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As an entrepreneur, you always look for ways to grow your startup. You may have built a product, acquired some early traction, and gathered a team. You’re confident in your creation and are ready to take it to the next level. You may have had one or two early investors, but the logical next step is to raise money at the seed stage to help you scale.
A few critical indicators can help you determine whether or not you’re ready to pursue your next round of funding. This article will cover four significant signs that your company has the green light to seek seed funding.
What is seed funding?
Think of seed funding as the nourishing plant food that helps grow your company’s seed after you plant it in the ground. Your plant has roots, but you need an influx of cash to cover day-to-day expenses to keep growing.
Seed funding is one of the earlier stages of venture capital funding and follows a startup’s smaller pre-seed round. Companies typically use seed funding to finance early product development, market research, and business planning. Some founders use their seed funding to develop a new product or make adjustments to their current product.
Where does seed funding come from?
Funding can come from various sources, including angel investors and venture capitalists. If you’re not sure where to start looking, initial investors from the pre-seed round are excellent resources for finding or networking with new potential investors.
How is seed funding different from pre-seed funding?
Pre-seed vs. seed funding might appear similar at first glance, but they serve distinct purposes. Unlike seed funding, which is often used to scale an existing business, pre-seed funding is raised by founders to build a company from the ground up. At the pre-seed stage, many founders rely on personal loans, support from friends and family, or bootstrapping to bring their vision to life.
This first round of fundraising is the most competitive and there are less VC investors compared to seed rounds. Raising pre-seed funding can also take longer than raising seed rounds because of the limited number of pre-seed investors.
If a startup does find a venture investor, these VCs typically seek equity in the company in exchange for funding at a smaller round than seed or other series-level funding.
4 signs you’re ready for seed funding
Watching your dream flourish into a tangible, operating company is an exciting moment. As you move forward, your need for cash will grow alongside it until you can bring in a steady revenue stream.
Companies leaping from the pre-seed stage have specific markers that signal they’re ready for the jump. While we’ll cover some of these signals below, remember to ultimately make investment and financial decisions based on your industry, market, and advice from current investors. You may decide to start fundraising earlier than initially anticipated.
However, if you can check off these boxes, your startup may be ready for seed funding:
1. You’ve launched your product and gained traction
Investors are showing interest in your company by taking the meeting, but they still need a bit of persuading. At the seed stage, investors expect a complete and functional product with sales backing up product market fit. Not only do you need to provide sales records there needs to be a rapidly growing interest. Typically, a 10% growth rate each week per year is a good minimum.
Consistent budding sales show your company has the potential to last long-term. Seed investors meet with multiple founders throughout the year, so approaching investors with solid numbers driven by product sales is more likely to grab attention.
Make sure your sales information is accurate and up to date before you plan out your pitch deck.
2. You have a detailed financial plan in place for funding
Signing a funding agreement is a bridge of trust between an experienced investor and a founder. VC firms and individual investors won’t extend a hand toward a founder with a half-thought-out plan.
During seed funding, investors are putting up anywhere from $500k to $2 million. They need to see where you’re allocating funds, data-driven reasoning, and how these allocations will benefit the company moving forward. The following sheets should be part of your pitch packet:
If your business model and financial plans are built out for investors to see, you’re ready to start prepping for pitches.
3. Your house is in order
Early-stage startups run with small teams. At the seed funding stage, you should either have a larger team or have an immediate need to expand. You’ve fleshed out what departments you need to grow and can show how each role will benefit the direction your company is going and its goals. Seed funding can help provide the cash runway to fill out the roles you need to grow.
4. Your narrative ends with a high-growth business
A business narrative tells the story of how your idea came to fruition in an engaging and informative flow that will help you connect with potential investors on a more relatable level. You likely started your business with an initial concept, vision, and what you wanted your company to solve. Carrying over that narrative into your seed funding pitches creates that same connection with a new pool of investors. A good narrative in a pitch shows investors the heart of your company remains while the business reaches growth milestones.
Preparing to meet with seed investors
Pitching to VC firms and angel investors is nerve-wracking. At Zeni, we understand the importance of having your finances in order for investors. We’ve been there. That’s why we want to help.
Seed investors want to see sufficient financial planning and that you understand the state of your finances. This requires precise bookkeeping and accounting. To err is human, so we developed an AI-powered bookkeeping system to provide you with all the insights, analysis, and reporting that investors need.
We even offer pitch-deck preparation services, standard bookkeeping, CFO Services, and startup tax advisory. Being prepared is the most crucial factor when it comes to fundraising. Let us handle the finances while you take the pitch.
Need additional help with investing? Check out these resources:
How To Raise Pre-Seed Funding For Your Startup
How To Raise Seed Round SaaS Funding For Your Startup
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