Simply put, start-up capital is the money that is required to start up a new business. Start-up capital can be raised in a number of ways, from using your own money to invest in your business venture, to borrowing money from a bank, or using third party investment to help you get your business running. Sometimes start-up capital is also referred to as ‘seed capital’.
For those entrepreneurs who are looking to get their business started by attracting investors it is important to have a clear understanding as to how much money you require to launch your business and you should also know exactly how you are going to spend that investment. As investors will want a clear picture of how you are going to spend their money, it is important to spend a lot of time ensuring that the planning stage is done proficiently. By presenting a clear business plan you are much more likely to attract the start-up money you require. Remember, outside investors will not want to invest in a new business no matter how promising it sounds if the new business owner doesn’t have a firm and clear grasp of the financials.
One of the mistakes that new entrepreneurs make is not asking for enough start-up capital in the first place. It may seem like a good idea to come up with a conservative investment amount initially, however this could be false economy if you run out of money too quickly.
In many cases if a business runs out of money before it sees success investors are reluctant to throw more money into a business venture just to keep it afloat. Therefore there is a danger that your business could go under in such circumstances. To avoid this when planning your new business venture pencil in enough investment budget to see you through to the stage when your startup company becomes profitable.
Another tip is to try to minimize the number of outside investors that are investing in your business. Whilst it may seem easier to get more investors on board each investing smaller amounts, each investor will still want to see a good return on their investment no matter how much they invest, and you will have to keep the investors updated regularly with how the business is going. Too many investors cause equity dilution and further down the line the profitability of each equity stake that you released will be much less than it could be if you had kept the number of investors to a minimum. This future equity position is exactly what most angel investors look for in their investment opportunities. By taking on too many people into your business it ultimately can put off larger investors, and in the future big investors such as venture capitalists might also be put off.
Managing these investor relationships can take up a lot of time for a small business, time which would be better spent running your business, therefore by minimizing the number of outside investors providing you with early-stage start-up capital, the more time you will have to run your business and therefore the better chance of success.
This can be a problem with crowdfunding campaigns since this can result in dealing with a large number of investors. These campaigns can be good for some basic product development and product research but for true seed investing you will need to attract investors with deeper pockets!
Another point to consider is that just because you've had a first round seed investing round, doesn't necessarily mean you can't have a second round of fundraising if you need more investment at a later date from new seed investors.
Other reasons why a business may consider seed investment is for business development purposes. Market research for a new product line is another way that seed capital could be used by a company to help support its growth. Likely your investor will have a preference on how you are going to use their money and how it will be leveraged to make your company successful.
As your business grows it becomes more attractive to different types of investors. Businesses that are growing and showing a lot of potential and have a high valuation may attract venture capital firms.
When it comes to funding the seed round for your business model, you will need to find ways to attract angel investors to your proposition. This is where the Angel Investment Network can help.
Simply sign-up to our network and investors from all over the globe will be able to search for business ideas and early stage companies just like yours. When you find a business partner both parties should carry out due diligence to ensure that the deal is preferable for all parties. Since you're getting into business with someone new it is important to ensure that everyone is on the same page. that way there is much more chance for your business to move from the seed stage to becoming a viable proposition. Who knows how far you will be able to take your new business, perhaps with the right investor as a co-founder you could take it all the way to IPO.
AIN helps investors and entrepreneurs build lasting and profitable relationships to build better businesses and brighter futures.