Seed Stage Fundraising Toolkit: What You Need to Succeed

Launching a startup is tough, and attracting seed capital is often a matter of being very strategic. Michigan Growth Capital Symposium (MGCS) Founder David J. Brophy, Director and Professor of Finance at the University of Michigan Ross School of Business, offers some practical tips for companies to consider when entering the fundraising game.

1. Grants and non-dilutive financing are the way to go – if you have the time. “The trick here is to not lose any more time to market than is absolutely necessary,” said Brophy. “There’s always another smart person somewhere else who might be thinking about the same idea.” The time factor can be a tricky balancing act – funding through grants, savings, and friends and family can be advantageous in terms of retaining the most control of your company, but if it will take too long to pull together, you may want to turn to the investment community.

2. Professional investors prefer to support marketing efforts, rather than technology development. “If all you have is an idea, but you haven’t reduced it to practice or proof-of-concept so it works with a prototype or the like – good luck with that,” Brophy said. “You’re going to have a very difficult time getting people to put equity dollars out to get you to proof-of-concept.“ Pull together a prototype on your own if you can. Even if it’s rough, it will help you raise money and get decent valuation for your company. Also, think about evidence of consumer interest and use. “What investors are looking for is evidence that the thing will fly, so the further down the road you can push it before you encounter investors, the better off you are,” said Brophy.

3. Make sure you have your ducks in a row. Technical development and demonstrable success are extremely important, but don’t overlook other basic aspects of your startup. “Make sure you own what you have,” said Brophy. “Intellectual property protection is quite important. You also have to define a market, and it should be a market that is large now or that has promise of fast growth to a very significant size.”

4. Fill out the core of your team. Who are you, and what role do you play in representing the company? Are you the technical genius? Do you have someone who knows marketing? Do have a person on your team experienced in fundraising, or who has executive capabilities? “You don’t so much need a finance person at this point, but you do need people who understand building a company and building a product, and taking it to market,” Brophy said.

Once you have taken these steps, put everything into a solid, clear business plan. This year’s MGCS will have a strong focus on very early stage startups – and seed investors are welcome. For more information, visit www.MichiganGCS.com.

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