You have the next million dollar idea in mind. Your team is in place and you’ve found the cutest office space in the most happening IT park. Your product has started gaining traction among the initial customers and you’re now looking to grow fast.
I know what you’re thinking: To seek seed funding or not?
This is the question that thrusts its weight upon every entrepreneur ever. Depending on who you ask, you might get one of the three answers:
- Hell yes! Is there even another option?
- What are you even thinking? Bootstrapping is the way to go.
- It depends, man.
Money vs. Freedom
While a million dollar valuation and a potential buy out on the horizon seem like every founder’s dream, the reality is not as cut and dry as it sounds. You’ll have to consider several factors before arriving at a decision. You’ll be infusing your company with funds but at the loss of a certain amount of control. You’ll minimize the amount of risk but you will be pressured into growing at a seemingly unrealistic pace.
I’m gonna go with the third answer over the course of this blog, meticulously weighing the advantages and disadvantages, and helping you arrive at the answer yourself.
The pros of seed funding
Seed capital is the life-blood of any startup. It’s what gets the businesses off the ground, and launches it to newer heights. It propels growth by covering expenses like research, marketing, operations, rent, and salaries. Without it, a lot of startups never take off.
Unless you’ve a way of funding yourself for a prolonged period of time, you’ll need to secure a seed fund. The seed fund’s purpose is to keep the business afloat until it is capable of generating sustained cash flow and profits.
The seed fund minimized the founders’ risk; the investor is willing to take the risk in your stead. This is the most significant advantage of raising capital as you’re not throwing your entire life-savings on a whimsical idea.
You’re not burdened by loans
As opposed to a bank loan, which the bank will expect you to repay irrespective of the success or failure of your venture, an angel investor covers the complete downside risk. It also ensures your business is not knee-deep in debts right from the get go. But this comes at a cost… which we’ll explore in the later part of this piece.
You’ll receive the financial leverage you need to grow and scale at a faster pace. You’ll have more funds in your hands to experiment and invest in tech and people that can put your business in the hyper-growth trajectory.
Higher odds of success
With an investor (angel or VC) having a stake in your business, you not only get ahold of their money but also their mentorship and network. They typically bring in several years of experience in the domain and can also get you in touch with the right people at the right time.
The cons of seed funding
According to the NY Times, a new generation of entrepreneurs are steering clear off the VC funding territory and bootstrapping their organization. VC funding has been available only to a small fraction of startups. Those are the ones you hear in the news and read on the interwebs. There are a ton of companies that see VC and Angel seed funding as a waste of their time. And, with good reason.
While the very purpose of VCs and angels is to foster innovation by funding startups, it can take several months for the conversation to go anywhere meaningful (sometimes even for an introduction). Endless meetings, repetitive pitches, and relentless networking–can be a time-intensive process, which frankly, many startup founders do not have the time for, and would use it elsewhere.
Loss of control
This is perhaps the single biggest deterrent to securing funding for many businesses. Investors inject a medium-to-large chunk of money into your business in return for a stake in the company or 10-20% of the equities. You are essentially giving a portion of your future earnings. There’s complete freedom to take your company in any direction you want and make your own decisions, without any conflict of interest with investors.
Pressure of hyper-growth
With an angel investing in your business, the expectations of your business’ growth become manyfold. After all, it’s business to them; they put in the money and they expect to 10x it. The cash that’s fed into the business will be expected to grow at (sometimes) unrealistic speed to justify the next round. With all this comes the pressure to deliver fast and it can be intense.
Need for follow-on funding
Securing a seed fund just doesn’t stop there. You’ll need the following rounds so your early investors can make a successful exit. There have been several instances in entrepreneurial history where businesses (with flawless fundamentals) had to layoff employees and ultimately shut operations because they could not secure a follow-on round of funding.
Money and Freedom
At the end of the day, it boils down to two things: money vs. freedom. Seed funding means more money to scale at a faster rate. Bootstrapping is all about freedom. The freedom to make your own decisions and have your vision of the company realized.
What if I told you there was a way to get both money and freedom?
StartupTN will grant you the funds you need to scale without the pressure or the loss of control that comes with angels and VCs. Earlier this year we launched the first edition of TANSEED where we supported 10 startups with a seed grant of INR 10 lakh each. Following its success, we’re planning to launch TANSEED 2.0 in July to September where we’ll support up to 20 startups with INR 10 lakh each.
Interested? You’ll find more information on this page. Register before 20th August to give wings to your business.