The initial investment in a startup is usually made on a personal level; whether they use their savings, sell whatever assets they presently hold, or take out a loan from friends or family to make their dream a reality. While some startups are lucky enough to have adequate finances to maintain their expansion after early success, the reality for the rest is that they must rely on seed investments from seed investors to help them grow.
It is critical that, as a startup, you have a properly completed business plan to present to potential investors before even considering seed funding. You will have to persuade investors to part with their money. In order to do so, you must have a clear vision that they can follow every step of the way. While a strong business plan and vision may be sufficient to attract investment, the people who drive the vision are frequently the deciding element in whether this opportunity can realistically create lucrative returns in the future. This is why it is critical to understand your business model and plan thoroughly to demonstrate that your startup is the one they should invest in.
Types of seed investors
Seed capital investors
A startup receives investment from some of the larger firms to help them through their growing transition in exchange for equity in the company’s future success through ownership. Securing the assistance of a reputable firm not only provides funds, but it also gives the company legitimacy and brand exposure, both of which may be quite valuable when seeking additional funding.
Angel investors, like corporate seed investors, fund the startup’s development and seek financial returns through ownership. They are often expert entrepreneurs who can offer you advice thanks to their previous experience working with businesses. It is often beneficial to connect with angel investors as they are putting their money into your business, therefore you both want to see it succeed so they are more involved in it’s work.
People want to invest in firms they believe in. For this reason, crowdfunding platforms for startups have grown in popularity in recent years. Crowdfunding is when a startup invites people via the internet to invest in the company in exchange for equity. This usually results in a bigger number of smaller investors that help you meet your capital objectives. Crowdfunding makes it easier to find new investors outside of your network. However, it also means you won’t be able to take advantage of the contacts and resources that a single majority investor may bring.
Accelerators and incubators
Accelerators want to assist your startup get off to a fast start and give you the resources you need to help your startup develop quickly. They often provide mentoring, cash, and contacts in the hopes that you will be successful. They aim for the equity they get out of the company to provide them with a profitable return on their investment in a short period of time. Incubators, on the other hand, are concerned about the firm’s long-term aspirations. They aim to educate and nurture the startup by offering professional support for startup coaching. They do not expect a return on their investment in the form of shares. Incubators advocate for building a business over years rather than months.
It’s critical to recognise that there is no one sort of seed investment that is better than the other. It all depends on the business and what type of investment will give them the best chance of success.
Our top tips for securing the right investment for you
- The largest capital proposed by an investor does not always imply that it is the strongest offer! Some investors may be able to provide you with something far more valuable than money.
- Make sure the market opportunity is large enough for potential startup investors to realise a substantial return on their investment.
- A startup with their idea off the ground and early signs of growth will be more attractive to an investor. Investors like to understand what their money will be used for as this gives them confidence in the investment’s potential.
- Keep in mind that the prospective investor isn’t just interested in your product or idea; they’re also interested in you! Demonstrate why you are the right person or team to take this company to the next level. A potential investor will be considerably more likely to supply you with support if they see that you are passionate and knowledgeable about your venture. Furthermore, you should have the ability to solve problems and predict those that may arise.