Start-up, pre-seed and seed funding are generally pre-breakeven and with seed funding there might be a small profit. These are funded by what is commonly referred to as the '3F’s'. The 3F’s being ‘friends’, ‘fools’ (not really fools, just those willing to take on high risk) and ‘family’. The 3F’s' are those who know you and believe you could be onto something worthwhile. More often than not the ’3F’s are supporting you more than your business idea.
Angel investors might appear during the seed stage in many countries but in Australia they are rare and seem to focus what little investing is done in profitable businesses with a strong growth story. Many Angels are only interested in IT / Cloud-based companies. Caution is advised as many are inexperienced investors, new to your industry and seek to be “involved”. During the Start-up, pre-seed, seed funding stage – they may just make your challenge more challenging. Should you decide to take on Angel Investment ensure your exit / termination clauses are very clear and do-able.
In addition a brief word on Crowdfunding is appropriate. The Securities regulator is still “reviewing” the regulatory implications of Crowdfunding as a means of raising “equity”. Many Crowdfunding exercises in Australia are based on “donations” where contributors do not receive any equity but, for example, may receive a free music download in exchange for seeding their favourite bands recording costs. This highly attractive source of funds will develop greatly over the next year or so as will the nature of the “offers”.
Maintaining your Start-up, pre-seed and seed funding source
How do you ensure you are being ‘fair & reasonable’ to your 3F’s? This is definitely a role for your ‘trusted advisor’. You will need the 3F investors to support you with more than cash and you may even need to go back to them for a lifeline injection of cash. Don’t burn your bridges. It may be better to be generous and have clawbacks for yourself / your team if you achieve great results.
DST corporate’s team can provide you with the knowledge and resources to more safely undertake Start-up, pre-seed and seed funding.