Seed Funds: 5 Questions to Ask and What To Look Out For

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Seed capital is a stage of business financing used in the help startups. This is literally the “seed” money to which take the planting of an idea and the endeavor of the founders to building a product and business.

Funding is provided by private investors, usually in exchange for an equity stake in the company, a convertible debt, or a share in the profits of a product. Much of the seed capital a company raises comes from sources close to its founders, including family, friends, and angels (individual investors or specific seed funds).

According to CrunchBase, seed funding experienced steep growth in the past decade, with more than 40,000 U.S.-based startups raising this early capital since 2011.

Business communities and state agencies have developed a wide network of accelerators and incubators to help early-stage businesses access to a network of advisors, early-stage seed investors, office facilities and support of the start-up community. The companies who access these services are usually at the “seed” stage. Being part of this community helps founders assess the product in the investor market and with people who are knowledgeable on how to bring the product to market and then scale it.

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Key Questions to Ask Seed Investors:

1. How much are you willing to invest?

2. What percentage of equity do you seek?

3. Outside of funding, how else can an investor help your start-up?

4. Can they make a follow-up investment if further funds are raised in the future?

5. How many other companies have you invested in that raised money from other sources?

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Here is a guide by Y-Combinator to seed-fundraising. Looking to learn more, Talk to Us!

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