Seed Stage Capital

If you are looking to start a business with more than your own capital and sweat, then you have joined the hunt for seed stage funding. This least risk-aversive form of equity can be found from two sources: (1) the 3 F’s or (2) angels.

The 3 F’s refers to “friends-family-fools.” It is very difficult to convince someone who does not know you that your judgment is sound and your effort to succeed will be unbounded; therefore, friends and family are a typical source for seed stage money. Of course if you do not succeed, be prepared to lose a friend or pay back a family member. “Fools” is meant to add a humorous slant, but this does lead us to our next category… angels.

I am at liberty to describe angels as fools because I am one (and self-deprecation is a cheap laugh). The term “angel investor” is meant to refer to someone with enough disposable income that he/she actively looks for ways to dispose of capital with risky startups, hoping that occasionally one of these investments will produce a home run. Some angels are very experienced business executives, who can bring far more than money to the table. Other angels just have a fat pocketbook. All angels can be difficult to convince and even more challenging to predict their terms. If you don’t know any angels, one shortcut is to look for an angel group in your area (go to www.angelcapitalassociation.org). Not all angel groups are created equal, so you will have to learn more about their process and members to determine whether pitching them is right for you.