Monday, October 5, 2015

7 Seed-Stage Funding Sources To Finance Your Startup

seed-stage-fundingEven if you work every day in the world of new-venture funding, as I do, the options are confusing, and their meanings seem to change on a regular basis. I challenge any entrepreneur, for example, to define the difference between "seed-stage" and "early-stage" financing. Yet, knowing this distinction is important.

Remember, you have only one chance to make a great first impression, so it helps to know the lingo when dealing with investors. Asking for early-stage money before you have customers and revenue will likely kill your credibility with real investors.

Seed-stage, meanwhile, is technically that critical period when you need funding to do solution- and business-model development, to prove that your new product or service works, before you try to sell it to customers. Most investors won’t touch a first-time entrepreneur at this stage.

Luckily, there are some new entrants and approaches to seed-stage funding -- if you know whom to ask -- that can supplement the friends, family and bootstrapping approaches traditionally recommended. Here they are:

  1. A crowdfunding campaign. Crowdfunding is rapidly becoming the major source of funding for seed-stage startups. According to recent statistics, there are already over 500 website crowdfunding platforms, such as Kickstarter, available; and over $5 billion was raised this way last year. For those of you without a rich uncle, crowdfunding can work.

  2. A seed-stage “super angel.” This is a relatively new term loosely applied to angels who invest their own money in a portfolio of startups (typically 20 or more) and are willing to lead multiple rounds, usually starting with a seed round. Ron Conway, of SV Angels, and Reid Hoffman, LinkedIn's founder, are names often mentioned in this category.

  3. A micro venture capital firm. Micro-VCs, by definition, are firms that invest institutional money (meaning other people’s money) in projects that are at the seed stage or are too small to attract the attention of more traditional venture capitalists. Currently, there are about 250 micro-VC firms, including such notable names as Mike Maples of FloodGate Fund.

  4. A “genesis” venture capital round. A new VC seed market has been emerging, especially over the past five years: It usually appears in the form of a prototypical seed round of $1 million to $1.5 million and is normally syndicated from one to three institutional seed investors or larger VC funds. These funders often offer convertible notes, rather than the traditional priced equity.

  5. Business accelerator funding. Business accelerators like YCombinator and TechStars are sometimes able to help startups looking for seed-stage funding. Most accelerators provide small seed investment in the range of $25,000, as well as mentoring, workspace and professional services, in exchange for an equity stake in the company.

  6. Startup incubator seed funding. While an accelerator offers a specific program to startups for a fixed period of time, usually 90 days to four months, incubators tend to be more open-ended. Yet, they often provide similar small seed investments, similar to those of accelerators. Many municipalities offer these to facilitate local new business development.

  7. Corporate seed funds for startups. Finally, many more mature companies, including Intel, Google and FedEx, offer seed funding to promising startups working on innovative technologies which might be good acquisition candidates later.

Finding funding at the right time is the entrepreneur’s conundrum, since most founders believe that they wouldn’t even need an investor if they already had an existing product and proven business model. On the other hand, investors only want to provide money for scaling a proven business model, which is on an order of magnitude less risky than implementing and proving a new and innovative solution.

Ironically, the new, relative abundance of seed-stage opportunities has led some experts to warn startups of a phenomenon known as the series-A crunch, or shortage of early-stage or later investments.

My recommendation to entrepreneurs is that they still look for startup funding one step at a time, from an idea in their heads, to a real product (seed stage), to a scalable business (early stage), to the success they deserve (IPO or acquisition). If you're one of them, don’t second-guess yourself into never starting.

Marty Zwilling

*** First published on Entrepreneur.com on 9/25/2015 ***

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6 comments:

  1. Wow! It's pretty good to read and you have return it in a interesting manner. You have given better meaning for each and every line. The highlighting factor is in your writing is simplicity. Therefore it's help us to know within two more readings. So I hope you can go for professional resume writing service to write perfect resume with your writing style.

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  2. Wow! It's pretty good to read and you have return it in a interesting manner. You have given better meaning for each and every line. The highlighting factor is in your writing is simplicity. Therefore it's help us to know within two more readings. So I hope you can go for professional resume writing service to write perfect resume with your writing style.

    ReplyDelete
  3. Before starting up any venture, prior extensive planning is essential in order to prevent any miscalculation especially when it concerns your financial standing. You need to carefully derive with the stage that your startup is kicking off from so as to get exactly the amount you require to finance the undertaking.

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  4. It is true that sometimes various different sets of info can be confusing despite us having been in the industry for quite some time now. This is due to the fact that there could be too much similar aspects of the topic until we reach the extent of being unclear which data suits our needs better. Hence, when it concerns your finance, you need to carefully study the situation before making any decision.

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  5. Finance your business from a position of strength. As a business owner you show your confidence in the business by investing up to ten percent of your finance needs from your own coffers. The remaining twenty to thirty percent of your cash needs can come from private investors or venture capital. Remember, sweat equity is expected, but it is not a replacement for cash. Doyle Salewski

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  6. All new businesses could use with an extra injection of funds so that they can work on financing the basics and getting the business set up well so hopefully some of the tips here will help them to get that helping hand they need.

    ReplyDelete