After identifying a problem and the possible solution(s), it is normal that the next step will be trying to bring your ideas to reality. There is, however, the issue of seed funding.
It is often the case that, even, when founders, their friends and families contribute funds to kickstart the ideas, external funding is still largely needed.
To kickstart the ideas and ensuring minimal debt pressure and to attract investors in the future, seed funding is key for start-ups.
Seed Funding Explained
Seed funding, also, known as seed money, or seed capital is an early, or private investment that is aimed at helping a business grow and to generate its own capital.
Seed funding provides the needed early monetary support. It can cover everything from infrastructure costs, marketing and development costs, to the initial hiring costs.
Usually, investors get equity stakes, in exchange for the capital invested.
The importance of Seed Funding for Start-ups include the following:
Identifying problems and possible solutions, will not bring them to reality. There is a need for start-up funding, to give wings to your ideas and to make them come into reality.
The amount of money needed to kickstart ideas is, usually one that founders, their families and friends cannot afford.
Start-ups almost always need to burn capital to sustain their growth, prior to achieving profitability.
Often, getting seed funding, also means getting mentorship, to ensure that start-ups spend properly.
Start-up funding organisations, or avenues, such as the incubator, or accelerator programs, also provide relevant knowledge and information.
These are relevant knowledge that they can share with the founders and budding entrepreneurs.
This knowledge ensures that founders avoid ‘unnecessary situations’ and help them navigate through tricky ones.
While start-ups are tasked with ensuring that seed fundings do not go to waste, it, also ensures that, they do not get overburdened by debts or liability.
Their attention will be geared toward effective market research, product development and other initial stage operations, to ensure profitability.
Funding programs, also, afford start-ups networking opportunities and access to a community.
Seed funding avenues, such as crowdfunding and incubators, allow start-ups access their business networks and community, to build public relations.
Some avenues to accessing start-up funding include the following:
This option is, also, known as self-funding.
Here, the start-up, or founders kickstart the idea, using personal savings, or assets.
The advantage of this is that, owners do not have to bother about getting the right pitch or searching for willing investors.
They, also, get to have absolute control over their business, without the need to relinquish control to investors.
Crowdfunding platforms are rising in their numbers, daily. This avenue of raising funds is rapidly becoming a go-to, for a lot of start-ups.
This is a way to raise major seed funding.
Here, investors get a lot of people to invest, with the promise of the return of both capital and interest, at the end of a time frame.
This type of funding, often involves relinquishing equity stakes to the investors.
Accelerator programs, offer small seed investment, often within the range of $25,000.
This is in addition to mentorship, workspace and professional services to the selected start-ups.
The catch is not only that investors get to own equity stakes in the company.
The specific program offered, can be for a fixed period of time.
Incubator Seed Funding
Investors provide similar small seed investments in the accelerator programs. Incubator programs are, however, more flexible, with an open-ended timeline.
They focus more, on the longevity of a start-up and are not primarily concerned, with how quickly a start-up grows.
This is why it is not uncommon, for incubators to mentor start-ups, for up to a year and a half.
Unlike accelerator programs as well, incubators do not take equity stakes in the companies they support.
It is apparent the many benefits seed funding affords start-ups. It can be the game-changer, in bringing ideas to reality and ensuring continuity and expansion.
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