What is seed capital?
The initial capital needed in order for a business owner to get their business off the ground is called Seed Capital or Seed Funding. It is generally raised when an investor provides money in return for equity in the business.
How to raise seed capital
In order to raise seed capital, you will need to find investors – or ‘Angel Investors’ as they’re often referred to. These are generally affluent people who are prepared to invest in start-ups in exchange for equity in the business. You’ve no doubt heard of the popular TV show Dragons’ Den? This is a great example of people raising seed capital by pitching to potential investors!
It’s important to remember that, just like the dragons on Dragons’ Den, investors will only be interested in your business if they believe that it will be a good investment for them so make sure you have a strong pitch and that you know exactly how their investment will help to grow your business.
When it comes to writing a good pitch, here are a few things to consider…
- What problem does your business solve?
Investors will want to know whether your business is going to meet a current consumer demand or potentially create a new one.
- What evidence do you have that it works?
Your business may not have started yet but you still need to show that you’ve done your homework and can prove that your business concept is solid. Go and find people who have a need for your service and get them to confirm that they would be willing to pay for it.
- Is your business scalable?
Investors will be attracted to any business that shows great opportunity for large and rapid growth. That’s how they will make more money. If you can show this in your pitch then you will greatly improve your chances of investment!
- What will be the estimated value of your business if you receive your investment?
The answer to this question will give an investors an idea as to what stake they will hold and what they can expect to see in terms of return on their investment.
- How much equity is needed for seed capital?
When you offer equity in return for seed funding, it will be based on the valuation that you give your business. So for example, if you value your business at £1m and you receive £100k funding from an angel investor, they will expect a 10% share of your equity.
- Seed capital firms
As with crowdfunding and peer to peer lending, there are platforms or intermediary companies who can help to bring you together with suitable investors. Here are a couple of examples for you to take a look at.