seed funding basics

Seed Funding for your Startup – The Basics

Are you about to look for funding for your startup. Then you have come at the right place. Here I will explain to you in simple words about the seed funding for your startup.

Getting your First Investor

So you and your friends have an idea. Wow !! it is going to change the world. It will be the next big thing. So you picked up a name. Bought a domain. Ok, thats cool.

Also you are planning to leave your jobs to start work on the awesome idea you and your friends have. You can run with whatever savings you have. But after few months you feel that you need some money. You plan to approach some of your friend. Some of you might also have some family members interested. One of your close family members, who is also wealthy agrees to fund you. So now you all are on the table to negotiate the financial terms for the startup funding.

Although you are ready to negotiate , yet there is some home work you need to do. First of all you will have to come up with shares which represent the value of your company. It is like the vote for your  company.

Shares and Seed Funding

You are 3 friends in the startup and together agree to come up with 100000 shares. Out of these 100000 shares you are ready to part with 10000 shares.

So you, your friends and your close family member sit on the table to come to amount for these 10000 shares.

And at the end you settle for $20000 for 10000 shares. So you got your first round of funding called Seed Funding.

That leaves you and your friends to share the remaining 90000 shares among yourself. That means now each of you have 30000 shares each provided that you plan to share them equally.shares after seed funding

Company Valuation

So let us now calculate the company valuation after the seed funding. 10000 shares are worth $20000. So company valuation can be calculated using the below formula.

company valuation formula for seed funding

Company Valuation

= (Total  No of Shares * Seed Funding) / (Shares given for Seed Funding)

= 100000 * 20000 / 10000

= $200,000

Other Sources of Funding

There are several other ways of funding which are common nowadays. One of them is the crowd funding site such as KickStarter. Here people pitch in small amount of money for you to get started. You can visit their website to know in detail how they work.

Conclusion

In this article I have tried to give you a brief idea of what is seed funding. But these should not be taken as a final answer to your question.

You should always approach appropriate firms in your area who can give you advice as per your business and your country.

Finally if you have any information which might add value to the article please do share in the comments below. Also if you have a query then don’t hesitate to ask them, I will try to answer them.

 

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