Home Business Insights & Advice Seed investments: A basic guide for startups

Seed investments: A basic guide for startups

by John Saunders
7th Dec 21 3:55 pm

Founding a start-up means you need to rent facilities, buy equipment, and hire your team. Apart from that, you also need to ensure the capability of your enterprise to grow in the long term. And in most cases, to achieve your company’s full potential, you’ll need external funds from other investors.

Seed capital is the initial capital raised by a company. And the idea of seed investment for start-ups has been the business practice for a long time as entrepreneurs depend on outside capital to launch their enterprises if they haven’t raised seed investment yet. Hence, if you’re a start-up founder, you should consider reading the guide below to understand how to seed capital and get your company off the ground.

Raising seed investment

As a founder, there are several steps you need to take to understand how to gain seed funding for your start-up. Regarding the best investment, the amount of capital, and investor relations, you need to study the investor market and search for an active investor in the industry it goes in. Moreover, you should also be involved with all the documentation and bank information required for the transaction.

Additionally, one of the essential portions of impressing your potential investor is your pitch. Ensure that it’s accurate with all the relevant data that the investor is interested to know. Therefore, the numbers should cover all projected information and justifications for those forecasts. This way, if the numbers seem striking and attainable to the investors, they’ll continue to the negotiation, and your start-up can raise seed investment.

Amount of seed investment to raise

To determine how much capital to raise, you must first determine your company’s amount of worth. And this is where the valuation becomes necessary. Valuation at the fundraising stage calculates the growth potential and not the current amount of the assets.

Moreover, it’s crucial to determine the company’s valuation before going to investors because they already have that in mind when discussing numbers. For that reason, you may consider using digital tools such as safe notes to avoid further discussion about loans or if you don’t have the time or resources needed for a regular equity raise.

Furthermore, there are several ways to do company valuation. First, you can execute the market comparable method; this method uses valuation measures regarding other similar companies and their business capitalisation. Further, you may consider using the discounted cash flow method; this method estimates the free cash flow that will generate in the future after accounting for inflations and instabilities and then lowering them to measure the current value.

Moreover, you can also use the venture capital method that considers when your investor plans to exit the company in usually three to seven years. In this plan, you’ll study the anticipated exit price and then calculate the current post-money estimate.

Keep in mind that numerous factors and trade-offs impact the amount of seed capital your company should raise. Accordingly, you need to think about how much progress you can execute with that capital, the dilution of stake, and credibility with the investors.

Take note that to get investment, you have to give away something. That being the case, an ideal trade would be giving over 10% of your company for the seed capital. In most cases, you’ll be likely to give up 20%, and anything more than that amount at the seed investment stage is prohibited.

Lastly, when deciding the right amount of seed capital, measure how many months your company needs funding. Doing this will allow you to estimate the team’s potential and growth and improve cover for the other potential circumstances.

Making a pitch deck

When you’re seeking seed funding as a start-up founder, take note that you need to perform a pitch or funding deck. It’s a presentation that aims to impress the investors to get capital for your company. To execute a pitch ditch, first, you have to know your audience. Because when you present a pitch, the audience will have their individual goals and angles.

For that reason, you need to know what your potential seed investors might be seeking. If your pitch touches the right investors, they’ll likely be interested in getting on board. Therefore, you should ensure that you hold their attention by providing exciting insights into the business, which will keep them involved throughout your pitch.

Another thing that you should keep in mind is that you shouldn’t deliver your pitch by merely reading your idea on a piece of paper. You should give insights beyond what’s written on a paper or screen and execute the whole presentation by sounding and looking naturally confident.

Moreover, the style and delivery of your pitch should be engaging, alluring, and lively. Also, try to elaborate on each slide and wrap up the whole presentation as short as possible without missing any crucial takeaways. Take note that, when you’ll deliver a pitch, you should prepare the plan for the exhibition itself.

Additionally, one essential thing you also need to consider when delivering a pitch is telling the investors straightforwardly and precisely what your vision and vision are. This way, you’ll likely get the attention of the investors immediately. And after your opening sentences, you should proceed to explain in thorough detail what your company is, your team, your metrics, your expectations from investors, and the trade that you’re willing to make.

Lastly, after discussing all the information you need to present, you should have a strong conclusion similar to your introduction. Because a powerful conclusion will stay with your potential investors even when they’re finally outside of the presentation event.

On a final note

As you manage every aspect of your start-up, remember that  starting a new business and getting it off the ground will be a massive challenge for you, and it’s going to get more complicated with funds constraints. Accordingly, seed investment helps you take the necessary actions before your business earns any revenue. It’s an effective business practice that allows your business to grow and gives favourable earl monetary support for your start-up.

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