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What Is Seed Funding And What Are The Sources For Seed Funding For Startups

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As startups begin to grow beyond an idea stage to a minimum viable product stage, they begin to brainstorm in order to develop a market ready product.  However, all the product development and testing does not happen for free.  A good product development lifecycle will need a lot of resources both financially and physically.  While physical resources can be spared, finances can often drain out quickly thereby jeopardizing the future of a startup.  Therefore startups look for investors who will be willing to invest capital into the startup.  The investment happens during seed funding events where venture capitalists look out for promising ideas and products in which to invest.

Seed money, sometimes known as seed funding or seed capital, is a form of securities offering in which an investor invests capital in a startup company in exchange for an equity stake.  Imagine a startup as a plant which needs to grow but in order for it to grow a seed needs to be planted.  A seed funding also works in a similar way,  by giving a startup enough working capital to get things off the ground.  Undoubtedly, this is one of the most important processes for laying a strong foundation for a successful startup.

There are multiple sources for a startup to infuse seed capital and the list of sources is given below.  Read on to find out more about the various sources of seed capital.

1) Bootstrapping

Bootstrapping is nothing but building a startup from the ground up with only personal savings.  While this brings in added pressure of using one’s own money it comes with its own benefits of not having to worry about returning borrowed money.

2) Incubators

Incubators are a great way to grow as well.  An incubator acts as a source of funding for businesses if they have good business models.  Many well known business schools act as incubators.  The famous startup WeWork also began as an incubator platform for startups and they have branches all over the world now.   A lot of incubation programmes do not take equity from the startup but do offer support beyond just funding.

3) Accelerators

Accelerators work with startups to scale up their business rapidly as opposed to Incubators which nurture early stage innovation.  Accelerators also provide minimal seed funding for startups along with professional services, networking opportunities, mentoring and workspace.  Y Combinator is the most famous accelerator around the world.

ALSO READ: How To Start A Business With Little Capital

4) Business Revenue

Once a startup has a minimum viable product, they can begin sales in order to generate revenue.  This revenue is then invested back into the startup as a capital to develop a fully functional product.  In recent times, this method has gained prominence as it does not involve the complexity of seeking external funding or diluting stake.

5) Corporate seed funding

Large corporations often are looking for a way to invest in a startup which is bringing a new innovation to the market.  This source of funding brings big visibility for the startup brand and is usually an early indication of an acquisition in the future.  Tech giants like Apple, Facebook, Google and Microsoft are constantly on the lookout to spot latest innovations.  

6) Angel investment

An angel investor is an individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity.  These investors often come together to form angel networks where they each invest small amounts into a startup during the early stages when the risk of failure is high.  AngelList, Indian Angel Network and Lead Angels are some of the leading angel investment groups.

7) Philanthropic Investors

This is a perfect source of investments for startups who are looking to address social problems with their products.   Startups could approach international philanthropes, who act as seed investors for startups with social impact.  One of the major advantages with philanthropic investors is they do it for the love of mankind and not for profit and therefore the expectations are fewer than venture capitalists.  

This concludes the list of sources of seed funding.  Looking for seed funding does not have to be a complicated exercise and it can begin by looking into these various sources of initial capital.  

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Why Are Ads On Digital Media Failing To Reach The Right Audience?

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If you are a regular user of social media platforms and also a fan of consuming content on the digital medium, then there is a very high likelihood that you have seen ads on pages you are reading or watching something.  There would be times when you have been targeted by an ad which feels like it was wrongly targeted at you.  Imagine if you are a vegetarian by choice and while browsing online, if you are targeted by a food delivery app which shows ads about chicken dishes.  The ad would only serve to spoil the mood of the online user instead of serving its actual purpose which is to push the user to buy a chicken dish.

These wrongly targeted ads might be the side effects of performance marketing or a weak brand marketing.  Performance marketing means advertising programs where advertisers pay only when a specific action occurs. These actions can include a generated lead, a sale, a click, and more.  Inshort, performance marketing is used to create highly targeted ads for a very specific target audience at a low cost.  Performance marketing usually means high volume for a very specific cost.  

Brand marketers on the other hand believe in narrowly defining target audiences but end up spending a lot of money on ad placements.  Gautam Mehra, CEO, Dentsu Programmatic India & CDO, Dentsu International Asia Pacific said, “You’ve defined a persona, you know the emotions you want to elicit, but then you buy a YouTube masthead and CricInfo sponsorships because IPL is up.  If brand advertisers look at audience-based buys more deeply than just placements, you will see more relevant ads (sic.)”  

ALSO READ: How Digital Marketing Is Impacted Due To The COVID-19 Pandemic

Performance marketing is more of a sales function rather than a marketing function and is about meeting the cost of acquisition.  This is a reason why budgets are usually high for performance marketing.  Mehra goes on to add, “the fact is that an engineer can out-beat FMCGs on performance marketing.  Advertisers who have cracked this are spending 10x and are on an ‘always on’ mode (unlike time-bound brand campaigns.)”

There is always the case of supply and demand, with the supply usually exceeding the demand on digital platforms.  Ultimately, it boils down to the choice between no ad versus low relevance ad and it is quite easy to guess that having a low relevance ad is better.  

Arvind R. P., Director – Marketing and Communications at McDonald’s India (West and South,) said “McDonalds’ for instance, has seen its share of spends on digital grow from 20% levels a couple of years back to over 40% at present.  Outcomes of this journey have been encouraging, proven by our media-mix-modelling and other key metrics.  We have seen best results from an optimal mix of Television plus digital (sic.)”  Moreover, Arvind also believes performance marketing only approach could turn out to be more suited to short term, versus a more consistent full funnel effort.  The latter ensures adequate emphasis on building consideration, as well as growing transactions.  Arvind feels digital is a complex medium which needs investment in the right talent who could use the right tools.  Brands which underestimate the need for the investment are often disappointed from the return on investment from the digital medium.

