Attracting Seed Fund ‘not’ a hard nut to Crack

Ecommerce industry in India has seen the spate in overall investment from quite some time. We have experienced some of the large funds given to the players who have set their foot and surmounted the initial inflection point. However, managing funds to start an ecommerce business is still a tough nut to crack. But if we look at culture of seed fund in India, certainly it has gathered the momentum in the backdrop of overall exuberant funding landscape in the country. Newer models of seed stage funding are emerging that could be a boon for ecommerce startups.

Meanwhile, there are a number of firms who provide seed funding like TieBanglore, Mentor Partners, Indian Angel Network, Nadathur Holdings, Erasmic, Incubation Fund, Seed Fund, Helion VC and Sequoia India. The rise of seed funding and incubation institutions seem to be driven because of number of skillful, observant and mature entrepreneurs have completed their work cycle and now have considerable disposable income to be invested on risk-bearing areas. The risk rate is high, and so are the profit margins.

So what these seed funding institutions look in start-up for funding. In order to know the more about the criteria of seed funding in start-up we have studied the case studies of various online companies which have successfully raised the seed capital. Following parameters seem to drive seed funder’s confidence in start-up:

  • Potential of the idea and scalability of the market: How potential the idea of the business model along with its strong prospects of scalability in longer term including the market of the model.
  • Innovation and differentiator of the business model: These two seem to be the foundation of attracting seed fund. Cloned or copied business model do not entice seed funders as it lacks innovation, vision and scalability of such business plan is suspicious.
  • Leadership and core founding team: After meeting above criteria, seed funding institutions look for visionary  leader that has capacity to lead and co- ordinate the team
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The biggest question is how to present your plan to the seed funding institutions, in fact we have analyzed the process of some of the companies who have successfully grabbed the seed fund to hatch their business plans further.  It is evident that seed fund is a risky affair for investors to fund as in India we also have some failed examples of start-ups that have not been able to move forward in spite of having seed fund. Hence, what are the ingredients in terms of preparation a start-up should have, in fact our research assisted along with opinion of seed funders pointed out the following points:­­

  • Look out on web for the Seed funders. Submit your plan/idea along with a honed ppt. A killer demo can also be beneficial.
  • Many seed funding organizations claim to provide support on regular bases but after the funding has been done, there might be a possibility of not receiving the entire promised support. Clear the terms and conditions before making a deal.
  • Founders should raise money after they have developed a solid business plan and require additional capital to develop or expand their business. Don’t take seed fund as a crystal ball but as a road map with target dates and milestones.
  • If you’re raising money, you might not be focusing on building your product but your competitors are. A well-funded startup with no product is still behind a startup with no money but a product and customers.
  • Investors might have stake of around 30% in your business model. Be ready for it.

However, this is the fact that it is not feasible for investors to incubate each and every business plans that come in their way. Throwing light on the investors or incubator (seed funders) point of view, Padmaja Ruparel, President of Indian Angel Network (IAN), said, “Investors from angel groups like Indian Angel Network (IAN) bring tremendous value to young startup companies : apart from finances, they bring in strategic advice, leverage their global networks and even at times, help with operational direction. This mentoring from successful entrepreneurs, who have been there and done that, is invaluable.” As she describes further, she says that on random bases out of 10 firms/ideas that approach them, 1 or 2 are the real hot-shots, 2 or 4 are average, whereas the rest of them aren’t worth undertaking.

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With rising culture of seed funding that all set to bridge the part of early investment gap in ecommerce ecosystem in India, this industry is still wide open to have more such institutions that are willing to seed and incubate online businesses across various segments and categories. Apart from seed funders, entrepreneurs looking for funding also need to stress more to become presentable and viable in their proposals. Despite all, we are only at the beginning of online germinating trend on global comparative basis. But if you have got wings, all you need is a platform that can give you a flight!