The Art of Startup Fundraising by Alejandro Cremades

Author:Alejandro Cremades
Language: eng
Format: epub
ISBN: 9781119191834
Publisher: Wiley
Published: 2016-04-11T00:00:00+00:00

Seed Round

Broadly speaking, this investment round has the same function as the previous two preliminary rounds—to “seed” your startup so that it can begin to grow. However it can be distinguished from micro seed investment in a number of ways. In any case, any investment in a startup prior to a Series A round can actually be considered a seed round.

What Is Seed Investment?

Seed investment works in the same way as micro seed investment; some might even use the terms interchangeably, but it differs in two distinct ways. First of all, in terms of scale a normal seed round can be seen as a larger version of micro seed investment, although interestingly micro seed investment groups didn't come first and are relatively new, while seed investment funds have been around for a much longer time. The purpose is therefore the same, to help a startup reach its early goals.

Seed investment, however, tends to be given in larger amounts by bigger investment groups. It is seen as a high-risk type of investment, and so investors are more cautious than usual when committing themselves to this process, even more so than micro seed investment because the amount of capital at risk is much greater.

The second distinction between a seed investment round and a micro seed investment round is that a seed investment tends to be greater in scope. Most micro seed investments provide the minimum amount of funding to help a startup develop a proof of concept, and to do so over a very short time frame. The reason for this is that micro seed venture capitalists tend to invest smaller amounts of money.

A “normal” seed investment can take a startup close to market, depending on the capital requirements versus the amounts made available by seed investors. That being said, this type of investment is still preliminary, and is designed to get a startup into a position where it is strong, healthy, and ready for more investment; it is simply more robust than the other preliminary rounds.

Micro seed investment also usually requires demonstration of a prototype at the end of the three-month gestation period. With standard seed investment, your startup may not be required to do this. You may, however, be asked to have a ready design for your product/service, alongside having undertaken extensive market research to identify the markets and demographics you need to target.

You should also have your essential team in place, including management and designers, and possibly even manufacturing, advertising, and distribution personnel. From my perspective this may be the most important aspect.

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