With the constantly changing consumer dynamics marketers are now shifting to unscripted marketing which frankly needs more insights into the consumer mindset.  The lack of marketers to do the proper research is why digital medium is plagued with irrelevant ads.

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From Unicorn To Bankruptcy; Knotel Bears The Brunt Of COVID-19 Pandemic

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It is no secret that in the fast paced world of startups, fortunes can change at the snap of fingers.  Sometimes startups tend to scale so quickly that they become unicorns and sometimes the fortunes reverse so quickly that a startup can immediately go bankrupt from being a unicorn.  The latter was the case for an American property technology startup Knotel, who are now bankrupt due to the disruptions by the COVID-19 pandemic.  

Knotel is a property technology company quite similar to WeWork.  Knotel designed, built and ran custom headquarters for companies which It manages the spaces with ‘flexible’ terms.  Knotel does a mix of direct leases and revenue sharing deals.  Knotel marketed its offering as ‘headquarters as a service’ or a flexible office space which could be customized for each tenant while also growing or shrinking as needed. For the revenue-share agreements, Knotel solicits clients, builds out offices, and manages properties, and shares the rent paid to it by the client with the landlord.  This model is the majority revenue generator for Knotel.

In March 2020, just before the COVID-19 pandemic unleashed its economic destruction on the world, Knotel was valued at $ 1.6 billion.  What is even more interesting is Knotel raised $ 400 million in Series C funding in August 2019 which led to its unicorn status.  However, with the COVId-19 pandemic and its consequent lockdowns and curfews by various governments across the world, startups and businesses shifted to a remote working model.  This in turn led to startups pulling out of Knotel properties to cut down on working costs.  

ALSO READ: Quibi : Startup With A Billion Dollar Launch To Shutting Down All In Six Months

In late March 2020, according to Forbes, Knotel laid off 30% of its workforce and furloughed another 20%, due to the impact of the coronavirus.  It was at this point that Knotel was valued at $ 1.6 billion.  The company had started the year with about 500 employees.  By the third week of March,Knotel had a headcount of 400.  With the cuts, about 200 employees remained with the other 200 having either lost their jobs or on unpaid leave, according to Forbes. 

In 2021, Knotel filed for bankruptcy and agreed to sell its assets to Newmark, one of their investors for a total of $ 70 million dollars.  As work culture is still undergoing changes as a consequence of the COVID-19 pandemic and with many companies realising that remote work model saves costs and improves work efficiency, the flexible workspace sector would continue to face challenges.  Knotel is just the tip of the iceberg and is a warning call for the flexible working spaces industry.

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5 Reasons Why Telegram Founder Pavel Durov Thinks Whatsapp Is Dangerous

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Whatsapp found itself in the midst of a public relations nightmare over its latest privacy policy update.  Data privacy is currently a widely debated topic worldwide and Whatsapp has found itself in the midst of this debate time and again.  However the latest update seems to have irked a lot of people enough for them to make the shift to Telegram and the much recent app, Signal.  Telegram Messenger was launched in 2013 and although it is not as well known as Whatsapp, it enjoys quite an amount of popularity owing to its data security and encryption.

Pavel Durov, the founder of Telegram Messenger, is no fan of Whatsapp and he believes Whatsapp is dangerous and not safe.  Elucidating more on the topic, Durov made his reasons known in a blogpost he published in late 2020.  Here are the five reasons why Pavel Durov thinks Whatsapp is dangerous.

1) If Jeff Bezos’ phone can be hacked via Whatsapp then nobody is safe.

One of the richest men in the world and the founder of Amazon, Jeff Bezos’ phone was allegedly hacked by Mohammed Bin Salman, the crown prince of Saudi Arabia.  Some of Bezos’s private communications and images were taken during the hack following which Whatsapp’s security was questioned.

2) The United Nations recommends its officials to remove Whatsapp from their devices

The United Nations recommends its officials to not use Whatsapp because it thinks Whatsapp is not a secure mode of communication.  In June 2019, a U.N., spokesman Farhan Haq said, “The senior officials at the U.N. have been instructed not to use WhatsApp, it’s not supported as a secure mechanism (sic.)”  This directive came when independent U.N. experts found a possible involvement of Mohammed Bin Salman, the crown prince of Saudi Arabia, in the alleged cyber attack of Jeff Bexos’ phone in 2018.

3) End to end encryption does not guarantee security.

Durov says “in their marketing, WhatsApp uses the words “end-to-end encryption” as some magic incantation that alone is supposed to automatically make all communications secure. However, this technology is not a silver bullet that can guarantee you absolute privacy by itself (sic.)”

ALSO READ: Users Flock To Signal Messaging App After Whatsapp’s Latest Privacy Policy Update

4) Chat backups on Android and Apple cloud are not encrypted.

Pavel Durov does not believe chat backups in the cloud are safe and says “Users don’t want to lose their chats when they change devices, so they back up the chats in services like iCloud – often without realizing their backups are not encrypted.  The fact that Apple was forced by the FBI to abandon encryption plans for iCloud is telling (sic.)”

5) Backdoors continue to exist in Whatsapp

“There are backdoors.  Enforcement agencies are not too happy with encryption, forcing app developers to secretly plant vulnerabilities in their apps.  I know that because we’ve been approached by some of them – and refused to cooperate.  As a result, Telegram is banned in some countries where WhatsApp has no issues with authorities, most suspiciously in Russia and Iran (sic,)” claims Durov in his blogpost.

As data privacy is becoming more and more important in the current day and age of the internet, we wonder what messaging application is totally safe.  

 

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