Over the last few years, African startups have raised billions in funding for ambitious projects — from homegrown Paystack to continental e-commerce giant, Jumia. This capital often begins with seed funding — a critical step that helps many companies grow and scale. But what exactly is seed funding and where can you get it?
Seed funding refers to the initial investment made in a startup to help it get off the ground. It typically comes from angel investors, venture capitalists, or early-stage investment firms. These investors provide capital in exchange for equity or company shares.
In this article, we will explore the ins and outs of seed funding, its importance for startups, and ideas for successfully obtaining it. Let’s dive in!
How does seed funding work?
Seed funding (or seed capital) is the earliest stage of startup financing. It is the lifeblood of early-stage startups, providing founders with the financial support needed to validate their ideas and build a strong foundation for future growth.
For example, Mono (an Ingressive Capital portfolio company based in Nigeria) utilised seed funding to develop and refine its financial data API, allowing it to quickly gain traction in the fintech market.
Why is seed funding important for startups?
What’s the point of all that cash anyway?
Seed funding provides the financial runway to:
- Validate business idea: In Ghana, startups in the e-commerce space have used seed funding to test market assumptions and gather feedback to refine their business models.
- Develop your product: Nigerian startups, particularly those in fintech, use seed funding to build their minimum viable product (MVP) and iterate based on user feedback.
- Build teams: Egyptian health-tech companies rely on seed capital to hire key talent, which helps them develop innovative solutions and scale operations.
- Conduct market research: Moroccan startups in agritech often use seed funding to understand market needs and preferences better, which informs product development and go-to-market strategies.
- Acquire customers: Implement marketing and sales strategies to attract your first users.
- Demonstrate traction: Show potential investors that your startup has the potential for high growth and a return on investment.
Seed funding also brings more than just capital. Investors often act as mentors, providing valuable guidance and industry connections. For example, Ingressive Capital not only invests in companies like SeamlessHR but also provides strategic support that significantly increases their chances of success.
Which type of seed funding is right for you?
So, where exactly can you get this funding, and which is the best for your startup?
Seed funding can come from various sources, including:
- Angel investors: In Kenya, angel investors often invest in startups that align with local market opportunities, providing both capital and mentorship.
- Venture capital firms: Firms like Ingressive Capital invest larger amounts in exchange for equity, offering additional resources and support. Ingressive Capital has backed companies such as Trove in Nigeria, helping them scale in competitive markets.
- Accelerator programs: In Egypt, startups like Breadfast have leveraged accelerator programs to gain early funding, mentorship, and valuable networking opportunities.
- Crowdfunding: This involves raising funds from many individuals who believe in your vision.
When should you raise seed?
Founders generally seek seed funding after developing an MVP and gaining some market traction. However, timing varies depending on your startup’s specific context. We advise founders to ensure they have a well-thought-out business plan and a compelling story to attract potential investors.
How much seed funding should you aim to raise?
The amount of seed funding depends on your startup’s financial needs and growth plans. In Nigeria’s competitive fintech sector, startups often aim to raise enough to cover 12–18 months of operational expenses, including product development, marketing, and initial hiring.
For example, Mono raised seed funding with a clear roadmap outlining milestones such as expanding product features and acquiring a targeted number of customers.
What are the requirements for getting seed funding?
What do you need to get that cool cash from investors?
To secure seed funding, startups must present:
- A strong value proposition. For example, Paystack demonstrated a clear solution to Africa’s fragmented payments landscape, which was crucial in attracting seed funding.
- A capable founding team. Investors, including Ingressive Capital, look for passionate and skilled founding teams with the ability to execute their business plans effectively
- A compelling market opportunity. Demonstrate that there is a sizable market for your product or service and the growth potential.
- A solid business plan. Outline your strategy, market analysis, financial projections, and how the funding will be used.
- A clear understanding of your competitive landscape. Investors will want to know how your product or service stands out from competitors and what your unique selling points are.
These requirements, among others, play a crucial role in convincing investors that your startup is worth their investment.
How to raise seed funding in Nigeria
How can you get investors in Nigeria?
