Why startups should raise a Seed round of financing?
Recently some startups have skipped raising a seed round. Some have done very well with this strategy and spending the first few years bootstrapping a startup. There is no doubt that there are tens of thousands of other attempted startups that you’ll never hear about again. They ran out of money and got vaporized.
We are also dealing with the fact that our world has recently changed and perhaps the business plan of most founders did not account for that. At least we are in a new phase in terms of capital markets, the economy, and the startup ecosystem. Here’s why most startups should be raising a Seed Round. As well as why some shouldn’t, and the when, how and how much if you do.
Starting Up A Business Takes Money
No matter how little you think you can start a business with, it still takes money. It normally ends up costing a lot more than you think and taking a lot longer to get income in the door.
At a minimum, you are going to incorporate your business, need WiFi and devices, fund a business bank account, create a product, and hire some help. You’re going to need a logo, web domain name, and some basic marketing and branding fundamentals.
If you are going to try and bootstrap, you need to make sure you have substantially larger cash and credit cushion than you expect to spend.
A Successful Startup Requires Even More Money
There is a massive difference between tinkering with the idea of a small hobby business and launching a fast-growth startup with huge potential.
A real ‘startup’ needs even more funds to be able to go faster and hire the best possible team in the industry. It takes time to fine-tune a business model, and that means operating capital to support months and even years of development and iterating.
You need plenty of cash to ensure you don’t go broke right before you make it. Consider that around 90% of startup attempts fail because they run out of money, and it’s easy to see the top difference is those who have the extra funding, or not.
It’s not enough just to have a little funding and lean approach that lines up with your optimistic expectations. You need to be able to weather unexpected and perfect storms. Like the coronavirus and hurricanes, and recessions.
When To Raise A Seed Round
When is the right time to raise a seed round?
It will somewhat depend on the venture itself and the market. Some types of startups need very little cash and runway to get going. Others have tremendous needs to just develop a prototype, or months or more to land their first enterprise customer.
After interviewing 200 of the most successful entrepreneurs and CEOs on the DealMakers Podcast, I’ve seen many who have gone out to raise large amounts of pre-seed money before they really punched the go button.
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