Raising Seed Capital Often Makes Sense for Startups

Seed capital is a small amount of money to help get a startup off the ground, often provided by  the three Fs — friends, family, and fools. Seed capital is almost always different from venture capital in that there’s less dilution, less control, no timelines on a return, and overall more passive of an investment. 99.9% of startups shouldn’t raise venture capital but seed capital does make sense for many startups.

Here are some thoughts on raising seed capital for a startup:

  • Focus on smart money where the investor can add expertise to the startup in addition to money
  • Asking for money is always better if you have an existing relationship as people like to invest in people they know, trust, and enjoy being around
  • Making measurable, objective progress in the form of customers, users, revenue, etc is the best way to earn a strong valuation
  • Think about the desired milestones for the startup and how much money it will take to reach them — use this to help determine how much to raise as well as to paint a picture of the projected progress to a potential investor

Raising seed capital often makes sense for startups, especially when the goals of the entrepreneurs and investors are aligned. A key takeaway is to find the best investors possible — don’t settle for ones that will write a check without adding additional value.

What else? What are your thoughts on startups raising seed capital?

2 thoughts on “Raising Seed Capital Often Makes Sense for Startups

  1. I don’t recommend raising from family or friends. Raising from experienced operators or investors is key. Having some type of traction (product demo, customer commitments) – even at the seed stage – will increase the odds of closing a small round.

  2. From the investors standpoint, consider requesting a convertible loan in lieu of preferred or common stock. that way, you can avoid the dilution curse which often occurs in subsequent rounds.

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