Funding

How to Raise Seed Funding for Your Startup

By Dainis Kanopa. August 2, 2018

How To Raise Seed Funding Featured Image

Before we even get down to the business of preparing the best pitch to investors, ask yourself whether seed funding is necessary in the first place🤔. Outside investment is not the only way to drive startups. Some well-known entrepreneurs can prove this to you. Nick Woodman, CEO, and Founder of GoPro is one. He created his first GoPro camera straps without a VC.

You also need to know whether the timing⏱️ is right for you. Are you in the right stage to seek investors? If after some serious thought and seed funding came out as the best answer, then you need to do three things: Prepare, prepare, and prepare📚. Preparation in different levels is imperative–from concept and strategy to pitch. As Louis Pasteur had said, “Chance favors only the prepared mind.”

So, what do you need to prepare?

Knowledge of the right investors

Do not feel too desperate to get an investment that you will lose sight👀 of your goals. Investors have specific inclinations, experience, and expertise. So, choose those who understand the business and can add value to you. Knowing your potential investors is as important as being clear about what you need at this stage of your startup. One important thing to understand is the kind of investor you need–an angel investor or a VC? Mistakes in getting the right investors are often the reasons why startups fail📉. Investors can end up micromanaging or over-imposing and may only cause you a lot of stress.

Your valuation

If you have watched the British TV series Dragon’s Den, you would understand why you need to be spot on with your valuation. Ridiculous valuations irk investors. But, that’s not the only problem. You could be assuming too high that you won’t be able to deliver the expectations of your investors.

For startups, valuation is particularly challenging because young businesses take time to be profitable💰. Think about how long it will take for your business to make a good profit. Usually, the longer it takes, the lesser is its worth. You can also study the value of comparable companies📊. If, for instance, a company is worth $5million in profit, its value at startup stage can be just a fraction of that.

The value you are looking to raise should be based on the following:

  • Projections to fulfill your next goals. How much money do you need for, say, scaling up or developing your product?
  • The value worth diluting. How much are you comfortable diluting so that you won’t have too little equity for yourself and future investors?

Your company profile

An idea💡 can be worth something, but a good team that can deliver that idea properly is worth more to an investor’s eyes👀. A company’s philosophy and mission and vision statements, apart from the idea, are often what brings home the bacon. This year, 2018, investors also look at leadership styles and team dynamics. When you are presenting📜 your startup in front of investors, show them not only the idea but also the evidence of your company’s vision and flexibility. VCs like a strong vision, but they also like adaptive people who can spring out from failing plans📈.

 

Delivery and pitch

Delivery and pitch

Work on perfecting your delivery and pitch🗣️. It is not always about knowing your idea like the back of your hand. It is about two things:

  • Delivering an “elevator pitch.” Think about describing your idea💡 to someone in the elevator with you. You should be able to drive your idea home before the elevator dings. Be simple, straightforward, and interesting.
  • Translating an idea, product, solution, or service into bills and dollars💰 for your investors.

Having an interesting idea and a tight pitch are not all it takes to raise seed funding for your startup. Rather than spending all of your time window-dressing your business, work on building an actual robust company with a clear vision, cohesive team dynamics, and good revenue potential. Preparation, I dare say, isn’t done overnight😉.