How to finance a startup? – Seed Stage

This is the first question we asked ourselves when we decided to create our own company and the one most entrepreneurs tend to ask before taking the plunge. For this reason, we are going to summarize what we consider to be the most important points in efforts to help those who are in this situation.

Types of financing are usually classified according to the stage your startup is in:

Initial or seed stage

This stage is the moment you have an idea, you think you can do something great, and you really want to get started. It’s also the moment you ask yourself, How can I get the money to move forward with my idea?

You have to keep in mind that this is the most critical stage for finding investment because normally your project is no more than an idea, perhaps a document, or in the best case scenario, business plan draft.

Investing your own money

This is the best option because you start without any pressure or debt. It’s also the best way to show that you really believe in your idea.

Depending on the type of startup, the initial investment can be minimal, or very large, so it may not be enough with the founding partners capital. In that case, the ideal thing to do is complement the investment with any of the following:

Resorting to the 3Fs (Family, friends and fools)

No one better than your family, friends, and acquaintances to take such a high risk and believe in something that does not yet exist. It is, essentially, an act of faith because instead of investing in your project, they are investing in the ability they think you have to carry it out.

This type of investment, according to a report by IE Business School, usually ranges between 5,000 and 10,000 euros.

Public investment

Another option is to seek help from public entities, which after studying the feasibility of your idea, will offer loans with very favorable terms. A good example is ENISA (National Innovation Company) which offers different credit lines depending on your age or business type. This is one of the most popular public supports in the startup sector because they do not ask for guarantees, they have very competitive commissions, and offer a grace period of up to 5 years. The biggest drawback is that in order to apply, you have to have registered your business and your social capital must be at least 50% of the loan you’re applying for.

ENISA credits range from 25,000 to 2,000,000 euros.

Incubators

Incubators exist in virtually all world capitals. There are all kinds; some are specialized in a specific sector, such as Demium Games (incubator of mobile video games) and offer all kinds of resources: mentoring, training, counseling, offices, investment…

This option is very interesting, but don’t look for the funding, resources, contacts, or visibility they can bring your project. We, for example, signed up, in May, for a Y Combinator program (a California incubator that specializes in early-stage startups). It was our first experience and although we didn’t get in, we learned a lot and it helped us to mature our idea. New project enrollment is open now until October 4th. We’re going to try again 😉

Crowdfunding

Finally I wanted to include crowdfunding platforms because they are another widely used method in certain sectors, like video games. It’s a very attractive way to finance and validate an idea. Not only do you get the money to start your business, but you can make sure your product has an audience.

Today, there are countless crowdfunding platforms, but the most popular worldwide remain Kickstarter and Indiegogo. In Spain, “Lánzanos” stands out with over 300 projects funded.

These are the main financing methods for startups in the ‘Seed Stage’, in Spain. The next stage is known as the ‘Early Stage’, or ‘Launch’, which begins when the startup already has its product or service’s ‘MVP’ (Minimum Viable Product). In future posts, we’ll explain the other stages as we reach them with Muquo, to share our experience in each one.