Seed Funding: What Is It and Its Role for Startup
For aspiring business people, seed funding is an important part of the process of setting up a business, especially startups, because this concerns the initial funding of the business before going further on other processes.
Apart from understanding the types of funding, prospective startup business actors also need to understand other related matters, such as finding investors and investor criteria.
What is Seed Funding?
A startup business is a business that is in the process of developing, so funding is one of the crucial things needed. Usually, a startup business is founded by one or more entrepreneurs who want to produce or develop a product.
It is called a startup business because it is still in development and usually has only been established for less than three years with no more than $10,000 in capital.
Seed funding is a type of early-stage funding for equity-based startup businesses. Some investors invest in the early stages in the form of equity shares.
This funding stage aims to find products that have the potential to sell well in the market and find the right users according to the product plan.
Finding investors willing to provide initial funding is not too difficult because many investors are looking for a growing startup business.
Types of Seed Funding
Early-stage funding for this startup business can be obtained in several ways. The types of early-stage funding are divided based on how to obtain funds, including:
1. Crowdfunding
Crowdfunding is a way of obtaining capital by raising funds. Thus, startup business actors can obtain funds from a group of individuals who are interested in the business being developed.
2. Corporate Seed Funds
These funds are obtained from large companies with a budget to fund startup businesses. Some of these companies include Intel, Google, and Apple. They routinely invest in startup companies.
3. Angel Investors
As the name implies, funds are obtained from individuals who are kind enough to provide initial capital. Usually, Angel Investors are someone who has a high amount of net worth and wants to invest in a Startup.
They expect a return in the form of ownership equity or convertible debt. Then, debt will be converted to equity, and Angel Investors will receive an early investor discount.
4. Incubators
These types of investors are those who help fund startups with small startup capital and help startup businesses. You do this by holding training for startup business people; some even provide office space.
Generally, Incubators do not ask for equity or stock ownership in return, but they still provide maximum support. Usually, they are educational institutions with a special mission to develop startup businesses.
5. Accelerators
Accelerators will focus on helping startup business people with operations rather than helping development at an early stage.
Indeed, the funds are to be invested in small amounts, but other assistance to the workspace will be provided, such as professional services, training, and networking opportunities.
It’s just that accelerators will usually ask for equity because these investors usually use privately owned funds.
Most startup businesses find it difficult to grow due to limited capital. Therefore, seeking seed funding is important for a startup business to develop well in the future.
