Self-funding vs seed funding: which is better for your startup?
- 06 September 2018
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Entrepreneurship can harness the resources that Muslim youth and its creative pool of talents and ideas can offer, directing them towards a thriving small and medium-sized enterprise sector that makes for thriving local economies.
However, Funding can be one of the toughest challenges facing entrepreneurs, especially those who are young and less experienced. Many funding options are currently available for entrepreneurs to choose from, including startup incubators, seed funding, venture capital companies and, of course, self-funding.
But what is the best way to go about securing that all-important round of funding? We spoke with an entrepreneur who chose the self-funding route and another who went through the seed funding stage. We asked them to weigh the pros and cons of the choices they faced during their journey. Looking back, would they do things differently?
Ali AlNusif comes from a financial background; he worked for the Capital Markets Authority in Kuwait and quit that job to launch Manshoor in November 2016. Manshoor is an online platform that publishes quality Arabic content on issues that matter to the new Arab generation, covering topics related to science, the arts, and philosophy.
Together with co-founder Jassim AlQames, Ali has been exclusively self-funding his project for almost two years now, but it will soon be funded by the Kuwaiti National Fund for SMEs. For Ali, the most important advantage of self-funding a startup is “maintaining ownership and control of the company and its direction”.
“As a digital media startup, these things are critical to us,” he explained. Another advantage, he said, is the “flexibility to experiment and do things differently and efficiently so that we do it right when we scale.”
Self-funding isn’t without its downsides though. Ali cites two big ones: limited funds, which sometimes hinder progress, and the lack of strategic partners that they could learn from.
However, overall, Ali is satisfied. If he were to choose again, he wouldn’t do things any differently, “because that would mean funding at a low valuation to prove a concept, then funding again when it’s proven.”
That concept may, however, be specific to his niche, as he went on to explain. “Media is a long-haul game; you either start with huge capital and reap rewards years down the round or start small and do some funding when the time is right. We went with the latter option.”
THE SEED-FUNDING ROUTE
Cura, a smartphone app launched by Wael Kabli and Mohammad Zekrallah in 2015, offers electronic medical consultations by verified specialist doctors to Saudi patients. Wael and his co-founder opted for a seed fund as soon as they got a minimum viable product and initial traction.
“Looking back, I would give less equity for seed, and I would also raise less money,” he said. More money usually means that the investor will expect more control as well as tougher terms to guarantee their investment.
Wael advises against involving a financial company for acquiring financial services: “If you need financial help, get a freelancer.” However, based on his experience, startups can benefit from getting an accountant as early on as possible, for “not having finances sorted out will delay your investment”.
(writing by Ahmed Gabr; Editing by Seban Scaria firstname.lastname@example.org)