Startups are a crucial part of the economy, paving the road to prosperity and improving living standards. However, converting a startup idea into a tangible good or effective service takes a lot of work. Often, startups face a situation where they have everything (the idea, the execution plan, the potential team, and passion) except for finances. So, seed funding becomes essential for startup growth. Therefore, in this blog, we will talk about the role of seed funding in startup growth.
What is Seed Funding?
Seed funding or seed capital investment is the first step for startups to raise funds. In seed funding, the startup approaches third parties for investment for the first time after bootstrapping. Popular seed funding for startups comes from family, friends, angel investors, crowdfunding, and venture capital. The seed funding offers the initial push to the startup in its early stages.
Generating seed capital for startups is easier said than done. Seed funding is for startups in the early stages where they might need an MVP or a clear idea of how to build an MVP. However, the financial push from seed funding can help them research and put their ideas into action and convert them into a profitable business.
Seed funding strategies like working with incubators and angel investors are considered better for early-stage startups for the guidance and financial support they need. With seed funding, a startup gets many more things; let’s discuss more.
Role of Seed Funding for Startups
1. Support the startup during early stages
A startup with no significant market present or even an MVP often collects the seed fund. Usually, the startup needs funds to do proper R&D for marketing. Therefore, seed funding becomes essential for them to grow and establish their presence in the market. With seed funding, the startups can invest the capital for R&D, hire the right team members for growth, market the brand, and more.
As early-stage startups, they should focus on expressing their idea and impact better. They should incorporate relevant data and their relation to how their startup can thrive as a part of their startup funding strategies. It can motivate the investors to contribute to your startup’s environmental impact or potential profits.
2. Build brand image and credibility
Investors mainly focus on what they gain from the investment. The ‘gains’ can be anything from the monetary returns, contributing to a better society, equity shares, and more. Therefore, they are careful when selecting startups for seed capital investment. When a startup gets investment from a reputed third party, it becomes more credible. More people will likely watch your performance, and you will get a competitive edge when a highly reputable investor gives you seed funding.
Build a compelling pitch deck with relevant and effective facts and stats as a part of your seed funding strategy to get seed funding for startups. The pitch should effectively explain your idea, its product-market fit stats, potential profit, and especially what the investors get from investing in your startup.
3. Test and improvise the product/service
A startup caters to a specific need of its target audience. So, it shouldn’t be surprising that 34% of startups fail because of poor product-market fit (source). But what does poor product-market fit mean? The introductory psychology of this concept is simple: at the right place at the right time. The product you develop must be created to cater to the right market for success.
Many startups need more funds and knowledge for market and product research. With the help of seed funding for startups, they can focus on research to develop their products/services and market them to the right audience for success.
4. Boost startup growth with mentorship
Early-stage startups often need help managing the business and related activities. Guidance or mentorship from industry experts can help them immensely. Therefore, with seed funding, investors usually provide valuable knowledge, insights, and training to the startups for strategy formulation and implementation.
Seed startup funding can come from angel investors or incubators who can also become your mentor. Therefore, as a part of your seed funding strategies, look for experienced investors with expertise in your industry for mentorship and seed funding.
5. Catalyze the future startup growth
Seed funding is about building your startup’s future. With the allocation of funds, you can make the MVP or market your brand to prove your worth. With seed funding, you can bring your ideas into action and get results that you can include in your future startup funding strategies. With seed funding, you can build your brand image and increase sales and market share.
6. Network with potential partners
With the seed funding from investors come their connections. As most investors invest in seed capital for profits and margins, they are more likely to extend their network for better marketing and promotion of your brand. By focusing on their network, you can grow yours for strategic partnerships, potential investments, and building a support system.
Startup investors often help you build strategic partnerships to improve your operations or products for better results. It can help you immensely in the future to have people and partners to grow and rely on.
21BY72 understands the importance and difficulties of networking and finding the right investors. Thus, we organize the Global Startup Summit in various locations attended by startups, investors, and industry experts to help you build your network, generate authentic leads, and raise funds. With attendees from around the globe, panel discussions, and fun activities, you get the best of the business world here. Check out our Global Startup Summit page to learn about our attendees!
Conclusion
Seed funding is the building block for early-stage startups. Seed funding for startups is crucial to kickstart their journey with proper research and development to bring their idea into action. With the seed funding, they can access industry insights and mentorship from angel investors and incubators to improve their operations and marketing techniques. Additionally, by securing seed capital investment from established investors, you can boost your brand image for better market reach and build credibility. Effect seed funding strategies like planning a better pitch deck, positioning the startup right, and reaching out to relevant investors can help you boost the startup’s performance
and secure more investment in the future.
FAQ
1. How do you raise seed capital for startups?
To raise seed capital for startups, you must prepare a business plan explaining your startup idea, its impact, the market demand, potential growth and profit, and more. Prepare a pitch deck highlighting these details and focus on how the investors can benefit from this investment the most. It helps you attract their attention and get their investment.
2. What should you do after receiving seed capital investment?
First, financial resources should be allocated to the most essential things. Avoid wasting funds on unnecessary stuff. Work on fulfilling your promises to the investors to retain their trust and strengthen your position for more investment. Start collecting your stats to help you prepare your next pitch deck.
3. What are the drawbacks of seed funding for startups?
The most known drawback of startup seed funding is finding investors and managing equity dilution. Equity dilution pressures startups to perform and make decisions based on investors’ preferences. Additionally, it limits your profit and might affect your operations.
