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. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  2. Angel Investor

    An investor who provides financial backing for small startups ...
  3. Term Sheet

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

    Seed money or capital given by family or friends to an entrepreneur ...
  5. Pre-Money Valuation

    A slang phrased that refers to the value of a company's stock ...
  6. Series A Financing

    The first round of financing undergone for a new business venture ...
RELATED FAQS
  1. What type of companies use downround financing?

    Down round financing involves selling stock to new investors at a lower price than the investors paid. Shares for the company ... Read Full Answer >>
  2. 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 >>
  3. How do you find the break-even point using a payback period?

    It does not make sense to find the breakeven point using a company's payback period. A company's payback period is concerned ... Read Full Answer >>
  4. What does residual value represent in a private equity investment?

    It is common to see a private equity investment's net asset value, or NAV, referred to as its residual value, since it represents ... Read Full Answer >>
  5. What is considered a reasonable interest rate for a syndicated loan?

    A 2010 survey of syndicated loans found an average interest rate of 7.9%. However, the majority of syndicated loans are floating ... Read Full Answer >>
  6. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... 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. Entrepreneurship

    How a Higher Minimum Wage Would Impact the Economy

    Doubling pay for hourly workers could have several knock-on effects to the economy. Here's a brief look at a big issue.
  7. Entrepreneurship

    How Peter Thiel Became a Superstar

    A review of the career of legendary Silicon Valley entrepreneur and investor Peter Thiel.
  8. Professionals

    Advisors: Get Those Referrals! (Here's How)

    If you're not talking to your clients about referring you to friends, you should be.
  9. Entrepreneurship

    10 Richest, Most Successful Tech Geniuses

    Unlike many industries, tech billionaires are mostly self-made. Many of these billionaires came from humble means and, through their own genius, changed the world.
  10. Entrepreneurship

    The 10 Richest Women In Finance

    Who are the top 10 women in the financial industry?

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  3. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  4. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  6. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!