Seed Capital

AAA

DEFINITION of 'Seed Capital'

The initial capital used to start a business. Seed capital often comes from the company founders' personal assets or from friends and family. The amount of money is usually relatively small because the business is still in the idea or conceptual stage. Such a venture is generally at a pre-revenue stage and seed capital is needed for research & development, to cover initial operating expenses until a product or service can start generating revenue, and to attract the attention of venture capitalists.

INVESTOPEDIA EXPLAINS 'Seed Capital'

Seed capital is needed to get most businesses off the ground. It is considered a high-risk investment, but one that can reap major rewards if the company becomes a growth enterprise. This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing.

Banks and venture capital investors view seed capital as an "at risk" investment by the promoters of a new venture, which represents a meaningful and tangible commitment on their part to making the business a success. Frequently, capital providers will want to wait until a business is a little more mature before making the larger investments that typify the early stage financing of venture capital funding.

RELATED TERMS
  1. Pledge Fund

    A special type of fund in which members of the fund work toward ...
  2. Diluted Founders

    A slang term often used by venture capitalists to describe the ...
  3. Pre-Money Valuation

    A slang phrased that refers to the value of a company's stock ...
  4. Term Sheet

    A non-binding agreement setting forth the basic terms and conditions ...
  5. Love Money

    Seed money or capital given by family or friends to an entrepreneur ...
  6. Series A Financing

    The first round of financing undergone for a new business venture ...
RELATED FAQS
  1. Where does a hedge fund get its money?

    A hedge fund raises its capital from a variety of sources, including high net worth individuals, corporations and institutions; ... Read Full Answer >>
  2. What risks does a business owner face under a business structure with unlimited liability?

    The risks that a business owner faces under a business structure with unlimited liability are literally unlimited, but they ... Read Full Answer >>
  3. How do I set up a Limited Liability Company (LLC)?

    The specific process and procedures for organizing a limited liability company (LLC) vary from state to state. However, the ... Read Full Answer >>
  4. If I retire in the Philippines, will I be able to work or start a small business?

    Foreign retirees entering the Philippines with plans to become permanent residents may start a business or work once they ... Read Full Answer >>
  5. Who are Berkshire Hathaway's (BRK.A) main competitors?

    Led by renowned investor Warren Buffett, Berkshire Hathaway (BRK.A) is involved with multiple sectors of industry, facing ... Read Full Answer >>
  6. What are some good resources to help entrepreneurs develop a business model?

    There are a number of resources available for entrepreneurs developing business models. Online resources provided by bloggers, ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Cashing In On The Venture Capital Cycle

    Find out how VC firms make the market go round, and round and round.
  2. Bonds & Fixed Income

    The Fundamental Mechanics Of Investing

    Here's a story that demonstrates why stocks and bonds were created and how they are valued.
  3. Professionals

    Top 5 Incentives For Student Startups

    If you can learn to juggle course work and cash flow, you'll be ready for anything.
  4. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  5. Entrepreneurship

    The Small Business Jobs Act: Make It Work For You

    Understanding how to manage business credit is the key to obtaining small business loans.
  6. Markets

    The Story Of Zipdial's Success

    Here is how ZipDial formed and subsequently shot to success in the Asian market.
  7. Economics

    Explaining the Cash Budget

    A cash budget is a plan for the inflows and outflows of cash for a business or an individual.
  8. Entrepreneurship

    Can I Become An Angel Investor?

    Because of SEC rules, you already need significant assets to become an angel investor.
  9. Economics

    Tech Startup Momentum Being Generated In Detroit

    Rising from the ashes in the once proud auto-manufacturing City of Detroit is a rapidly emerging tech startup scene that could prove to be its salvation.
  10. Entrepreneurship

    The 10 Richest Women In Fashion

    The top 10 richest women in fashion have many similarities as well as differences. From nationality to career trajectory, these women have established themselves in their own unique ways.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center