Raising seed funding in Nigeria involves the following steps:
- Joining local startup communities. Engage with the vibrant Nigerian startup ecosystem, where Ingressive Capital and other investors often scout for promising companies.
- Attend startup events. Participate in events such as pitch competitions and demo days to showcase your business. Paystack, for example, gained early visibility at such events, which helped them attract investors.
- Explore government support. In Kenya, government grants and loans have been instrumental in supporting startups in sectors like agritech.
- Connect with angel investors. Angel investors are individuals who invest their own money in early-stage startups. Identify angel investors who align with your industry and vision and build a relationship with them.
- Consider venture capital firms. Venture capital firms like Ingressive Capital invest in high-growth potential startups. Research VC firms that invest in your sector and stage and prepare a strong pitch to showcase your potential.
- Leverage online platforms. Use online crowdfunding platforms to tap into a diverse pool of potential investors.
- Collaborate with incubators and accelerators. Partnering with established programs can provide valuable resources, mentorship, and investor connections.
These tactics, coupled with an exceptional pitch and a compelling business case, can help you raise the seed funding you need to thrive.
Can you get seed funding with just an idea?
Securing seed funding with just an idea is challenging but not impossible. Ingressive Capital has a keen interest in startups with innovative concepts that address pressing market needs. Startups in Egypt, for example, have attracted seed funding by effectively conveying their idea’s potential value, even before building a full product.
How long does it take to get seed funding?
The timeline for securing seed funding can vary significantly depending on numerous factors — including the complexity of your startup, the fundraising process, and market conditions.
While some startups may secure seed funding within a few months, others may take several months or even longer. It is essential to dedicate time to research potential investors, pitch your ideas, and negotiate terms with these backers. Patience and perseverance are key throughout the fundraising journey.
It’s also crucial to have a clear and compelling business plan that outlines your startup’s unique value proposition, target market, revenue model, and growth strategy. Investors will want to see a well-thought-out plan that demonstrates your understanding of the market and your ability to execute your vision.
How long does seed funding last?
The duration of seed funding varies depending on the specific terms negotiated with investors. Typically, seed funding lasts between 6 to 18 months. However, startups like Trove in Nigeria have successfully extended their seed funding period by achieving key milestones, demonstrating progress, and attracting follow-on investments.
However, it is crucial to focus on product development, growth, and achieving key performance indicators (KPIs) during the seed funding period. By demonstrating progress and successful execution, you increase your chances of securing further funding for your startup’s future growth.
It’s also important to note that the length of seed funding can also be influenced by external factors such as market conditions, industry trends, and the overall economic climate.
For instance, in a rapidly evolving industry where innovation is key (like agritech), startups may require a longer seed funding runway to develop cutting-edge technologies and stay ahead of the competition.
The duration of seed funding can also be extended through follow-on investments from existing investors or by attracting new investors to participate in subsequent funding rounds.
This additional funding can provide the necessary financial support for your startup to scale operations, expand into new markets, or enhance its product offerings to meet evolving customer needs and preferences.
Does Ingressive Capital offer seed funding to startups?
Yes, Ingressive Capital offers seed funding to African startups. As a $50 million fund II venture capital firm, it has backed major players in key sectors like fintech and edtech, providing pre-seed and seed funding of up to $500,000 for 10% equity in tech-enabled startups. Ingressive Capital not only provides financial support but also strategic guidance and networking opportunities to help startups grow and succeed.
We specialise in providing pre-seed and seed funding to early-stage companies looking to make a mark in their respective industries — writing cheques of up to $500,000 for 10% equity in tech and tech-enabled startups.
However, our approach goes beyond just financial support — we also offer strategic guidance and networking opportunities to help startups in our portfolio grow and succeed.
Conclusion
Seed funding is a vital step in turning your startup dreams into reality. It provides the necessary resources and support to transform an idea into a thriving business. By understanding the dynamics of seed funding, preparing your startup diligently, and leveraging the right strategies for success, you can increase your chances of securing the funding your startup needs to flourish.
At Ingressive Capital, we’re committed to supporting African startups on their journey to success. Apply to join our portfolio today and take the next step in your startup’s growth.
