The most common providers of seed funding are private investors and angel investors. While using this form of funding, it is important to understand that you may have to share a certain amount of control over your business with the investors. After all, the investors also need to get their fair share out of the deal. As a result of this shared control, you may be obligated to disclose some important and confidential business information. You should note that, as a thumb rule, investors who provide seed funding often look to gain at least around thirty percent of their total investment in profits. Therefore, you have to be certain that your business will provide that much to your investors.
Why seed funding?
Over the course of history, there have been several cases where promising startups were unable to get the required funding, and eventually stayed untouched and untested. These startups could have been the next big thing, but they failed to take off because banks, financial institutions, and other big lenders were not ready to take the risk. As a result, entrepreneurs and investors get frustrated and take their ideas and startups outside South Africa.
Seed funding serves as a viable option for entrepreneurs to carry out their ideas and strategies and build their startup without relying on big lenders. Despite its benefits, seed funding has not reached its full potential in the South Africa business scene because of certain problems discussed below.
The problems with a seed funding solution
At present, the biggest problem that deters entrepreneurs and investors in South Africa from using seed funding is the lack of education and collaboration. Entrepreneurs know about the presence of seed funding as a powerful capital resource, but not many know how they can access them. On the other hand, investors are constantly on the lookout for more credible deal flows, and are willing to spend their money, but do not know where to spend it.
Of course, the first people who you can approach in order to get some seed funds would be your friends and family. They can be the perfect way to start off your campaign of raising funds, especially since they can provide details of other people who may be interested. In this way, you can increase your network of contacts further.
Alternatively, you can try online seed funding websites that offer detailed information on potential investors. These websites are generally a collaboration of several large networks, and can be of use while you lean more about seed funding and how to gather enough funds. While going for seed funding, you should ensure that you have some kind of an exit plan for the investments made by others after some years.