Seeders, crowdfunders, bootstrappers, angel investors – are these the new nicknames for hip social cliques or are they investment terms? Funny enough, they’re actually both. Only, you won’t spot seeders loitering around coffee shops in similar attire and black-rimmed glasses – or then again, maybe you will! The point is – it’s all confusing, right?
Comparing the latest investment trends to local hipsters is kind of appropriate – how can you keep up with either of them? Seeders and crowdfunders are both trendy groups with similar (but slightly separate) agendas. And while their fashion isn’t always specific, we do know what they have in common is a love of being a part of something larger than themselves – whether it’s a cause or a conceptual springboard to success.
“Clearly, crowdfunding is an important alternative source of financing for small, mid-size and large online businesses. So before reaching out to a new partner or applying for a loan, take a close look at the leading crowdfunding platforms to see if this new strategy can help you achieve your business goals.” – Robert Gilbreath, ShipStation VP
What is the best option for you?
Seed Investors – The Growers
Excuse the pun, but to understand what seed funding is all about, it helps to envision an idea (or a potential business) as a tree – well the promise of a tree, at least. As an entrepreneur, your vision is big. You can picture your idea in full bloom and you’re confident you have everything it takes to make it flourish – except money of course – you still need that! Here’s where seed funding comes into play.
Investors believe in you. They think your business has the potential to become a towering Aspen or Ash too, so they give you an investment – a seed – to get that tree planted. In return, they ask for equity in your company (to be paid once it’s in full bloom). After all, there’s a lot of risk involved for them, with no guarantees that your sapling will rise and thrive to meet your expectations (and theirs).
If you oversell your abilities, or over-pitch what’s possible, those seeders and their investments could be left buried. This is what makes seed investments unappealing to many big lenders or venture capitalists. They prefer to invest in grounded businesses and concepts that are further along and firmly rooted.
But seed investors are out there amongst us. And, in today’s market, they look just like regular people (who may or may not dress trendy and wear black-rimmed glasses). The trick is finding them. Thanks to the many seed lending platforms cropping up, this is easier than it has ever been. Websites like Seedrs and Seedcamp help match great ideas to investors willing to take the risk.
Here’s a recap of seed investing:
- Early-stage lending
- High risk involved
- Money exchanged for equity
- Does not affect production
Crowdfunders – The Backers
It’s a little misleading to compare seeding to crowdfunding as two separate things – since crowdfunding can also encompass early ‘seed-stage’ investing, too. What is different, and what is offered in exchange for those investments?
Where seeders want a stake or stock in the company, crowdfunding investors just want a reward! Whether it’s a t-shirt, gift card, first dibs on your product or more – these groups invest fully aware of what they’re getting in return. Crowdfunding also becomes a great way for retail-based businesses to pre-sell their merchandise.
Kickstarter and Indiegogo are two big crowdfunding platforms which allow entrepreneurs to expose their best ideas in front of thousands of interested people. They set their money goal, and then start an online campaign to raise the funds to get them to the finish line.
Quite often, these startups not only reach their goals – they shatter them! For instance, tech watch company Pebble became Kickstarter’s largest project to date when their funding whipped past the £10 million mark! But with this whirlwind success came some unforeseen drawbacks too.
Unfortunately, a potential downside to crowdfunding is being able to deliver those agreed-upon goods on time! In Pebble’s case, some early investors were promised a watch in exchange for their investments – and with over 68,000 backers on board in less than 6 months – this promise created a major strain on their production capabilities. Of course, with £10 million in the bank, many entrepreneurs would consider this hurdle a welcomed hurdle to overcome!
Let’s recap crowdfunding:
- All-stage lending
- Much less risky
- Money is exchanged for up-front arrangement
- Arrangements can affect production or make “more work” for startups
Final Words: Seeders Vs Crowdfunders
And, this would be you: the entrepreneurs! Sure, it can be tough to decide which platform is best to start with. Just remember, seed investments are often more appealing to lenders when they already have a bit of a track record – and are positioned to succeed in a large way. Yes, you are giving up equity, but you can also gain incredible networking and partnership opportunities that could otherwise take many more years to achieve.
Likewise, crowdfunding could far exceed your financial goals – while allowing you to retain all the equity. However, promises of seemingly unlimited pre-sells to massive numbers of investors could cause major setbacks, stressing out a startup owner beyond their control.
All in all, it’s an exciting time to launch those dreams of a lifetime, and there are more funding options available than ever before. Whichever route you choose, one thing remains the same: money is a necessity for startup businesses!