Are you wondering how to raise a seed round?
Seed round investment is the critical funding round for many startups. Without it, the foundation of a business cannot be created, making it more difficult to raise capital during subsequent investment rounds. The key question then is: How do you raise funds during a seed round?
To answer this question, I’m going to explore what a seed round is, why it is important to startup founders, and the steps you should take to maximize your chances of securing seed round capital.
What is a Seed Round?
A seed round is simply the earliest funding round a startup entrepreneur enters. It is the first step to securing the funds in order for your business to operate. The term is used interchangeably with “angel investor round”.
The goal of a seed round financing is to raise enough capital in order to create the infrastructure necessary to reach more substantial fundraising rounds later (often referred to as Series A, B, C, etc.).
Traditionally, seed round investment was under the $500K threshold and used for foundational business practices like creating a business plan. However, it can also be used to develop a product prototype, create product design, gather market research data, or hire infrastructures like office space and server networks.
As pointed out by entrepreneur and now VC investor, Mark Suster, this changed throughout the early 2000s as it became 90% cheaper to create a new company due to advances in technology.
The number of startup founders exploded and so too did the number of angel investors – the end result drove the investment price up, and now seed rounds regularly look for millions of dollars of the initial investment. If you are in the US located on the East Coast, for example, you will be seeing rounds that raise up to $2M in one go.
An unintended consequence was that Series A funding decreased because people were front-loading their investment during the seed round.
Today, seed rounds now sit in this strange twilight zone where they often raise more than just the initial amount necessary for angel investors to help budding entrepreneurs on their way. These excess funds are then put towards some of the more advanced business development costs traditionally associated with Series A funding.
The takeaway: After raising seed money, don’t plan for larger investment amounts to necessarily be given during Series A rounds if your seed round fundraising is substantial.
As a good summary of how financing rounds you will be able to find the slide below.
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