Planting the Seed: What to Expect in the First Round of Funding

Preparing for and getting through your first round of startup funding is exciting and terrifying all at the same time. Fortunately, there’s plenty of advice for making sure you come to the table prepared – and that you receive the funds you need to get things moving.

Lots of Questions

Firms and individuals who provide seed funding invest in your startup despite the inherent risk. You’ll be asked to provide plenty of information about your proposed business, including your short-term and long-term business plans, the products and services you intend to provide, and even how you intend to use the money you earn to grow your business in the future. Investors may have questions of their own that fall outside of the usual categories. You should be prepared to explain why you got into the business, whether you feel fulfilled, and even if you’ve started businesses in the past.

Plenty of Paperwork

Your very first round of funding will require plenty of paperwork. Some of the things you’ll want to bring to the table include your business plan, your financial audits, term sheets, preferred stock investments, certificates of incorporation, and anything else that investors might want to see in order to make a decision about whether they want to invest capital in your startup. It may feel intrusive at times, but keep in mind that the people who are providing you with funding want to make sure they’re making the best decisions for themselves or their firms.

Negotiations

There are many ways in which you can receive seed funding. For example, if an investor is providing you with funds, you may be required to provide that person with a percentage of your business in the form of stock, which ensures that the investor receives a portion of your overall profits. It also ensures that the investor’s net worth grows alongside the success of your company – just like yours. On the other hand, if you’re being provided a loan, you’ll need to negotiate the terms of repayment, interest rates, and what happens if you default.

Contracts

Finally, once the negotiations are complete, contracts will be drawn up for each party to sign that details his or her rights and responsibilities as they relate to the seed funding agreement. This contract will contain a vast amount if information, so it is important to read it very carefully. In fact, you should take your contract to your attorney (or better yet, ask your attorney to be present for funding negotiations) before you agree to anything. This way, you can make sure that you are getting a fair deal. What’s more, you can rest assured that your investors will put everything through their lawyers, too.

While getting funding for your startup through a loan or an investor is incredibly exciting and marks a huge turning point in your business success, it’s vital that you protect yourself along the way. Finding a lawyer who specializes in seed funding and startup companies is a great way to give yourself some extra peace of mind.

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