What Is Seed Money and Is Your Startup Ready for It?
Definition Sources of Early Funding Is Your Startup Ready to be Funded? What is Bootstrapping? How Much Capital Can You Raise? Want to jump directly to our seed funding infographic? Click Here If you’re launching a new startup, one of the first stumbling blocks you need to overcome is how to fund the growth of your startup. Obtaining funds to start a business is extremely critical in the early phases. Even if they’ve answered the question, ‘what is seed money’, many new startups don’t know where to find it. Without it, your great idea threatens to stay stagnant or, worse, a competitor with better funding can swoop in and capitalize on the market. Around 30% of start-ups fail from a lack of capital to grow the business for marketing, personnel acquisition, design, and development of the technology and business direction. Successful startups, however, know the power of early capital, and how to tap into it. Need Funding For Your App Idea? Download Our FREE eBook now! Learn the expert secrets behind building successful apps that attract invertors and get funded! DOWNLOAD MY FREE EBOOK Definition Seed money can be defined in many ways. When we define seed money or seek to give a seed capital definition, it simply means this - seed money is the first round of capital for a new business. For many new enterprises, seed money provides the capital and funds needed to establish and grow the brand. Common uses of seed money include product development, market research, hiring personnel, securing facilities or equipment, and initial launch and production. For an app startup specifically, common uses of seed money usually include developing the minimum viable product and initiating an early marketing strategy. So how does it work? Seed capital is often given in exchange for equity ownership — that is exchanging capital in return for a stake in the company. Even when a new business presents a solid idea, unvalidated concepts are a substantial risk to investors. Equity stake, or part ownership in a company, lends incentive to investors to engage in risk and provides a method to earn a return on their investment. Effectively, in exchange for access to early funding, you are trading ownership of the company and a portion of your eventual returns. Likewise, if your business fails to produce a return, investors risk losing the capital that they invested in the business. Capital for startups is a huge business, however, the traditional sources for seed capital are extremely competitive. While there are many investors seeking new startups to invest in, there are even more new startups seeking an investment partner. Sources of Early Funding While there are many ways a startup can raise early financing, the most common sources of seed capital come from three primary groups: friends and family, venture capitalists and angel investors. There are distinct benefits and ramifications for partnering with each type of investor. Asking for Seed Money from Friends and Family Friends and family are a common source…