From Angels to Accelerators: The Ins and Outs of Seed Funding for Startups
Nowadays, being your own boss is the main career goal for many people. But as awesome as hustling for your own goals sound, it’s equally difficult.
Launching a successful business is no easy task. Startup founders often need to find investors to fund their fledgling startup.
Raising funding for early startups is both exciting and challenging at the same time. In the early stage, most startups don’t even have paying customers, market traction, or profits to show, which can make it difficult to come up with an appropriate startup valuation.
These early startup days are the days when every entrepreneur or startup founder searches for answers to their question, “How to fund your startup”.
Luckily Seed Funding exists.
In this guide, we have rounded up everything from what seed funding is, its types and advantages to how to raise money for startups, the seed funding process, and everything to pursue successful seed funding.
What Is Seed Funding?
Startups need money to grow, and seed funding is an important step that allows startup founders to turn their business idea into reality.
Seed funding is the investment made by investors or venture capitalists in startups at their earliest stages.
This funding helps startups hire employees, increase their product development, and better revenue generation.
Seed funding can come from various sources, such as angel investors, friends and family, venture capitalists, and government grants.
There may be alternative sources of funding for startups, such as bank loans, but seed funding remains the most preferred choice.
Different Types Of Seed Funding For Startups
There are different types of seed funding available for startups, each with its own pros and cons. Below are some of the common types of seed funding:
1️⃣ Equity-Based Financing
Equity-based financing is when a startup company raises capital by selling its company’s shares. By selling equity, it sells ownership in its company in return for capital.
- Advantage – Doesn’t require the startup company to repay the money raised.
- Disadvantage – Startup owners have to give up a portion of their ownership to investors and dilute their control.
2️⃣ Debt-Based Financing
Debt-based financing is when a startup borrows money from an outside source to be paid back at a future date with interest. It could be either in the form of secured loans or unsecured loans.
- Advantage – Doesn’t dilute ownership among the founders
- Disadvantage – Startups have to repay the borrowed money with interest
3️⃣ Grants
Grants are when a sum of money is given to a startup company from a government or private organization that doesn’t need to be repaid. The funding amount is given with no expectation of repayment without even giving equity or other resources.
- Advantage – Doesn’t require repayment
- Disadvantage – It is difficult to obtain grant funding
Advantages Of Seed Funding For Startups
Expenses like product development, employee salaries, infrastructure, and initial marketing may require startup owners to spend a lot of money before even starting to gain revenue.
The major advantage of seed funding is that it gives startups a great financial boost with their guidance.
Angel investors are high-worth individuals with great experience and expertise in getting businesses off the ground. This means that your startup will gain more than just capital.
Investors’ mentorship and knowledge will help your startup grow and develop in the right direction.
Another advantage of seed funding is that it allows you to invest in crucial development steps such as key hiring (Product VP or CTO), marketing, business development, and building a successful sales team.
Last but not least, seed funding is flexible and debt-free, as it won’t be as burdened as loan or restrictive agreements are.
How To Raise Seed Funding For Your Startup?
For a successful seed round, it’s important to have a systematic process.
Breaking the process into three simple steps:
Step 1: Adding Qualified Investors Leads
Attract and gather qualified potential investors by either outreaching, warm introductions or
inbound interest. Later filter for an ideal investor that fits your requirement – the right sector, check size, geography, etc.
Step 2: Nurturing Potential Investors
Even if you aren’t actively seeking to fund your startup, it’s important to be remembered clearly by your potential investors. For instance, you can send them an email from your investor update newsletter.
Step 3: Develop Relationships With Investors
Building and maintaining a good relationship with potential investors is crucial for successful seed fundraising. Later when these investors show their interest to invest in your startup, it will be a good time to approach if you are ready to go for successive rounds of funding.
When Should A Startup Raise Money?
Determining when is the best time to raise funding for your startup can be tricky.
Investors want to invest their money into a startup that has a brilliant business idea with a skilled team for execution and a good customer base.
Hence, startup founders should only raise capital when they have figured out market opportunities and have a strong product and team.
If you believe your startup is eligible enough and has all to generate huge returns for an investor, it’s the right time to start your seed fundraising process.
