If you have had a great idea for a business but lack the capital to bring your concept to the market, you are going to need to find a way to raise finance to fund your business.
Much like a planted seed is what turns a field of potential into acres of cash-yielding crops, seed capital is the funding that brings a business from the idea stage to its launch.
Many a good business idea has failed before it has even begun, simply because the entrepreneur did not have access to adequate funds to launch.
In the initial stage of development, companies need seed capital - money that is often used to conduct market research, build a product prototype, and pay company expenses - while their business gains momentum.
In short seed capital is the money that is used in the early stage of a business. After an entrepreneur has completed their business plan and carried out much of the groundwork needed to verify that the business model is viable, the next stage is launching that business and bringing a product or service to market. Seed capital is used to fund a new business and help launch that new company.
Many entrepreneurs have found that if they are looking to launch a business, that their options are fairly limited. Banks and traditional financial institutions do not typically lend money to start-ups as they are a risky proposition since many brand new businesses fail.
Some business owners fund their new venture with their own resources and do not rely on outside help. This is often referred to bootstrapping, but for most entrepreneurs this is not a viable option since in many cases, they simply cannot afford the initial capital investment. This can especially be the case when expensive activities such as product development is required. Generally, some of these kinds of activities require a large amount of money to be successful and this is often out of reach for an entrepreneur with limited funds looking to launch a small business.
A modern way for a business to raise seed capital is to use crowdfunding. This doesn't suit all companies, but in some cases, it can be a useful way to raise fairly small amounts of investment into a business.
Grants are also sometimes available for startups looking to launch. These grants are often available to help early-stage companies get off the ground. The problem with grants is that they are often specifically designed to help a certain kind of business, whether that be based on the industry that they target, the type of business owner looking to launch, or the location that the business is either based.
Private investors, often called business angels or angel investors, commonly provide this first round of funding since securing a loan and gaining capital is hard for new and first-time business owners.
Private investors often consist of individual business angels or groups, but in some cases, seed capital is provided by the entrepreneur’s friends and family (hence the reference to seed capital in some places as the “friends and family round”).
Since the amount is usually small and usually only covers the business’ initial objectives, business angels are more likely to invest seed capital than banks or venture capitalists in exchange for some control in the company’s operations and financial decisions.
In some cases, a startup company may go through a number of seed rounds to raise enough capital to launch. Often this early investment for business development or to launch new products is called Series A Funding.
When it comes to entrepreneurship, investors will not hand over money for just any idea. Investors will do their due diligence, explore in detail an entrepreneur's business plan, and if available, their existing track record before they hand over any seed money.
Once seed capital is in place, and the business begins to grow, business owners tend to have an easier time seeking finance from venture capital firms, where the business investors at that point will usually own shares and have an equity stake in running the company. Often raising money at this point is called Series B Funding.
If a business reaches the Series B Funding stage, then potential investors are looking for a business that displays high growth. They will provide investment based on the valuation of the company and on its future potential. Often, investors at this point will be looking to get on-board before a company approaches the stage of Initial Public Offering (IPO).
Entrepreneurs that are looking to raise seed capital for their business idea can use the Angel Investment Network to pitch their project to seed investors and high-net-worth individuals located all over the globe.
By getting in touch with business angels on the Angel Investment Network, entrepreneurs can seize these initial funding opportunities, such as seed capital, and get their business ideas on the right track.
Unfortunately, not everyone has access to savings or friends and family to help them out, so they need another source of money to start off. Some entrepreneurs will put their initial business expenses on their credit cards, but this isn’t a great idea since most people’s line of credit is quite low and the interest that you have to pay back is typically high.
The next port of call for many entrepreneurs in the Netherlands is a traditional bank. Unfortunately, unless your business has a solid foundation and is already trading you’ll not likely find the banks that open to lending you money, outside of a personal loan, which most entrepreneurs would prefer to avoid since it makes better sense to split your personal finances away from your work ones where possible.
If you’re a Dutch entrepreneur looking to start a business in the Netherlands, and maybe open an office, store or manufacturing facility in and around one of the major business trading hubs in the country, such as Rotterdam, Utrecht, Eindhoven or Amsterdam, you are going to need a fair bit of money for rent. Unless you can work from home and start your business with minuscule start-up costs most businesses will need some kind of seed capital to start trading.
More than this, the seed capital needs to be sufficient to keep trading for a while because most brand new businesses have a period of time, which can go on for months and even years where they are not strictly profitable.
The good news is that even if all other lines of credit and finances are closed off to you as a new business there is one group of people who look to fund start-up businesses and provide seed capital, when nobody else will. This group of people are private investors, also known as angel investors.
What is an angel investor? An angel investor is a person, or group of individuals who look to invest in start-ups and fledgling businesses and to provide seed capital and finances to facilitate business growth. The way this works is that the entrepreneur typically gives up a share of their business ownership to the angel investor, who in return provides the finances the entrepreneur needs to launch their business idea.
Angel investors are less risk adverse than banks and traditional financial institutions which provides a valuable opening for entrepreneurs with great ideas, but that have limited access to capital.
Angel investors will not invest in just any business in the Netherlands. They will need to see a business plan and they will expect to see some evidence that the project or idea you have is viable and can make money.
In return for a stake in your Dutch business, there are some other potential benefits to using an angel investor. This is especially so if you are new to entrepreneurship and are inexperienced. This is because some angel investors like to take an active roll in the businesses that they invest in, and this means that they can provide advice, help, support and even mentorship to the business. This isn’t the case for all investors, some prefer to remain as a silent partner, but for some entrepreneurs, an angel investor can be a valuable asset for not only finance but for their experience.
If you’re an entrepreneur based in the Netherlands and are looking for seed capital for your start-up the Netherlands Investment Network can potentially help connect you with investors looking to finance businesses and ideas just like yours. Not only could you find an investor close to home in the Netherlands but because our Investment Network is a global enterprise you could also attract investors from overseas and around the rest of the world.
AIN helps investors and entrepreneurs build lasting and profitable relationships to build better businesses and brighter futures.