Seed Funding (or Seed Capital) can be either the first or second stage of the business.
- Should be the first if the venture is capital intensive or may take a significant amount of time to become profitable.
- Sources can include family, friends and 3rd party investors.
- Significant documentation should be in place, including business plans and cash flow forecasts.
Traditionally, 80% of businesses fail within the first year, and 90% by the end of the second year. In almost all cases this is due to cash flow shortages.
Of course, cash flow shortages can be due to a badly implemented business.
But more often than not founders greatly underestimate the cost of business establishment and the time it takes the business to break even.
A good rule of thumb is to work out cash needs prior to break even in the worst case scenario, and then triple it. Not something many investors will be comfortable with, but realistic, and it is always much easier to get capital up front than to have to go back and seek more. However, you should have strong efficiency strategies to present to investors.
Investment Size: Usually in tens of thousands to lower hundreds of thousands.