to Beauhurst.
The crowdfunding concept is simple: you showcase your business to the public and anyone in the world can support it. To succeed with crowdfunding, you'll need a compelling idea and the ability to weave a resonant story around it.
Corporate seed funds
Large companies like Apple or Google regularly provide seed funding for start-ups. They’re motivated by the potential for new sources of income, intellectual property, or talent later down the line.
Family offices
Family offices manage wealth and investment strategies on behalf of ultra-high net worth families, with the goal of maintaining and growing generational wealth. For entrepreneurs, family offices are becoming an interesting alternative to venture capital funding. In the past, family offices have typically focused on hedge funds, real estate, and bonds, but many are becoming more open to investing in start-ups.
FAQs
Seed funding is essentially equity-based funding, which requires investors to invest money into the business at the very early stages. In return for the investment, the investor is given an equity stake. An equity stake is a share of the business.
What is seed funding and how does it work? ›
Seed funding is the first official funding round for new business ventures. In a seed round, funding is provided by an investor in exchange for convertible debt or equity in the company. The best way to think about seed funding is like growing a tree (hence the name 'seed').
Do you pay back seed funding? ›
There are a few different types of seed funding, including debt financing, equity financing, and grants. debt financing is when a startup borrows money from an investor and agrees to pay it back with interest. equity financing is when a startup sells a portion of its company to an investor in exchange for capital.
Is seed funding risky? ›
Seed funding is typically considered higher risk because the business model and market fit may not be fully tested. But there is potential for high reward, as early investors often get a more significant equity stake.
What are the requirements for seed funding? ›
Requirements for seed funding for startups typically include having a compelling business idea or prototype, a strong founding team, a well-defined market opportunity, and a clear plan for product development and market entry.
Can I pay myself with seed funding? ›
Yes, it is possible to use business seed funding to pay yourself a salary. However, there are several factors to consider before doing so. In this answer, I will outline the key points to keep in mind when using seed funding to pay yourself a salary.
How much do startups get paid for seed funding? ›
According to Kruze Consulting, the median startup CEO salary in a seed-stage startup is around $130,000, which holds true whether you're a technical or sales founder. For every additional $1M raised, founders will then add an additional $4-5k in salary. Years of experience are another factor for employees.
What are the disadvantages of seed capital? ›
It can be tricky to find investors willing to invest in seed capital. The entrepreneur may have to give up a large percentage of their company. There is no guarantee that the investment will be successful. The business may not be able to repay the seed money investors.
What are the disadvantages of the seed stage? ›
The main disadvantage is that they are very risky, as many startups fail to scale, pivot, or find product-market fit. Seed stage investors need to have a strong network, a keen eye for talent and innovation, and a high tolerance for uncertainty. Seed investing is not for everyone.
What is the success rate of seed funding? ›
As this Crunchbase data summarizes well, once the amount of funding for the seed stage startup surpasses the $1 mil mark, the post-seed funding raising success rate increases from ~30% level to over ~55%, and given about 35% companies that get Series A to fail in the US, this indicates approximately 60% failure rate at ...
The first round after the seed stage is Series A funding. The term gets its name from the preferred stock sold to investors at this stage. In this round, it's important to have a plan for developing a business model that will generate long-term profit.
How long does seed funding last? ›
The average time it takes for startups to close their initial seed rounds of funding is 3-6 months. However, this can vary depending on a number of factors, such as the stage of the startup, the amount of funding being raised, and the experience of the founders.
Should I get seed funding? ›
Why Raise Money? Without startup funding the vast majority of startups will die. The amount of money needed to take a startup to profitability is usually well beyond the ability of founders and their friends and family to finance.
Do you have to pay back seed funding? ›
It happens via an instrument called a convertible note. The loan includes a principal amount (i.e. the investment itself), the interest rate, and a maturity date when both the principal and interest must be paid back.
How much seed money do I need to start a business? ›
Generally speaking, most businesses will need at least $5,000 in seed money to get started. But, again, this amount can vary depending on the type of business you're starting and the start-up costs involved.
How do startups get seed funding? ›
A common source of seed funding are private investors. Seed funding can also be provided by accredited investors, crowdfunding investors and also angel investors. Angel investors are typically investors who provide seed funding, but also provide advice and guidance to help the business grow.
How do seed investors make money? ›
Seed funding is essentially equity-based funding, which requires investors to invest money into the business at the very early stages. In return for the investment, the investor is given an equity stake. An equity stake is a share of the business.
How do you generate seed funding? ›
Generally, seed funding comes from one of the following sources:
- Friends & family: The most common method of seed funding is family and friends. ...
- Angels: Some investors prefer to work with startups. ...
- Incubators: Founders with an idea (but without an actionable product or service) can join an incubator.
