It is a fact that starting a new business and lifting it up off the ground is a huge ask for most entrepreneurs and it only gets tougher with capital constraints. Seed funding helps get things started before the business earns any revenue. It is an effective solution for start-ups and growing businesses as it provides the much-needed early monetary support. It can cover everything from infrastructure costs, marketing, and development costs as well as the cost of initial hiring. Investment is the fuel of any business and seed funding is the first drop of this fuel. As seed money becomes much-needed cash reserve or working capital, not having it is one of the main reasons for failure.
There are several other reasons why seed funding is important:
1. Cover for insufficient funds
2. Reduces founder risk in venture
3. Brings strategic partners to the table
4. Access to working capital
5. Easier scaling up and growth acceleration

On the path of seed funding, the first step is understanding the different type of investors or potential investors as there are multiple sources where one can aid from:
1. Crowdfunding:
With more than 500 crowdfunding platforms currently active, this has become one of the most popular avenues of seed funding. Crowdfunding platforms are usually open and anybody in the world may end up backing the concept, idea or product. Some examples of successful crowdfunding campaigns include the Oculus Rift which raised more than $2 Mn, Pebble wearables which raised more than $10 Mn, and Indian company Exploride, which raised more than $500K for its heads-up display for cars.
2. Corporate seed funds:
This is a great source of seed funding as it comes with big visibility for the start-up brand. Tech giants such as Apple, Google, and Intel back start-ups regularly with seed money. Big companies often look at start-ups as a future source of profit, IP or talent, and that’s the primary motivation for investment here. GV is the investment arm of Alphabet (Google’s parent company), while Intel Capital is chipmaker Intel’s dedicated division for start-up investments.
3. Incubators
Incubators generally provide small seed investments and offer services such as office space or management training. Most incubation programmes do not take equity from the start-up but do offer support beyond just funding. The Indian Angel Network Incubator, IIT-Bombay’s Society for Innovation and Entrepreneurship or SINE, Khosla Labs and state-backed incubators such as T-Hub and KSUM are some of the most active incubators in India.
4. Accelerators
Accelerators are more focused on supporting start-ups in scaling up their business rather than backing and nurturing early-stage innovation. Accelerators also back start-ups through small seed investments along with professional services, networking opportunities, mentoring and workspace. Unlike most incubators, most accelerators take equity as they are privately funded. The popular accelerators include Y Combinator, Techstars and 500 Start-ups.
5. Angel investors
Angel investors are individuals that offer capital in place of ownership equity or convertible debt. They are called angel investors because they provide capital at times when the risk of a start-up failing is fairly high, which is during the early stage. In India, the top angel investors in H1 2019 are Sanjay Mehta with eight deals this year, followed by VC Karthic, Siddharth Ladsariya, Sharan Aggarwal and Sachin Tagra – each adding seven deals.
6. Personal Savings
Founders may put in their personal wealth and savings as seed funding. Also known as bootstrapping, this brings extra financial pressure but there is no pressure on founders to return borrowed money.
7. Debt Funding
Debt mostly includes money taken from banks as loans or borrowed from friends and family. Sometimes, venture capitalists or angel investors also issue loans instead of equity investments to ventures in sectors where cashburn is high, but so is the traction.
8. Convertible Securities
These are investments which start off as loans but change into equity or shares depending on the progress of the company, and when it reaches certain milestones such as sales or revenue targets.
9. VC Funding
Venture capitalists are marquee investors that provide funding based on a number of parameters such as growth potential, market conditions, founder vision, idea or simply execution. In return, they take some portion of equity or stake in the start-up. VCs usually join multiple rounds of investment after seed stage, if the start-up managers to reach those rounds. For seed funding, Accel Ventures, Seed fund, Sequoia Surge, Axilor Ventures, SEAFund are some of the most venture capital firms in India.
10. Angel Funds or Angel Networks
Sometimes, investors come together to form angel networks or groups where they each invest small amounts in the idea or the company during the early stage financing round. The major angel networks in the market currently are AngelList, Indian Angel Network, Lead Angels, as well as angel networks for each major start-up hub in India.

As you can see that there are numerous methods of Seed funding. In pandemic times, it is exceedingly difficult to ascertain how much Seed Amount to Raise and what will be the average cost. To understand how much to raise, founders must first know what their business is worth. This is where “valuation” comes into play. Valuation at the seed stage is a measure of growth potential and not the current value of the assets or IP. It is important to determine the valuation of the company before heading to investors as they always have that in mind when talking numbers. There are multiple ways in which this can be done:

1. Discounted Cash Flow Method: This method takes into consideration the free cash flow that will be generated in the future after accounting for instabilities and inflations and then discounting them to calculate the current value.
2. Market Comparables Method: This method takes valuation estimates with reference to other comparable companies and their market capitalisation.
3. Venture Capital Method: This comes into consideration when the investor is planning to exit the company in generally 3 to 7 years. In this method, the expected exit price is taken into consideration and then the current post-money valuation is calculated.
This does not always mean that a high valuation during the seed round is the best thing. For a high seed round valuation, the valuation for the next round will need to be even higher for investors to pay attention. Getting optimal seed funding would help start-ups reach growth stage sooner, but a lot of start-ups require follow-on rounds and need to have investment milestones in place. In such a case, reaching the next funding milestone becomes the goal of the company.
There are several factors and trade-offs that affect how much seed money start-ups should raise. Firstly, they need to think about credibility with the investors, the amount of progress they can make with that amount and the dilution of stake. To get investment, founders must give something away. When it comes to trading off shares or equity, an ideal situation would be giving up 10% of the company for seed money. In most cases, up to 20% dilution may be required but anything more than that at the seed funding stage is considered a big no-no, and exceptional.
To ask for whatever amount seems right, start-ups need to have a believable plan that will tell investors that their money has the potential to grow. Whether they raise the full amount or some portion of it, founders need to believe that their start-up will be successful.
When deciding what the right amount should be, calculate how many months they need funding for. This way, founders can get an estimate on the team growth and potential and add cover for other possible factors. There can be a lot of variation in seed funding which is completely dependent on the founder and his vision for the company.
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