As a startup founder, you have burned through a lot of your own savings (and maxed out the proverbial credit cards), but thankfully you have an MVP (minimal viable product) or better, and now are ready to raise your first seed financing. You are faced with a number of questions, several of which we will discuss in upcoming additional posts.
Who do you approach and who are viable investors at this stage? The choices have changed pretty dramatically, for the better, over the last few years; in no particular order, here’s a list of some of the possible financing sources and some quick thoughts on each.
While it’s hard to generalize, in considering which route to go if you are so lucky to have a choice, important factors in addition to investment amount (i.e., cash runway provided) and valuation (whether actual pre-money if seed preferred or a “price cap” if convertible debt), include the investor’s network (i.e., access to customers (if B2B, or B2B2C), entree to key industry players), strong domain knowledge and operating experience and advice, credibility and reputation, and ability to participate in, or at least provide key assistance with, future rounds of funding. Also, for more science based startups (e.g., life sciences), early funding also can include government or university research grants.
* An accredited investor is basically someone whose net worth, either alone or with a spouse, exceeds $1 million (not including the equity in her or his primary residence) or someone who has earned more than $200,000 (or $300,000 with a spouse) for the past two years and reasonably expects to earn more than $200,000 (or $300,000 with a spouse) in the current year.