Both of the seed moneys are considered as the very first money that many enterprises raise. Seed funding is used to move a start-up from idea to the first steps, such as product development or market research. The whole financing regime has moved what was once a Series A to a seed now.
Basically a pre-seed is an early round of financing that is designed to help a start-up achieve certain intermediate milestones. Led by many of the same Investors that lead seed rounds, pre-seed financing is often used to bridge the gap to the next round.
There used to be just a Seed Fund at the initial fund raising; however, since the original Seed Fund became larger the start-up community came up with the idea to incorporate a pre-seed funding which stands for the most early stage (seed) which will help to grow the company. Note that the seed fund is intended to be more of a family or friends oriented scheme. Angel investor might be one of the first investors as well.
- To develop a prototype or proof-of-concept
It is usually more and should take a start-up from idea to the first steps, such as product development or market research.
Also known as seed capital and seed money, seed funding is a type of equity-based funding in which an investor invests capital into a business during its early stages in exchange for an equity stake to investors. The business owner receives capital to fund his or her idea, while the investor acquires partial ownership of the business. So, when the business succeeds and becomes profitable, the investor can sell his or her shares for a profit.
How much money is involved in the seed? The investment ranges from $500k to $2m (it may be more or less, depending on the company). The typical valuation for a company looking for an investment could be from $3m to $6m.
- To grow the company and build a product
- To validate the idea
Sources of Seed Funding
Common sources of seed funding include:
- Angel investors,
- Accredited investors
- Equity crowdfunding investors.
With that said, it’s not uncommon for a startup own founders to offer seed funding.