If you’re thinking about applying for seed investment for your business, then you probably have a few questions. This guide aims to answer the funding basics, so you can be sure it’s the right choice for you.
What is seed funding?
Seed funding is a type of financial help for start-ups who are looking to rapidly expand. Private investors offer financial aid to new businesses they like, in return for their own stake in the company. Seed investment was originally created to help businesses who were looking to grow from scratch (hence the term). However, due to growing competition in the start-up marketplace, seed investors often expect to see some kind of traction before they hand over the cash nowadays.
How much money should you ask for?
You’re probably thinking ‘as much as possible’, right? Wrong. Whilst you need a healthy amount of cash to get things going, there is such a thing as too much and with more cash comes more pressure.
Make sure you know exactly how much you need and exactly what you’re going to spend it on down to the last penny. You should want a clear financial plan for your own peace of mind but more importantly, your investors will want a thorough breakdown of this too. Therefore, it’s definitely worth avoiding the guestimates when putting together a business plan.
If you want to give yourself some extra security, have an accountant go through your plan with you to iron out any kinks or inconsistencies.
Do you have a plan?
Want to get investors excited about your business? You have to have a solid plan.
Before you even talk to investors, you should have realistic milestones that you want to reach one, two and even three years down the line. A milestone can be anything from hitting 50,000 downloads to scoring a top notch contract with a particular distributor.
Whatever your goals, make sure they are attainable and definitely make sure you talk about them.
The financial side of seed investment is important to investors but so is your passion for the business. If you have an absolutely flawless financial plan but fail to show enthusiasm for the future of the business, you just aren’t going to seal the deal.
Talk about what you want to achieve from your first milestone and also mention how you plan on funding your business further should you reach this point. It’s also important to talk about your exit strategy or your plan B, should things not go your way. No one creates a start-up to fail but you have to prove to investors that you’re aware of the risks.
Do you know your burn rate?
This might not be a term you’ve heard of before but it’s pretty easy to get your head around. Quite simply, your burn rate refers to how fast you are spending investors’ money. It’s how quickly and how long you will be spending for, before you start to generate a positive cash flow.
This should be worked out by your Chief Financial Officer (CFO), which might actually be you if your business is small. Once again, it may be worth your while asking a freelance accountant to help you with these one-off financial tasks, as they are trained to spot errors that might pass you by and lose you the investment.
Where can I find seed investors?
Thanks to a rise in entrepreneurialism, there are seed investors popping up all over the place. Unfortunately, this popularity also means that you’re going to have work extra hard to secure a deal.
Seed investment websites are often the best place to start and fortunately there are quite a few nonspecific ones out there. Which site you choose will ultimately come down to the nature of your business and personal preference. Just make sure you do your homework before signing up, as you may find a niche investor is a better choice.
Some of the most popular sites include:
Seis.co.uk (A seed investment search engine)
Applying for seed investment is a big step for your business, so make sure it’s what you want before you do it. Do your research, put serious time and effort into your business plan and if you have any doubts, don’t feel bad about searching for an alternative funding route.