Seed Capital


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.

BREAKING DOWN '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.

  1. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  2. Series A Financing

    The first round of financing undergone for a new business venture ...
  3. Love Money

    Seed money or capital given by family or friends to an entrepreneur ...
  4. Term Sheet

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

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

    An investor who provides financial backing for small startups ...
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