Financing your startup is one of the most challenging and difficult phases.There are many ways of financing at different stages of startup. One might manage the expense of the startup from own pocket or borrowing from friends and families, but this cannot be continued for long. In the case of investing huge chunk of money, seed funding can accelerate the business.
In this article get to know when, where and how to raise the first round of capital for your business.
Simply put, seed funding is the first round of fund for the start-up that is managed in the initial phase of business from an external investor. In return for getting the fund, a percentage of ownership is given to the investor. When the time comes for a huge amount of funds, seed funding becomes the crucial option. Sometimes, it is not possible to get big funds from the bank also. In such a situation, seed funding helps to gear up the business.
Making a plan is important before deciding to go for seed funding. To do so, first chalk down the plan on how much money is needed, how it will be spent and what project will run with this money. Getting the plan ready earlier will benefit to pitch the business to investors confidently.
Also preparing a timeline is important because if the fund is used for a short period, there is a possibility of receiving lesser amount of cash. This means one needs to raise another round of funding which can be quite hectic. Again, long term planning to use the money gives bad signals to investors as they might think, a huge amount of cash will be idle. So plan properly to use the fund for a definite amount of time.
Where to get access to seed fund?
Once the amount and the period of using the money are decided,it is important to sort out places to get the fund. In Bangladesh, there are four sources of getting the seed funds.
First, venture capital is the most obvious source of getting funds. It is a group of investors ready to provide funds to startups they find promising. In addition to funds, the investors give advice and mentorship since usually they are the founders of startups themselves. In return, they will ask for a piece of ownership of the startup. Some venture capitals in Bangladesh include Bangladesh Venture Capital, BD Venture Ltd.etc. Structured Social Businesses can look for startup funding from Grameen Telecom Trust Social Business Fund or impact investment from truvalu.enterprises.
Similar to venture capital is the second source of seed funding- Angel Investors. Whereas venture capital is a network of investors, angel investors are individual investors who provide funding to startups. If you have a business idea but cannot materialize it for lack of funds, angel investors can be a better option. This is because, venture capitals require a startup to be in operation for a while before they invest. On the other hand, angel investors invest in startups whose ideas they find promising. You do not need to have a fully operating startup for getting funds from them. In Bangladesh, Bangladesh Angels is the first and only angel investors network till data.
The third source of seed funding is incubators or accelerators. These are organisations that help to accelerate the growth of the start-up through providing mentorship and resources. By applying to such incubators,one can get access to potential investors as well as mentorship and other resources. YY Goshti runs an incubator programme every year. Other incubator programmes in Bangladesh includes GP Accelerator, Banglalink IT Incubator, Toru Institute of Inclusive Innovation and Startup Bangladesh.
The fourth and a growing source of seed funding is crowdfunding. Crowdfunding is a process where startup founders can get their needed funds easily from a large number of people. It takes place on an online platform where crowdfunding sites host a large network of potential investors. Founders promote their startups in these sites and potential investors, if interested, will contact for funding. Kickstarter is an example of crowdfunding site. Bangladesh has other crowdfunding sites such as FundSME and Oporajoy.
How to prepare to get the seed fund?
After preparing the plan, one needs to get into the stage of getting the first external funding. One needs to be bear a lot of rejections before securing the first fund. First of all, one needs to be confident about the start-up idea as Paul Graham of Y Combinator rightly said, ‘You need to convince yourself of your startup idea’. As the people are giving a large amount of their money, they will be skeptical of your idea of whether it is worthwhile to invest in. So, firm self-assurance is inevitable to gather seed funding.
Next important step is to prepare for pitching. Preparing a precise but convincing pitch is very important to pursue the investor. One must include in your pitch the problem needs to be addressed and how the startup is going to fix that problem. Also, some basic financial information needs to be included in the pitching. While preparing for pitching, gather some information about the investors. One can talk to previous startup founders who got funding from such investors.
The final step is to speak confidently about the idea and defend it with proper logic and information.Having an open mind to suggestions and constructive criticism will be beneficial. Even if one fails to secure funding in the first chance, the investor might help to reach out other resources willing to provide seed fund.
Finally, if the funding is secured, sit with the investors and negotiate terms and conditions for the funding. It is always better to have a lawyer or person with legal knowledge to help in this regard.
So now, if you need to raise the first round of investment,you know the steps to follow.
If you have raised a seed fund before, do comment below and share your experience. This will help to enrich the knowledge of any founder wishing to raise his/her first capital.