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Seed Investment 101: A Beginner’s Guide for Early-Stage Startups

Published On
October 27, 2022
Read Time
Shreya Ganguly

Startups require capital to buy tools, rent offices and hire personnel to begin operations and grow. To fulfill these objectives, they will almost always need outside source of funding. Seed investment is becoming popular among entrepreneurs with access to potential investors. It serves as the launchpad for the firm, making it a crucial phase in the lifetime of a startup.

If you are a budding startup, here is a guide on seed investment and the different ways to go about it.

What is Seed Investment?

Seed investment is the first level of investment a startup will raise to begin its journey. Seed investment can help get ideas off the ground and give life to potential business ideas. The objective of seed money is to primarily provide a founding team with enough funding to pursue a specific idea or market and determine whether the concept or product is viable.

Investors may have different needs but generally look for a good product/market fit. According to Marc Andreessen, founder of Andreessen Horowitz, product/market fit assesses if the product has the potential to meet the market demands.

Seed investments cover any expenditure from infrastructure, marketing, and development charges, to the cost of hiring new employees.

Right to Time to Raise Seed Funding

You can look for seed investors when you have a solid team, a well-researched market, a good product, or a combination of the three.

Y Combinator suggests that founders should raise money after identifying the market opportunity and the consumer. They should also develop and rapidly adopt a solution that meets their needs.

Entrepreneurs must be able to captivate and persuade investors to raise money. When your company has what it takes to offer investors huge returns, you can proceed to plan your fundraising process.

How to Raise Seed Investment: The Fundraising Funnel

A method and process are essential for raising a seed funding round successfully. A systematic strategy like a sales and marketing funnel is generally used in fundraising. This can be called a Fundraising Funnel, and it has three stages.

1. Increasing the number of qualified potential investors 

Gather a list of potential investors through inbound interest, warm introductions, or cold outreach. Ensure they match your "ideal investor persona" regarding the appropriate sector, stage, area, etc.

2. Nurture Current Investors

While you might be actively looking for new investors or raising more money, remember to maintain a stable connection with your current investors, as they can come in handy when looking for more investment.

3. Visibility Through Present Investors

Establishing a good relationship with current investors is important as they will be among the first people a new investor may approach for advice on investing in your business. The ultimate ambassador for your company ought to be your current investors.

Common Seed Funding Sources

Here are some common sources of seed investment for early-stage startups.

1. Crowdfunding

Crowdfunding is a type of seed funding that is gaining popularity. Anyone and everyone can back an idea, concept, or product through a crowdfunding platform. These platforms are open to anyone possessing a product with market viability.

2. Incubators

A startup incubator is a collaborative program created to support the success of emerging startups. By offering office space, seed money, coaching, and training, incubators assist entrepreneurs in resolving issues frequently related to business management.

A startup incubator's only goal is to assist entrepreneurs in expanding their businesses. While some incubators provide a small amount of funding, others will only provide tools to aid founders in starting their businesses.

3. Venture Capitalists

Venture Capitalists are usually high-end investors who invest in startups after examining factors like market conditions, the founders' vision, growth prospects, etc.

4. Angel Investors

An angel investor is someone who wants to diversify their investment portfolio by supporting exciting enterprises. However, angel investors are typically more seasoned business people aware of the dangers of funding a startup. They usually provide seed funding in return for equity or convertible debt.

5. Corporate Seed Funding

Corporate seed funding allows early-stage startups to gain exposure and build their brand. Companies like Google, Apple, and Intel regularly support early-stage startups with seed investment to enhance their visibility among large corporate investors.

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Finding investors can seem challenging. Scalix, by LetsVenture, connects business owners through a carefully curated network of founders to help them learn, collaborate, and grow.

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