Seed funding, also known as seed capital, is the initial investment used in a business to give it a kick-start.
Seed funding, also known as seed capital, is the initial investment used in a business to give it a kick-start. This capital usually comes from the founder’s family or friends who lend them cash to start their business. It can also be from the assets of the founder, in case the person has enough of money to invest in their business.
This investment is normally used to cover all the starting operational expenses. It also helps in attracting new venture capitalists for more investments to help the company grow. As a matter of fact, if an angel investor offers seed funding to the company, they also expect to get equity stake of the company in return.
On the other hand, it may be impossible to have a venture capitalist or bank offer seed funding to a company. This is because they find it risky to invest in a company at the initial stage. They would rather wait till the company is much more established and stable before they can invest in it. The reason is simple; there is no guarantee that the company would succeed, and an investor can lose a lot if the company fails.
Seed funding is offered so that the company can work on market research, prototype production, product development, or any such early-stage operations. For an angel investor to offer seed funding, the founder of the company needs to have a proper business plan. Furthermore, the track records, business capabilities, and skills of the owner along with the service or product benefits would help in determining how much seed funding the company gets.
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