Seed Money
Seed Money – What You Need to be Successful and to Acquire Funding
Everyone I speak with who is looking to start a new company, or add to their existing start up, always brings up SEED MONEY.
What is Seed Money?
Seed money is capital that private investors/startup owners receive in exchange for equity.
Seed money can be used to help with due diligence, equipment purchases, and to explore acquisitions. The purpose of the seed round (or rounds) is to keep the business afloat until it can independently generate cash flow, demonstrate its value, and raise additional capital to grow the business. Seed funding can range from tens of thousands to hundreds of thousands of dollars.
Funding Rounds
What I have found best for investors and funders is to break seed money requests down into several parts. Once one round is successfully completed, the project moves to the next round.
- The opening round, which is usually the lowest amount of dollars needed, is to explore the project and define the opportunity. The opening round includes, but is not limited to:
- Travel expenses such as airfare, hotel, meals, car, gas, parking/tolls/taxi, incidentals
- Due diligence such as market analysis, competition study, sales & marketing plan
- Researchers to look at investors to vet, and business sites
- Business plan and deck sheet
- Preliminary five-year budget
- Organizational chart and Board Members
- Round two, which is usually in the six-figure range, is to determine goals for acquisition, partnership, and to prove the concept works. This round includes, but is not limited to:
- Travel expenses such as airfare, hotel, meals, car, gas, parking/tolls/taxi, incidentals
- Refined business plan
- Startup budget (5-7 years)
- Consultants such as an architect, accountant, engineer, legal counsel, back of house and business structure, business consultant for startup and day-to-day operations.
- Brand and design
- If the project makes it to round three, these dollars are used for acquisition. In addition to the costs already mentioned, round three will include, but is not limited to:
- Operational expenses such as startup staff, office space and equipment, insurance, business permits/licenses, utilities, physical and digital security
- Marketing expenses such as website, search engine optimization (SEO), customer relationship management (CRM) and digital tools/technology stack
- Human resources needs for payroll and employee management system, recruiting, job descriptions, employee manual, defined interview process
- Hiring expenses such as personality test, background check, credit check
- Employee benefits, taxes, training and development, management development
- Next two people up per management or factory position
To Start the Process to Ask for Seed Dollars
You will need the following for potential investor, buyer, partner:
- Deck Sheet
- Business plan (phase 1 based on assumptions)
- Identify potential project(s) and sales potential five to ten years
- Sales opportunities
- Identify what is that you want to purchase
- Preliminary budget – 5 years
- Profit opportunities with best/middle/worst case scenarios
- Organizational Chart
- Articles of incorporation for ………….
- Operational agreement for………
With the above material, the funder can assess the likelihood of a partnership and the type of delivery system that would lead to any of the following:
- Lease back of physical plant
- Partnership
- Limited partnership
- Timeline to issue shares or debentures
- Timeline to go public
If you liked this article and would like to talk more about your venture and dreams Lou can be contacted at 503-709-3742 or quint@healthclubmanagement.com