Seed Capital

Seed capital, also known as seed money, refers to the capital invested in a start-up company during its first round of financing (i.e., seed stage financing). It can come from the savings of the company founders themselves, borrowings from "angel investors" who are often family, friends, and personal connections of the founders, or investments from venture capitalists interested in early-stage companies.

Seed capital is usually raised in the form of loans or investments in exchange for ownership equity. During the seed stage, the founding entrepreneurs have just been incorporated in the company and are in the process of developing the product or service. They test out an invention or a new idea and are yet to produce for sale.

The management team uses seed capital to support the initial operations and early-stage growth of the company, covering preliminary expenses in market research, product development, business planning, and beta testing.

It may be a very modest amount since the venture is still in or just growing out of its conceptual stage, for example, starting a new business with $10,000 or less is not unusual. It also has a higher risk of failing compared to the investments of later-stage companies.

Seed capital is distinct from venture capital. The latter usually comes in a much larger amount accompanied by more complicated contracts, varying extents of management control by the investors and corporate structure.

Seed Capital