America’s Seed Fund National Science Foundation – Possibilities of obtaining foreign seed capital for Polish technology start-ups

What is seed capital?

Seed capital funds handle with financial support for enterprises at an early stage of development or newly created enterprises (start-ups). This is due to the fact that novice entrepreneurs, when starting their adventure with business, have limited resources to implement innovative ideas – one may even be tempted to say that the only capital is their project. The aforementioned funds not only make their resources available, but also offer substantive support, e.g. in the field of introducing the product to the market. In return, investors receive shares in this company, the purpose of which is to commercialize a new product or service.

How to get seed capital effectively?

Obtaining this type of financing is not an easy operation, as evidenced by strong statistics – on average 6 out of 10 entrepreneurs fail, despite the initial enthusiasm of investors and the vision of earning much more money. Putting aside such pessimistic statistics, a person looking for the attention of business people, should first have a solid and substantive business plan that will contain the most accurate descriptions of his vision, along with ideas for development after receiving funding. When this key condition is met, the stage of negotiations with potential investors takes place. They are aimed at defining the structure, financing conditions and its costs. The entirety of this long and complicated project ends with the signing of an investment agreement.

Sources of obtaining capital

There are many ways in which seed capital can be obtained from a potential investor. One of them is the so-called crowdfunding, which through specially adapted platforms, allows novice entrepreneurs to collect the funds they want to support their ideas. With this method, any person can be a donor due to open and unlimited access to these platforms. The most important way on the Polish market, in the field of financing start-ups are venture capital funds, which in return for endowment, buy shares or stocks of a given company. Based on the funds obtained from the creators and investors and via their websites, they present the terms of cooperation and tempt future tycoons by listing numerous benefits.

For Polish start-ups, the venture capital market is by far the most important. The report conducted by PFR Ventures in cooperation with Inovo Venture Partners shows that the value of VC investments in 2020 amounted to 2.1 billion PLN, of which 62% of the share of funds is attributable to public-private capital, and the remaining 38% to private capital. Definitely more transactions were made by Polish funds, as many as 270, with only 48 by international funds. However, this disproportion disappears when we look at the percentage share of these funds according to the transaction value, because in the case of Polish funds it is 52%, and international 48%, which gives a slight difference in the amount of capital allocated to the development of young entrepreneurs.  

The Polish crowdfunding market is definitely weaker compared to VC investments, but we are observing an increasing and dynamic development. The Polish Financial Supervision Authority data shows that in 2020 companies collected nearly 77 million PLN, which is a result 125% higher than in the previous year. However, we still perform poorly comparing to the international context, but the situation is consistently improving year by year.

New paths for Polish start-ups

Young entrepreneurs do not have to rely only on corporate and private investors. There is also another major player – America’s Seed Fund National Science Foundation. It is an American federal agency foundation supporting prospective technology companies. With a budget of $ 8.5 billion, the foundation fosters the development of innovation and helps start-ups grow in order to create and commercialize new and revolutionary solutions. As of 2012, America’s Seed Fund has made nearly 3,400 grants to small businesses or start-ups. Companies that are in the early stages of their development and employing fewer than 500 employees may become beneficiaries of this project. America’s Seed Fund National Science Foundation focuses primarily on revolutionizing industry and services, requiring originators to create new scientific and engineering solutions that will meet unresolved problems and improve the standard of living. In return, the foundation offers up to $ 2 million for research and development, investing in around 400 start-ups annually for a total of $ 200 million. In addition to financial support, America’s Seed Fund National Science Foundation also provides technological and substantive support from qualified engineers and businessmen, who are program directors of this project. What is worth noting, the foundation donating grants, does not acquire shares or intellectual property rights from the company, allowing their owners to retain full ownership. America’s Seed Fund National Science Foundation also does not impose an obligation to return the amounts received, giving it a free hand in matters of managing and disposing of the funds.

One example of this process is the Inpria case. Founded in 2007, the Oregon-based technology company specializes in the production of metal oxide photoresists, which are a key material for the production of smaller components. The obtained support led to the dynamic development of the company and the spread of a revolutionary product, hence attracting external investors. Recently, Inpria was acquired by the Japanese company JSR for 514 million USD. This is just one of hundreds of examples of start-ups that have received such a unique opportunity. Over the past five years, companies like Inpria have raised billions of dollars, and the foundation continues to expand its audience of beneficiaries.

The Polish start-up market should follow this example and try its hand at this level. Recruitment conducted by America’s Seed Fund National Science Foundation is constantly open, all you need to do is submit your project, describe it in detail in terms of technology and market, to get not only funding, but also valuable support from experts.

Sources:

1. Fundusze zalążkowe – na czym polegają?, Poradnik Przedsiębiorcy 19.03.2020, online: https://poradnikprzedsiebiorcy.pl/-fundusze-zalazkowe, access: 25.10.2021
2. Jakub Kocjan, Angelika Pryszlak, Seed Capital, Encyklopedia Zarządzania 19.05.2020, online: https://mfiles.pl/pl/index.php/Seed_capital, access: 25.10.2021
3. Team Inc 42, Seed Funding Sources: How Startups Can Raise Seed Capital, Inc42 26.08.2019, online: https://inc42.com/fundraising-101/seed-funding-sources-how-startups-can-raise-seed-capital/, access: 25.10.2021
4. Kapitał zalążkowy. Jak skutecznie zawalczyć o seed capital?, Wyspa Sukcesu 03.01.2017, online: https://wyspasukcesu.pl/wiedza/biznes-finanse/kapital-zalazkowy-seed-capital, access: 25.10.2021
5. PFR Ventures, Transakcje na polskim rynku VC w 2020 28.01.2021, online: https://pfrventures.pl/aktualnosci/transakcje-na-polskim-rynku-vc-w-2020.html,                 access: 25.10.2021
6. Piotr Rosik, Strefa Inwestorów 08.04.2021, online: https://strefainwestorow.pl/artykuly/debiut-ipo/20210408/oferty-publiczne-crowdfunding-2020, access: 25.10.2021
7. Finansowanie VC – na czym polega i jak je zdobyć?, Start up PFR 07.01.2021, online: https://startup.pfr.pl/pl/aktualnosci/finansowanie-vc-na-czym-polega-i-jak-je-zdobyc/, access: 25.10.2021
8. America’s Seed Fund National Science Foundation, online: https://seedfund.nsf.gov/,   access: 25.10.2021.