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Seed funding for startups

January 17, 2023 by Susan Paige

What is it?

Seed funding is the first type of funding small businesses raise. This is provided by investors who provide you with capital in return for a stake in the company. It is common for most new businesses to rely on funding from their own savings or family and friends which can be damaging financially for an entrepreneur but also damage relationships with family, which is why seed funding is a much easier option.

The advantages of seed money

Obviously the main advantage is that seed money gives your business a major financial boost but there are many other advantages to seed money. This advantage comes from your investors who you will be able to gain expert advice and will help to grow your company and guide you in any areas you may be struggling in. Your investors will also have a lot of connections with bigger businesses which you will be able to benefit from and potentially learn from.

Who are the investors?

Angel investors are the most common type of investors for seed funding. They are high net worth individuals who invest in new businesses which can be rather risky for them. Since new companies haven’t had much experience in the market it’s a risk for investors to put so much money into a product they don’t know will be successful. However, although there is a potential risk, the opportunity is much bigger. For example Peter Thiel invested five hundred thousand dollars into Facebook who then gained shares of one billion a few years later. Venture capitalists are also a common type of investors for seed funding. The only difference between these types of investors is that angel investors invest their own money whereas venture capitalists invest other people’s money. Venture capitalists are considered to be pros compared to angel investors and it usually takes them much longer to make a decision on a company as they have to go through a lot more meetings.

How long does seed funding take?

This can be different for all businesses as there is no specific time range and there are a wide range of factors involved in seed funding that impact how successful it is. Once you have found the perfect investor for you, seed funding can usually take up to six to eight weeks for the deal to close. You need your lawyers to be ready and communicate with everyone involved on time. If there are delays in any of the steps, expect funding to take up to twelve weeks. The longest part of this process is finding the correct investor for you. You should not go with the first investor you meet, you have to explore your options and find the best deals for you and what benefits your company the most. You should definitely not accept the first deal you see, it is important to keep your options widely open. If you need help finding the right investor for you visit https://seedcash.co.nz/

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