In a world where it pays to be first, finding and securing funding is often one of the biggest obstacles to success.
The trouble with this is that many startups fail to get going through no fault of their own, with money being the stumbling block. Before long it is easy to grow cynical and think that the business world is rigged against you, leaving you with no choice but to give up on your dream and return to a salary job. But there is another approach. We will take a look at it and dive into the details of how it works so that you can get things moving without delay.
What is seed funding?
The idea is simple and yet the outcome can be life-changing. Seed funding is another term for startup capital and it’s something that is all about getting the ball rolling. If you want to start testing a new idea or buying critical infrastructure, you will likely need money from outside your new business. If you don’t have savings or dividends of your own, seed funding is the way to bridge this gap. You can think about it as the initial amount of money that will help your business get off the ground so that it becomes self-sustaining.
Key stages of your business that seed funding can be used for include:
- Proof of concept: Trying out a new idea with the benefit of being able to fully fund it and properly test it is the first step on the road to success. Without this initial trial and error phase your bright idea will forever remain an idea and one that is never given wings so that it may one day fly
- Prototype development: Having a concept that you know works and being able to demonstrate it clearly and decisively to prospective investors are two very different things. You cannot expect investors to take your word for it when you tell them that you can change the world — a prototype is the only way to approach things
- Product trials: Going from a prototype to a product that is ready for manufacture can be costly and time-consuming, especially if you don’t already have other revenue streams to fund it. Seed funding can help with this vital yet tricky stage, allowing you to go from startup to commercial enterprise
- Market entry: Moving into a new market can require everything from subtle changes to your marketing through to changes to legalese and technical specifications. Seed funding can be used to help with this costly process so that you can expand into other markets without having to hold your business back or take the risk of cutting corners
- Commercialization: Being ready for mass production is what it’s all about here, and seed funding can make all the difference when you want to hit the ground running. Think of it as the catalyst your business needs to reach new heights and you can spend it the smart way on day one
All of this sounds great, but where do you get seed funding from and how is it allocated? Don’t worry, we’re going to cover that in the next section.
How to get funding for your business idea
The Startup India Seed Fund Scheme (SISFS) is designed to provide financial support and assistance for entrepreneurs and startups. Businesses in all sectors and sales verticals can make an application to the SISFS, and always be safe in the knowledge that they will provide a fair and transparent judgement. There is a clear set of official guidance that can be followed quickly from beginning to end, all so the business can focus on the daily tasks that drive its core growth and expansion.
Seed funding is designed to be given out by the awarding council so that a startup can get itself to the point where it can:
- Acquire venture capital investment when it is ready to go to the next level after proving the fundamentals of the business model
- Remain smaller but do so in a way that is close or near to being self-sustaining if trading and providing products/services in more local markets
- Raise investment without having to give away equity that could potentially constrain its options and decision-making in the near future
Business people and entrepreneurs who want to get to grips with this process need to be aware of how the process works. Here it is broken down into four clear stages:
- Department for Promotion of Industry and Internal Trade: They receive the initial application from the entrepreneur and process the basic information. Government officials will be looking for obvious errors, such as missing information, and may ask that the application be edited and then resubmitted
- Experts Advisory Committee: Business experts with overlapping experience will look at the efficacy of the proposal, focusing more on the likelihood of the business succeeding. While this will never be a certain judgement, the panel is asked to assess things on the balance of probability
- Govt assisted/Not-Govt assisted Incubators: These incubators are groups of professionals and administrators who work closely with entrepreneurs. Their job is to house the funds and then look at the most worthy causes to help set the final amounts that will be distributed
- DPIIT-recognised Startups: The final stage involves the seed funding being distributed to the relevant parties, allowing the entrepreneur to get to work and focus on what they do best
While all of this may sound highly attractive from the point of view of an entrepreneur, there are some key things to consider as part of the application process.
Key points about seed funding
The most important thing to remember is that seed funding should not require you to give away equity in your business. Any proposal that appears to make any such claims should be avoided and is unlikely to be backed by the proper authorities. It is also really important to pay attention to any repayment terms so that you understand the future liabilities of your business.
Making sure that you have a clear and comprehensive set of paperwork on day one is the only way to proceed. You will have to make sure it is searchable and accessible, and that you have a finance professional (potentially on a freelance basis to begin with) who is fully conversant with the fine details and small print. This will ensure you know your rights at every stage.
Seed funding success stories
Are you familiar with Anurag Dikshit? This successful Indian businessman was working with Partygaming and has now gone on to both fund and drive the growth of countless startups. While his sector has seen explosions of interest in leading Aviator casinos, he has also looked further afield so he can diversify his portfolio.
Although your business may be in the startup phase, you can still think of applying for seed funding as a form of diversification. By removing the need to spend your life savings to get your big idea up and running, you are mitigating risk by diversifying your sources of funding. Ideal when you want to be able to achieve more than anyone else thought possible.