Seed money or seed capital plays a crucial role when it comes to translating an idea to a business. Not just this, when to raise seed funding is significant enough to define the health of the business. But first, let’s address why seed funding is so important.
Why Seed Funding Is Necessary?
Seed funding is the early-stage investment that a startup needs to get off the ground and gain some traction. It is a very important stage in the journey of a startup as it allows them to grow, work on the product or idea, develop a team and look into other aspects that are responsible for the functioning of a company.
In most cases, the amount of money needed to set up a business is more than what the founder or their family members can put in. This is where seed capital from outside sources, such as crowdfunding, venture capitalists, bank loans and angel investors, come into play. But, before approaching any of these sources, it is crucial to know if the startup is ready for raising seed funding.
The Right Timing For Seed Funding
It is believed that whenever a startup can raise money, it should. But, there are a few things that entrepreneurs should keep in mind to increase their chances of getting what they want from who they want. A startup must first know if it is ready for seed-stage financing or not. And this is just about answering a few questions:
- Is The Right Team in Place?
Having the right human resources to work on ideas or product is crucial. With the right team, treating employees with respect, loyalty and care is essential, so that they are just as invested in the company as founders are.
- Has The Startup Worked With Industry Experts?
Take valuable feedback from experts in the field including advisors, angels, partners and industry players. This way, startups can improve the product or idea before taking it to the market or early-stage investors. The expert network will also help founders in gaining credibility.
- Is There A Prototype?
If you have a product or software that you are wanting to implement, what stage of production is it in? You need to have at least a working prototype which will be showcased in front of the potential investors. Going to an investor meeting without a working product drastically reduces your chances for seed-stage funds.
- Have The Potential Investors Been Vetted?
When it comes to sitting for an investor meeting, it is best to do some research beforehand about potential investors. This would also help build a relationship with investors before the pitch. Investors will be more inclined to come on board with the startup when they see the work shining through, and when they know that startups have done their due diligence.
- Is There A Story For Investors?
Investors love to hear a good story. If founders can move them emotionally with the unique vision, story and idea behind the startup, then that would get investor attention. But investors can also easily see through dishonest presentations.
- Has The Product Been Tested?
It is always a good option to test the product before planning on raising seed capital. Getting to know customers’ needs and behaviour will allow startups to present a real-world scenario of the effectiveness of the product. This is part of the market research that should be carried out before a product launch, which helps founders understand:
- Demand for the product
- Sign-up and pre-sale numbers
- Is there any competition?
- How the product is different
If startups can replicate the sales process and cycle in the future, then investors will get a better idea of the issues they might face and be able to tackle them accordingly.
By and large, startups and founders must prepare well before pitching to raise seed funding. No matter how big of an investment the idea demands, there are many seed funding companies in India and the world that will be ready to support it, provided it make sense to them.