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20/01/2016

5 key questions tech start-ups should ask when looking for seed funding

By Ann Casey, Investment Executive

If you’re an aspiring tech start-up looking to take your first steps towards commercialisation in 2016, the chances are you’ll need seed funding.

Seed funding provides the initial capital used to start your business. As a tech start-up this is usually through equity and can support your research and development plus any operating costs until your product or service can start generating revenues.

It’s a high risk investment, but when successful the rewards can be huge.

Finding investors for seed funding can be challenging: you have no customers, no revenue and no tangible assets.  You’re also likely to be entering a new market, with a new product/service and a new management team, so how do you attract investment?

Here are a few key questions aspiring tech entrepreneurs may wish to consider to ensure they have the best chances of sourcing seed funding:

1.       Is my business idea disruptive?

Investors hoping to achieve large returns are often keen to invest in disruptive business ideas that change the way people do something rather than an improved version of an existing product or service.  New technology that can make people’s lives easier or save them money will always excite investors.

2.       Can I find any early supporters?

Seeking out an Angel co-investor, mentor or advisor with relevant experience and a little bit of cash, even if it is a friend, can add valuable credibility to your proposition whilst de-risking it and making it stand out.

3.       Do I have the right market?

Understanding and targeting the right market is critical.  You may think you’ve come up with a great idea, but if the market is already moving on, your business is unlikely to succeed. Equally, if you’re targeting a new market you’ll need to demonstrate its growth potential.

4.       Can I sell my team?

Investors won’t just be buying into your business idea, they’ll also be buying into the people and management team behind it. Investors will want to see passion, determination and a mix of experience in the management team that will deliver the promised return on their investment. Identifying any skills gaps in your team and being open-minded about recruitment will also help your cause.  

5.       Do I have the right valuation?

While you may be passionate about your idea and confident about its potential, no investor will be interested in anything less than a sensible and justified valuation of what it’s worth.

Looking forward in 2016

Despite the risk involved for an investor there remains a big appetite for investment in the tech sector with research showing venture capitalist investment in UK tech start-ups was up by 70% in 2015 when compared to the previous year.

Therefore the opportunities for young tech start-ups have never been stronger and 2016 could be the most successful year yet for aspiring tech entrepreneurs to find the seed funding they need to start building a successful business.

Finance Wales’ technology ventures team manages the Wales Technology Seed Fund and can provide equity Investment from £50,000 to £150,000 for start-up and early stage Technology business needs in Wales. To find out more click here.