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?