Sources of seed investment for startup
Your idea for a startup can be genius and highly promising, but then you realize that even at the first stage of idea realization is impossible without the material backup. But before we really start talking about investing, check your business against the five steps to approve your startup idea checklist to make sure your business is ready for it.
Modern realities show that the first financial injections are necessary at the early stage of idea realization in the overwhelming majority of cases. Founder should think about where to look for investment at the business beginning. There are not so many potential sources of seed funding. It often includes relatives and friends, business angels, and venture capital funds. Let’s look at each of them in detail.
Often relatives and friends become one of the first sources of financial injections. And they should not be professional investors. It is enough when they have free money and want to become a part of your idea. It is a widespread type of investor which calls FFF (Friends, Family, Founders). Statistics show that this type of investor is the trigger for many of today’s startups by investing in them at the nascent stage. Such a partnership is often profitable because such investors usually request little or nothing in return.
Such support can help a startup to develop an idea to the point when you can present it to professional investors. Usually, startups are presented by their founders to business angels at this stage. It is a type of independent investors that builds its business on investing in startups at an early stage of development. You need to understand that they do not work on a disinterested basis. They want to get a profit from their investment activity. So, be ready to share your future earnings with those people for their material and other support. But do not be upset, because this way is better than not realizing your idea at all. The amount of angelic investment depends on the project and can range from tens to hundreds of thousands of dollars. Such investors can work with several projects at the same time, and it affects the amount of funding.
There is a group of super angels who stand out from the total number of independent investors. The main difference between angels and super angels is that the last ones are ready to invest more money (even millions $) in the project. They are an alternative venture capital fund, these people can invest large sums of money, but guides by angelic positions (pretends for part of the income).
In theory, venture funds can finance a startup at an early stage of development too, but it happens very rarely. Such organizations prefer to invest in projects at a later stage of development or in already established companies. But there are exceptions. The majority of these “exceptions” come from seed funds, and this is cool. Usually, they invest in the project they are interested in from half a million to several million dollars.
There is an exciting feature that seed funds can unite and attract business angels to invest in startups with potentially high prospects. But such mergers are very rare in the initial stages of business. Venture funds invest their money in securities or shares of promising companies. However, seed venture funds can also be considered by startup creators as a potential source of investment, even at the startup initiation stage.
Another source of seed funding can be a business accelerator. This platform helps startups to start. Accelerators are the most optimal option for startup projects, but it would not be correct to call them a source of investment in the literal sense. Business accelerators provide their services in exchange for a share in the capital of the future company. Generally, such structures are intermediaries that help entrepreneurs to find investors.
Whoever the owners of a theoretically profitable idea decide to turn for support — FFF, business angels, business accelerators, or venture funds — they must believe in the feasibility of their plan and objectively assess their capabilities. Approach the choice of investor based on the required amount of investing. There’s no point in going to business angels if you need millions of dollars to implement a project or worrying venture capital funds for a few thousand dollars.
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