With little cash to fully develop products, many startups can't get past the validation and iteration stages. The tool of choice for many facing this problem is seed capital. It has been preached that the key to any seed investment is to take just enough to get you to the next step but not anymore.
But knowing how much is enough to get you to the next round can be difficult as there is no "typical" seed funding amount. Amounts vary wildly depending on the product. Everpurse, for example, raised $1 million last year because their upfront hardware costs were expensive. Some companies even raise, as in the case of Options Away, several rounds of seed funding.
Seed rounds are often about more than money though. As stakeholders, your early investors may have significant input into and impact on your business. Choosing the right ones, that is investors who can offer sound advice in your industry and can even make introductions. To help you get the best advice on when to raise seed funding, how much to raise and from whom to raise, Built In Chicago polled a couple Chicago entrepreneurs:
Jimmy Odom, CEO and founder of WeDeliver
What they do: A company that helps facilitate same day, online order and delivery for brick and mortar retail businesses.
Founded: January 2013
Seed rounds: Jumpstart Capital and Caerus Investment Partners led an $800,000 round in January. The company received $100,00 from Steve Case through a Google Demo Day - and then $18,000 from Techstars Chicago this summer.
Odom's advice: "We were looking to raise a quarter of a million and we ended up at a million. We were significantly over-subscribed, so we became way more aggressive towards our goals because at first we started really lean. WeDeliver is a unique case because when we first started we weren’t looking to swallow this market: we were only going towards profitability, not towards scale. It’s extremely important to look at your businesses and determine what are you raising for and really understand what you are looking to accomplish."
Robert Brown, CEO and co-founder of Options Away
Pictured above: founders Rob and Heidi Brown
What they do: A travel company that lets customers put freeze flight tickets at a certain price for a small upfront holding fee.
Founded: June 2011
Seed rounds: Options Away closed three seed rounds of $200,000 or under between September 2012 and July 2013. In January 2014, the company raised $1.1 million from undisclosed investors.
Brown's advice: "While in later rounds the advice tends to be 'only raise what you need', in earlier rounds (i.e. pre-revenue) I would go the other way and suggest raising more than you need. As entrepreneurs, we are inherently bullish on our businesses. However, it always takes more time, more effort and more money to get to where you need to be. Raising money is a very time-consuming process and if you can bring in a little more than you need in the early stages then you will have more time to focus on getting your business off the ground. We initially planned to raise around $500,000. However, after talking to our advisors they suggested raising $1 million. We ended up raising around $1.1 million for that round."
Jason Dunlap, CEO and co-founder of Appdevy
Pictured above: Jason Dunlap on the left
What they do: web development shop for responsive websites
Founded: October 2013
Seed Rounds: In June, AppDevy raised $250,000 from undisclosed investors.
Dunlap's advice: "Some advice I would give other startups is don't take money from just anyone. Startups need to do their own due diligence with potential investors. They should be prepared to ask the hard questions. Even with a great seed round, taking money from the wrong investor can be very problematic for a growing startup."