Raising a seed round can be risky that needs to consider various things to make the business successful. A multitude of factors is responsible for making it successful. Early stage investors and experienced founders can lead a business towards success, and reduce operational risks by proper planning of the project.
Successful founders of the company prepare a five-year financial plan, a technology development roadmap and a combined sales funnel. With many funding options available, raising seed funds can be a confusing and somewhat overwhelming exercise. The most suitable choice is raising a financing round fast from a person or a group of people that you already know from friends or family.
Startups can also support seed rounds from outside sources such as business accelerators, government grants or even successful crowd-funding campaigns. Whatever way the business owners are using for seed funding, there are few things to avoid while raising seed funding.
Below are a few things to avoid while raising seed funds:
1. Not Tracking Your Progress:
Business founders can keep the business under control when they keep monitoring their progress. Tracking the progress of early-stage startups is essential to keep it thriving. It highlights the areas where they are falling behind.
The easiest and most widely accepted way of defining and tracking objectives and their outcomes is the key results. Business owners define a set of key findings that they need to achieve to fulfill their business objective. After every quarter, the key results are graded on a scale from zero to one to measure the progress.
2. Not developing Minimum Viable Product (MVP):
A startup requires to have a minimum viable product (MVP) for growing on a seed funding rounds. MVP is a platform of the product that has the least number of features required to get the first paying customer. Minimum Viable Product is also critical for getting feedback for future product development. Investors often consider startups risky without an MVP.
It is fundamental for business owners to define the required features to avoid feature creeps. If the founding team has not talked openly about the features to identify a product market fit, they can overspend on developing the product by adding any unnecessary features to the product. A clear customer requirement document, and then a product requirement document is often useful to prevent feature creeps.
3. Not Using Sales and Marketing Tools:
Sales and marketing are essential and the hardest thing for a startup. With the help of useful tools like Pipedrive, Hubspot or Salesforce, company owners can design a sales pipeline, to actively track their growth. It also shows the startup’s current sales results and the customer conversation ratio from a lead to a paying client.
4. Not Having A Financial Plan:
A five-year business plan is often the most critical document while raising a seed fund. The financial plan includes monthly payment plans per month for the first two years and quarterly for the next three years.
The financial plan typically includes sales, revenue, employees, operational costs, manufacturing overheads, capital expenditure, depreciation, income tax, profit and loss, and cash flows. Furthermore, all the assumptions used to build the model should be listed.
5. Seed Funding in Crises Mode:
Business investors should not try to grow seed funding in crisis mode. Stability and well planning of the system are essential. A financial crisis shows that the founding team does not know how to manage funds and will most likely overspend the seed round. Therefore, it is usually a good idea to keep a three to the six-month runway when going out to raise a seed fund. It allows the funding team to pitch to multiple investors and stops them from accepting the first term sheet they get.
Lots of business owners are involved in seed funding that can increase profit to manifolds. If the business plan is robust, seed funds can lead to vast amounts of profit that can make a business successful.
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