Unlocking Seed Funding: Strategic Options for Startups in Their Early Stages

Explore key funding avenues like angel investors, incubators, and accelerators to raise seed capital and accelerate your startup's growth journey effectively.

At any point in a startup’s lifecycle, it’s only natural to begin thinking about raising capital. After ideation and developing an MVP, it's the second critical milestone that a startup must cross. Particularly when you have your first product gaining that initial traction, it's important to put in a place to secure your next round of funding.

Turns out there’s no better time than now to do that very thing. In November, Indian startups raised about $88.7 million across 17 deals. These deals include 6 growth-stage deals and nearly 15 early-stage deals while 2 startups kept their transaction details undisclosed. Segments like healthcare and e-commerce in particular are seeing the heat this funding season, bagging the most amount of money in this funding season.

Given that many startups in the early stages of their journey are now thinking about what it means to raise their seed round, we thought it would be timely to address all the various avenues of investment available at a startup’s disposal to raise their seed round.

Why raise a seed round?

To double down on your business model, it's important to have the capital in place to execute your vision and support any experimentation whenever it is necessary. It also helps in establishing a strong proof of concept and building growth strategies. Arvind Radhakrishnan, Head of WeWork Labs, has an important point of consideration that every startup should have: “It’s important to know who you are targeting with your solution, how big that market is and how accessible and sustainable those profit pools are.” 

Also read: decoding startup ecosystem with Arvind

India is one of the most competitive startup ecosystems in the world currently only lagging behind China and the United States. All the numbers point to it atleast—Nearly 95 startups are recognised under various government initiatives daily, with nearly a total of 140,803 startups having been recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) in the country, as of June 2024.

The Indian ecosystem has entered a point of maturity where there is hypercompetitiveness present. To stand out, it's important for a startup to be different.

Now that this context is set, lets understand two key avenues available to a startup to raise a seed round.

Also read: DPIIT role in Startups

Angel investment

In the last decade, angel investment has become a critical avenue for many startups to raise capital. The angel investment ecosystem—buoyed by favourable policies by the government—has seen remarkable growth. So much so that despite a broader slowdown in startup funding—where overall investments fell by 72% year-on-year to $7 billion in 2023—angel investments maintained their momentum.

India is also home to a large number of angel networks, over 125 to be exact, with projections indicating this number could exceed 200 by 2030. These networks have been crucial to driving investment activity during a period of slowdown, for instance, Mumbai Angels reported a target to deploy over ₹200 crore across more than 50 companies in the upcoming financial year. Particularly during a time when venture capital firms are tightening their purse strings, angel investments can be seen as an avenue for startups to raise a seed round.

Angel investors are particularly interested in startups that are in industries ripe for disruption like healthcare, e-commerce for instance. But if you are building a solution that needs a more focused approach, then perhaps incubators and accelerators are the ones for you.

Incubators and accelerators

Incubators like Y-Combinator in the United States have helped establish some of the household names we know today. Collectively, startups backed by Y-Combinator have a combined value of $600 billion and include a list of companies like AirBnB, DoorDash, Stripe, Instacart and more.

In India, accelerators like India Accelerator have backed companies like Ethereal Machines, while Surge by Peak XV backed generative video AI startup InVideo.

(Side note: We spoke to Sanket Shah, Co-founder and CEO of InVideo about the company’s explosive success in our latest podcast, Upstart. You can catch it here.)

The added advantage with an incubator or an accelerator is that you can gain access to the right type of mentorship and tools besides access to capital that you need. At WeWork Labs, we’ve been able to help startups that enter our doors through Growth Campus.

In our experience with Growth Campus startups typically have a range of problems that need to be addressed particularly at the early stages of their journey, some of which can’t solely be solved with only capital. Solutions like networking with peers, or access to a suite of tools at an affordable price, are some of the things startups can explore with an incubator or accelerator.

Ultimately, every startup's needs and requirements are different so it's important to tailor your capital requirements to what your startup needs to fulfill its goals, so proceed wisely. Do you have any other ways you can raise seed funding? See you in the next WeWork Labs blog!