What Is The Meaning Of Seed Round?

What Is The Meaning Of Seed Round?

The seed round is one of the most important moments for a start up.

Let’s go and see what seed round means and how it works.

What’s The Seed Round?

An entrepreneur has to research in order to look for funds for his start up.

This can be divided in three main phases:

  • pre-seed round;
  • seed round;
  • A round, B, round, ecc. 

During the “pre-seed round“, the start up doesn’t exist yet. It’s just an entrepreneur’s idea, a project to build it.

In this round, there’s a need of funds to create the start up.

At the second phase, called “seed round“, the startup is no longer just an idea: in fact, the entrepreneur has built his start up.

In this stage, the efforts of the entrepreneur are focused raising funds to start production and all processes.

After the pre-seed and seed stages, there are other phases which are called “A round“, “B round“, ecc.

Those are used to raise new funds to further improve the start up and establish it commercially

Each of these stages is preparatory to the next. 

54gene is a start up that raises US $4.5m seed funding
Credits Image: Lang Buisson

Why The Seed Round Is Fundamental For Start Ups?

It is also one of the most delicate phases for your start up, because at this stage, the majority of start ups collapses.  

The reason being owners didn’t raise enough funding to start. 

It’s difficult to find an individual investor or a group to trust in a start up and decide to invest in it.

Only when this happens, your start up can start the production of goods or services.

The Meaning Of Seed Round | caizzone-caizzone.com
The Seed Round is one of the most delicate phases for a start up.
It’s fundamental to be prepared

Why Is It Difficult To Find Anyone To Invest In Your Start Up During This Stage?

There are many reasons why a great number of start ups don’t find someone to invest in a start up.

One of the most common is the lack of market research and acceptance of products or services which the start up would like to market.

Usually potential investors don’t invest any amount of money if they don’t know this approval rating about specific goods or services that will form the start up.

Another reason for collapse of start ups is that entrepreneurs can’t persuade potential investors to trust in their start ups.

In this case, it’s very useful the prototype’s patenting and testing carried out before the meeting between investors and entrepreneurs.

It’s fundamental to show these documents for two reasons: the first is to demonstrate the real functioning and possibilities of the product or service.

The second is to demonstrate a real analysis costs/revenues of that product or service and the model of business around it.

What Is The Meaning Of Seed Round | caizzone-caizzone.com
“What was your last funding round?”
Image credits: State of Startups

Who Are The Investors At The Seed Stage?

Investors can be divided in 3 main categories:

  1. venture capitalists;
  2. business angels;
  3. Public and privates institutes.

All 3 categories have some differences, but provide funds to startups

There’s another category of investors, which is called “accelerators“.

Those are private and public programs which provide training support for start up owners.

They don’t provide directly funds to start ups, but supply a lot of tools for their growth.

Moreover, accelerators organise important meeting events for entrepreneurs and investors.

These events are particularly importants because they attract a lot of investors who might be interested in your project and give you funds for your start up.   

As well as meeting events, accelerators organise contests for start ups.

Usually, the winning start ups obtain funds from important investors.