If you’re seeking seed funding, there are a few steps to follow. First, determine what type of funding you require and how much you need to raise. Then, create a pitch deck and schedule meetings with potential investors. Finally, negotiate and finalize a deal that satisfies both parties. Let’s go through each step in detail.
Ensure that the timing is appropriate
Before seeking funding, it’s important to determine if it’s the right time for your company and if seed funding is necessary. This decision should be based on two factors: whether you’re willing to give up a portion of your company and if you can convince investors that you’re a good investment.
The decision to give up equity is personal, but sometimes necessary for companies that require significant capital to get started. To persuade potential investors, you need to demonstrate an MVP, initial customer adoption, and product growth.
Additionally, you must show significant market potential and explain how your product meets a strong need. Finally, investors want to see that you have a capable team to execute your plans successfully. If you can meet these criteria, then it’s the right time to seek funding.
Select the source of your funding.
If you’re looking for seed funding for your startup, there are several options to consider, each with its own advantages and disadvantages.
- Venture capitalists (VCs)
- Angel investors
- Accelerators and incubators
Find out the amount of seed money required
As we’ve previously discussed, seed investments usually range between $500k to $2m. However, investors prefer a more precise funding goal. Ideally, you should aim for enough funding to become profitable, which is attainable for many software-based startups with low product development costs.
For startups creating physical products, it may not be feasible to reach profitability with seed funding due to higher production costs. In this case, your target should be to secure enough funding to achieve the next fundable milestone in 12-18 months. To determine the necessary funds, calculate the number of months of operation you need to finance.
For instance, if you need to fund six engineers at $15k each for a year, you’ll need roughly $1.08m. Financial modeling software like Finmark can assist you in projecting how much runway you’ll have with various investment amounts and developing a capital utilization plan.
Make sure you are ready to pitch to investors
To secure funding for your startup, investors want to see concrete evidence of future success. While their decision may be somewhat subjective based on their perception of you and your team’s ability to bring the vision to life, they also want to see tangible plans and financial forecasts.
It’s important to be prepared with an executive summary and pitch deck that demonstrate how your idea will look on paper.
To provide a clear understanding of our company, we have included the following information:
- our company name, logo, and tagline;
- the long-term vision of why we exist; the problem our product solves;
- a description of our customer persona; the solution we have created and why it is timely;
- the total addressable market, including its size and landscape; our current traction and extrapolations for future growth;
- our business model and how customers translate to revenue; financial projections such as revenue, expenses, and profit; a thorough breakdown of overhead, including utility bills, salaries, rent, and product development costs;
- long-term planning for future product development and financials beyond the runway this funding provides;
- information about our team and what they bring to the table;
- and fundraising details, including what we have already raised and what we are looking for.
Create a roster of potential investors.
When building an investor pipeline, it’s important to consider each potential investor as a new lead. To effectively manage the pipeline, you should focus on filling the top of your funnel with investors who align with your ideal investor persona.
Additionally, prioritize and score the most important leads who are most likely to fund your project. Finally, work on building relationships with each lead until you are able to close a deal.
Schedule a meeting with potential seed investors who have shown interest.
When meeting with investors, it’s important to refine your skills over time. The good news is that you’ll likely speak to many different investors before finalizing a deal, which means you’ll gain experience quickly. To make the most of your meetings with potential seed investors, follow these important rules:
- Understand your audience (the investor, not your customer). Learn what they typically invest in and why.
- Keep your pitch simple and straightforward. Focus on the key details we discussed in point four.
- Listen carefully to what the investors say as a sign of respect and to build mutual trust. They’ll appreciate it if you get them talking.
- Pitch your dream boldly, but back it up with facts and figures.
- Find the right balance between confidence and humility. Show that you believe in your idea and are a competent founder, but avoid coming across as arrogant.
Remember, you’re approaching the finish line, so you don’t want to show up to pitch meetings unprepared.
Finalize the Deal through Negotiation.
As a founder, negotiating can be a challenging task. Your VC or angel investor is more experienced in negotiating and you may feel like you are at a disadvantage. It is advisable not to negotiate in real-time. While it is tempting to accept the first offer, it is important to take the time to negotiate factors such as equity compensation.
Keep in mind that 1% of a $100m company is worth $1m in the future, so it is essential to carefully consider the value you are giving up. This will help you make the best decision for your company’s success.
Prioritize closing the deal to ensure the cash is deposited into your account. Once both parties are in agreement, promptly proceed to sign the necessary paperwork and finalize the transaction to avoid losing the opportunity.