Arguably the most daunting, difficult and downright terrifying task for any startup is raising capital. Obtaining seed funding can often be a long and frustrating process but it is imperative. Having trouble raising seed capital? Want to know how to close a deal with an investor? Read on and speak with a New York Seed Round Lawyer.
What is Seed Funding?
Seed funding is arguably THE most important round of funding for any startup. It is usually the first injection of capital that a startup receives and provides the startup with the means to launch. Seed funding is typically provided by investors who are not afraid of high-risk investments and are amenable to the idea of receiving a return on their money in the distant future. A startup is considered high risk at this stage because it does not have a proven track record of success and while it would therefore not be unreasonable for Seed investors to demand a very high equity-for capital trade, Startups may get lucky and find investors who are not looking to take advantage of the company’s youthful vulnerability. The size of the Seed round will vary and will largely be a function of the source of the capital (your New York Seed Round Lawyer will have more info on this – never be afraid to dig). Angel investors may kick-off a Seed Round with 100k-250k while institutional VC firms with a focus on early-stage companies may provide upwards of $1 – $2 million. The mode of funding is also variable and may be in the form of convertible debt, convertible equity, and/or perhaps in the more straightforward and linear sale of common stock.
How to obtain Seed Funding
So, how do you go about raising seed funding? First, remember that raising capital is about relationship-building. There are a million startups (ok maybe not a million :)) just like you that are reaching out to investors trying to make a splash in the VC water. What makes you different? How can you distinguish yourself? Why are you special? You may very well be tempted to simply blast out emails to well known VC firms but this is often an exercise in futility. Focus on sending out fewer pitches and instead, center your efforts on delivering highly personalized and curated offers that feel investor specific. If you cannot summarize the novelty and strength of your business model in less than two sentences, you are not ready to send out your pitch. The creativity of your pitch will need to of course be tailored to your end-product but ultimately, the objective of the pitch is to convince the VC to sit in a room with you and listen to your idea.
Before we go any further, your New York Seed Round Lawyer would now be remiss to not at least mention crowdfunding as a possible means of Capital Raising. Here, the idea is to create a campaign on a Crowdfunding platform (a few popular crowdfunding platforms include AngelList, Kickstarter and Wefunder) and incentivize funding with either equity or gift options. Although using a crowdfunding platform likely won’t allow you to raise all the seed funding you may need, it is an excellent way to obtain free digital marketing and publicity.
How to Convince Seed Funders to Invest in your Startup
Ok, your pitch worked and you are sitting in the room with your potential investor. What do you need to do to close the deal? Naturally, you want to make sure you are going to be taken seriously from the very moment the meeting begins. Are you dressed in a T-shirt and Jeans? Maybe this is a good strategy and maybe it is not but at least be cognizant of the fact that walking into an investor meeting with a T-Shirt on says something. Next, make sure you’ve done your research on the VC and the person your meeting – is he known for his involvement in any specific startups or products? Has he had any publicly poor experiences with specific industries that you may need to address? Remember, your job is to convince the investor that there is an absolute opportunity in the market for your product and your business satisfies this market need. Investing is about trust – what can you say to the investor to make him feel that he is not throwing his money away? How can you prove to him that your business will at least stand a fighting chance? The Seed Round is challenging precisely because of the early stage of the company and it is up to you to convince the investor that he is making a good bet when he writes that check.
My NY Startup has Been Made an Offer – Should I Take it?
First, why exactly are you raising this capital? Are you only looking for a cash injection or would you like some hands-on assistance from your VC. If you are looking for active VC involvement, please remember not all deals are good ideals. Ask yourself, “who do I want to be in business with?” Is this someone you will look forward to hopping on a call with or dread the experience of an investor teleconference. Next, consider the relative strength and weakness of this investor vis-a-vis your particular industry. Do they know anything about your business? Do they have any connections in this space? Have they funded companies in this industry yet? If the investor has a lot of capital and are simply looking to act in a distant, and strictly bank-like capacity, they may not be your best option.
Getting that first Seed Round of funding is difficult but once you thoroughly convince your investor to sign on the dotted line, it’s easier to request additional funding in the future. Skies the limit. Happy pitching!