Moreover, you should delay getting funding if you have enough money to run your business in its early stages. When founders bring investors, they have to give up a certain amount of power and flexibility in order to receive capital.
Seed funding has many advantages, but if it is done too early, it has a lot of downsides too, such as unwanted interference and dilution of control over your business.
Bring investors into business only when your business needs extra money, but you can’t afford it.
Top 6 Seed Funding Sources
There are various seed funding sources from which startups can aid financial support.
1️⃣ Crowdfunding
Crowdfunding is a process of funding a business by raising capital from a large number of people through the Internet.
With 500+ crowdfunding active platforms, it has become the most trendy destination for startups for seed funding.
2️⃣ Corporate Companies
Funding from corporate companies is one of the great sources of seed funding. Many big tech companies like Apple, Google & Intel provide seed funding to brilliant startups.
Google Venture is a venture capital investment arm of Alphabet Inc. that supports innovative startup founders moving forward. Whereas Intel Capital is dedicated to providing support to startup investments.
3️⃣ Business Incubators
Business incubators are generally organizations that help startup companies develop their business by providing small seed investments and other range of services such as providing office space and management training.
Some of the most active incubators in India in 2023 are
- The Indian Angel Network Incubator
- IIT-Bombay’s Society for Innovation and Entrepreneurship
- Khosla Labs
- T-Hub
- Kerala Startup Mission
- Electropreneur Park
- Technology Business Incubator
- Amity Innovation Incubator
- Indian Angel Network Incubator
- Sine
- CEI IIMC
- CIIE IIMA
- Nsrcel
4️⃣ Startup Accelerators
Startup accelerator helps scale up startups via small seed investments and cohort-based programs. These programs include mentorship, educational components, networking opportunities, professional services, and workspace.
Some of the most popular accelerators in India in 2023 are
- Google for Startups Accelerator (GFSA)
- Y Combinator
- Techstars
- 500 Startups
- DevX
- JioGenNext
5️⃣ Angel Investors
An Angel Investor is an individual who offers capital to a startup business or businesses in return for ownership equity or convertible debt.
Top angel investors for startups in India are
- Kunal Shah
- Anupam Mittal
- Varun Alagh
- Ghazal Alagh
- Kunal Bahl
- Rohit Bansal
- Ramakant Sharma
- Rajan Anandan
- Sujeet Kumar
- Ankit Nagori
- Nitish Mittersain
- Deep Bajaj
- Sandeep Nailwal
6️⃣ Venture Capital
Venture capital funding is private equity financing offered by venture capital firms to early-stage startups that have the potential to attain high growth. Usually, venture capital firms look for startups that are highly scalable with huge target markets.
Top venture capital firms for startups in India are
- Accel Partners
- Sequoia Capital
- Blume Ventures
- Nexus Venture Partners
- Kalaari Capital
- Helion Venture Partners
- Matrix Partners
- Chiratae Ventures
- Sequoia Capital India Advisors Private Limited
- Tiger Global Management
- Elevation Capital
- Matrix Partners India
- Lightspeed Venture Partners/li>
- Ventureast Fund Advisors India Limited
- Intel Capital
- Omidyar Network India
- Kae Capital
- Trifecta Capital Advisors LLP
- New Enterprise Associates
- SAIF Partners
- Orios Venture Partners
- Jungle Ventures
- Bessemer Venture Partners
- Norwest Venture Partners
Get The Right Seed Funding For Your Startup
Some startups might need a massive amount of funding to bring their ideas to market, while other startups might just need a small loan to reach higher revenue.
Whatever the case may be for your early startup, it’s best to figure out the best seed funding options to raise the money.
Know your product market, understand your customer, and later wrap it all up in a persuasive way to convince the right investor for seed funding.
We hope this guide will help you kick off your seed round successfully. After reading this guide, if you are looking for a registered valuer to help you with your startup valuation for the seed funding round, – Consider My Valuation.
My Valuation is a trusted startup valuation firm in Bangalore, India, providing IBBI registered startup valuation services and advisory support to Indian startup companies.
Contact us today to know more about our startup valuation services.
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