The first recognized step of equity fundraising is seed capital. It is usually the first formal money raised by a commercial endeavor or firm. Some businesses never progress beyond seed investment to Series A or beyond. The “seed” investment may be compared to the process of planting a tree. This initial financial assistance is ideally the “seed” that will enable the company to flourish. In a seed fundraising situation, there are many prospective investors: entrepreneurs, friends, family, incubators, venture capital firms, and more. A so-called “angel investor” is one of the most prevalent sorts of investors that participate in startup investment.
Seed fund refers to the initial capital needed to start a startup/business. This is a high risk investment and the investors get an equity in the business.
Seed Fund usually comes from the founders of the company personal property or from friends and family. But now like angel investors there are people who do seed funding. Some countries like India, in order to promote entrepreneurship, even government provides seed funds.
In Other words,
Most startup founders do not have enough capital to launch their companies and need to raise money at some point. The first milestone in a new startup’s financing is called ‘Seed Capital’ or ‘Seed Investing’, which refers to the initial investment raised by the founders from their family and friends, who mostly use their personal assets. It is used to cover initial expenses until the company is able to attract the attention of venture capitalists.
Seed funding is the initial money given to a startup to help it build its product, test the market, hire early team members, and grow in the beginning stage.
Who Gives Seed Funding?
- Angel investors
- Early-stage venture capital firms
- Startup incubators & accelerators
- Friends and family
- Micro VCs
Where Is Seed Funding Used?**
Startups typically use seed funding for:
- Product development (MVP)
- Market research
- Hiring initial team members
- Marketing & branding
- Setting up operations
Why Is It Called “Seed”?**
Because the money acts like a seed planted in the ground—it helps the business sprout and grow.