Unfortunately, launching a successful startup is expensive. For around 77% of entrepreneurs, this means that they will need to self-fund their business until it is profitable – or at least until they find someone willing to invest capital in exchange for equity.
For a startup, receiving the first investor check can bring on a rollercoaster of emotions. On one hand, the founders are finally relieved from bootstrapping, and they no longer have to deal with the anxiety of potentially burning out of cash before reaching positive profits.
On the other hand, they now face a level of pressure that didn’t exist before. Investors now own a piece of the company, and they expect a positive return on their investment.
Striking a deal with the first investor isn’t easy, but the right deal has many advantages. Seed money gives startups the foundation they need to further develop products, fund marketing campaigns, and gain momentum.
Is Your Startup Ready For Funding?
Unfortunately, not every startup is ready for funding. While there are many factors that investors may look for, here are three major elements that must be in place before seeking seed money:
- Team: Although sole founders have secured investments, teams of two or more members are typically more appealing. Launching a successful business is tough work, and the requirements are often unmanageable by a single party. Before pitching investors for seed funding, make sure that you have a strong team in place with qualified and committed individuals.
- Product: In the seed stage, investors expect that an active product exists. A workable minimal viable product (MVP) should already be developed, even if it only has core features in its current state.
- Traction: Most of all, investors want to see traction. They want to know that you have validated your assumptions, that a real market exists, and that users are willing to pay for your product.
How Much Seed Funding Can You Raise?
The amount of seed money that you are able to raise will be directly related to your startup valuation, or, how much your business is worth before investment. Startups that are able to gain a significant level of traction before taking on a partnering investor are valued at a much higher valuation than those with less progress.
Some of today’s most notable startups were able to secure millions in seed money from venture capitalists. Others only raised a small amount of seed capital by joining incubators and accelerators, but were able to secure much more funding in later rounds.
Check out this infographic from Think Lions to see how much seed funding was raised by 15 of the world’s top startups.
Mike Sims is the owner and founder of ThinkLions; a team of app developers and business plan writers that have helped dozens of startups bring their technology to life. With a background in business development and marketing, he works closely with entrepreneurs around the world – consulting them through challenging situations and identifying valuable strategic opportunities to advance their businesses.