Startup funding & the importance of seed capital for your business

For any startup to be successful there are a number of contributing factors. Of all of these the most crucial one is that of funding. Make no mistake about it. Startups require funding at every stage. To get the business off the ground you require funding. So also till the time your startup starts seeing returns on investment and it does not end there either. Once your startup begins generating profits scaling up is the next plan of action which again entails a fresh round of funding. Of course established entities will find it easier to get financial backing as opposed to rank newcomers. For some a compelling idea might be sufficient to come on board while others might insist on seeing a working model (read prototype) of your product before arriving at any decision. This is the reason why the initial funding used to start a business often comes from the entrepreneur itself. It is what is broadly referred to as seed capital.

Statistics have shown that most startups which fail do not last beyond the first couple of years and the first stage in the life of a startup is what seals it’s fate. Among the very basic things, you would need to rent out office space, hire staff, get relevant equipment and spend months (even years) in product research & development. Plus you will have to get your company registered to lend sanctity to the operations and make sure that everything is completely legitimate. Several times these costs are borne by the business owner along with their family & friends who expect to have a stake in the company in exchange for the funding. But remember to exercise at every step of the way because giving someone equity in your company means diluting your own stake in it. It also means having lesser control over all crucial decisions that need to be taken in the interest of the startup.

There are times when the seed capital required might be more than what your immediate circle of influence is able to provide. This is when other early funding options like crowdfunding and angel funding come into the picture. Angel investors are professionals who work actively with business owners & entrepreneurs even to the extent of getting involved in day to day operations. These individuals provide what is called as seed money (read loans) while getting equity holding in the said company. A lot many of these angel investors tend to be serial entrepreneurs with a healthy reputation of having helped startup businesses go public. But it is important to understand that funding via seed capital is fraught with risk for an investor who has no track record or existing business model to evaluate your business. As a result seed funding is not easy to come by. Far from.

Which is why it is mandatory to see if you can fund some of this out of your own pocket before looking elsewhere for financial support. A well researched and thought out business plan can work wonders for investors to gauge the potential of your startup. It is also necessary for you to network with individuals, groups and organisations that are relevant to your startup business. After all it is not always money that matters and in many cases it is your connections that help you gain valuable leads. And last but certainly not the least is crowd funding. If you can get a potential customer to invest in a product that is designed with them in mind, there is nothing better. Thus making for a cosy arrangement that will prove mutually beneficial to all parties concerned.

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