The greatest innovations on earth originated from ideas. These ideas had the potential to turn into solutions that simplified the lives of millions of people. Today, startups are the flag bearers of world-changing solutions that bring ideas into reality. Though it all might sound fancy, running a successful startup isn’t a cakewalk. It demands a lot of hard work, strategic planning, and finance to sustain the business.
In the initial stages, a startup requires funds to develop its proof of concept, attract initial customers and validate its business model. The lack of funding can hinder the crucial initial growth period, and that’s why many startups often fail before they can take off. Thankfully the seed funding for startups works like a catalyst to validate their business model by building initial traction and building on it. Many founders are not aware of their options when it comes to raising funds for their startups. They often look in the wrong place and lose out on many good opportunities. Acquiring seed finance is not easy, though. You must know countless things about how seed funding works and how it is the best funding for startups. You can also do your research on how to get funding for startups from the government. Don’t worry; this article can help you in the right direction. Here are four things you must know before raising seed funding for your startup.
- Understand how seed funding is different from venture capital
Before you start looking for angel investors or scheduling meetings with VCs, it’s essential to understand how seed funding is different from venture capital. As the name suggests, seed investment is obtained at the beginning stages of a startup’s journey. These funds are received from private investors, angel investors, or seed funding companies. Seed capital also referred to as seed finance or seed funding for startups, is essential for developing a new product idea that still needs to develop a revenue model. Seed investors look at the potential growth and market for the product and take the high risk of investing in a startup at this stage.
Seed capital investors frequently assume large risks without receiving revenue proof from the founders. Seed investment involves smaller investments between tens of thousands and hundreds of thousands of dollars that help founders turn the proof of concept into a business. On the other hand, Venture capital firms or individual VCs offer higher investments, typically around $1 million. The startups that look for venture capital financing are already generating money and are looking to grow their operations.
- Consider forming an LLC or corporation.
Most startups at the seed funding stage are unregistered partnerships or sole proprietorships. Consider creating a corporation or limited liability company (LLC) while looking for seed investors. In addition to the potential personal liability protection from the company’s obligations and other advantages of forming a corporation or LLC early in the process, incorporation is crucial if you plan to raise any seed investment. However, be aware that some veteran seed investors can have their own unique investment criteria and might demand that your firm be incorporated in a specific state or as a specific type of entity.
- Don’t ignore security laws.
Even the most experienced founders frequently ignore security laws. If you raise money in any way that violates securities legislation, you might be susceptible to fines and be held personally responsible for the losses of individuals who invest in your business in the future, which is a massive risk.
Security laws are undoubtedly complicated, but that doesn’t mean you should ignore them. You won’t necessarily have to register with the Securities and Exchange Commission (SEC), but some laws must be followed at any cost. It’s best to speak with a securities attorney to ensure you operate inside the legal safe harbors.
- Secure your IP
Founders must protect their intellectual property if the success of their startup depends on an invention, trade name, slogan, business technique, recipe, copyright, or other private information. Your company needs complete control over the brand and technology, so any other individual or firm can’t contest it.
- You must verify that you are the only one who genuinely owns the rights to intellectual property.
- If your startup’s proprietary asset was developed on your previous employer’s resources, the company might claim ownership of that asset. Ensure you have secured your IP through trademarks and patent registrations to avoid legal conflicts.
- Raising seed investment is crucial for most startups to take from ideation to developing their core product. The seed funding will offer the necessary financial assistance to your startup in the initial stage, which will help you build a strong product and business model. Having the information about how seed funding works and the list of various angel investors in India, you can confidently navigate your business towards success by onboarding the right investors.
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