Money might not actually make the world go 'round, but it certainly does help startups looking to break into their market with support from investors. Last year we didn't even talk much about seed money, but this type of funding is making a serious comeback, and I love that. I talked to funding expert and Investment Director at JEL Capital, Noah Stone, about why they are seeding again and what it takes to qualify.
Why Is Seed Money Making A Comeback?
Noah pointed out that, at JEL Capital, they are seeding companies again because this type of investment offers higher returns, with a lower cash outlay. JEL Capital, a private equity company based out of DC, considers themselves the go-to company for seed funding, which is not a title they take lightly. So I wanted to find out, from Noah, the nitty gritty details of seed funding, and what makes a startup appealing to their investors.
What Makes Your Startup Eligible for A Seed Investment?
If you are looking for seed money, it's important that you understand the characteristics that matter. Noah, who says he has actually had teams argue in the middle of their pitch, is convinced that the number one most important key to a startup getting seeded is actually their team.
Sure, ideas are important, and so is being able to speak the language of investors. But neither carry as much weight as having the right people on your team to carry the idea and the startup to the finish line.
If your heart just dropped as you read that, and you're now questioning just how solid your team might be, here are a few questions to ask yourself:
- Does your team have a real commitment to the idea? Are they determined and ambitious to make this startup succeed? Are they passionate about the business? Do they believe in the capabilities in the business and the future potential growth?
- Is your team flexible? Are they willing to compromise, go with the flow, listen and apply change as necessary? I have watched so many businesses fail because of a lack of flexibility. If your team has tunnel vision and they cannot look at the bigger picture and flex as needed, you're in dangerous territory.
- Is your team full time or willing to be full time? A team members commitment will tell you a lot about how they will handle the process that is starting a new business. If they waver easily, they might be in the wrong place. Entrepreneurship and starting up is not for the faint of heart, of for those who fear full commitment. It's all in or nothing. Noah also pointed out that he would never invest in a company with a partially committed team. If they don't believe that the opportunity cost is high enough to go all in, this shows a lack of belief in the product or startup itself, and we all know that you cannot convince someone to believe in something you don't believe in.
- Is your team willing to go where the money is? I always find it shocking when a startup has members who are unwilling to travel, or go to where the money is. In a lot of ways this goes back to commitment. Are they willing to do what it takes, even if that means traveling to investors?
Of course an excellent idea is important, but the real key is an experienced team that has passion, ambition, determination and is fully committed to the idea. The team must be full-time and believe that the opportunity cost is too high to not be all in and speeding to market.
And While We're Talking About Money...
You have to make it your business to know your market. You have to become a numbers person, period. You have to know the size of your market (is it a 2 billion dollar market, or a 20 million dollar market?) and you have to consider business sustainability.
A great idea is one thing. A great idea that's disruptive, entering a large competitive market, and is sustainable... that's everything.
Bonus Expert Tip:
Pre-revenue: must have a solid disruptive idea.
Post-revenue: must have solid numbers indicating a clear understanding of the market, how much of the market can be gained, and profit potential.