What is seed funding?: Understanding what seed funding means for a business
Seed funding, seed money or seed capital is all the same thing. Despite the different terminology, all three are a form of investment from an outside investor in return for a stake in a company.
Almost every company gets its initial investment through seed funding, but with more and more startups now cropping up around the globe, it’s become a rather common term to happen across.
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To help clear up some of the uncertainty around what seed funding is compared to angel investment, venture capital or public offerings, here’s what you need to know about seed funding.
Seed funding: Everything you need to know
What is seed funding?
Seed funding is an initial investment in a business in exchange for a stake in the company. Seed funding tends to be done at the start of a business’ life to inject money into the project – it’s money to help germinate the company. Usually, seed funding is there to get a company to its next round of funding or into a position where it can generate its own income.
What is Seed funding used for?
Seed funding can be used for a wide variety of things as, ultimately, it becomes the company’s money to do with as it pleases. Some investors may stipulate what the money goes towards, but others may not.
Usually, money generated from seed funding goes towards market research and product development, alongside other preliminary tasks.
Who can be a seed funder?
Almost anyone with money to give can be a seed funder. For many companies, it tends to be close investors such as family and friends, but outside investors from venture capitalists to angel investors can be seed funders.
Seed funding is, ultimately, simply just a stage of funding rather than a way or method of funding.
Many startups now get their seed funding round through projects like Kickstarter, Indiegogo and other crowdfunding systems.
What do seed funders get?
Seed funders will usually invest in a part of the company, meaning they’ll benefit from improved stock equity if the company goes public or they decide to sell their shares to another investor.
In the case of crowdfunding, many companies offer up early access to a product or service or a set of bonuses for their investment.