Seed Capital

If you have had a great idea for a business but lack the capital to bring your concept to the market, you are going to need to find a way to raise finance to fund your business.

Much like a planted seed is what turns a field of potential into acres of cash-yielding crops, seed capital is the funding that brings a business from the idea stage to its launch.

Many a good business idea has failed before it has even begun, simply because the entrepreneur did not have access to adequate funds to launch.

What Exactly Is Seed Funding?

In the initial stage of development, companies need seed capital - money that is often used to conduct market research, build a product prototype, and pay company expenses - while their business gains momentum.

In short seed capital is the money that is used in the early stage of a business. After an entrepreneur has completed their business plan and carried out much of the groundwork needed to verify that the business model is viable, the next stage is launching that business and bringing a product or service to market. Seed capital is used to fund a new business and help launch that new company.

How to Generate Seed Capital

Many entrepreneurs have found that if they are looking to launch a business, that their options are fairly limited. Banks and traditional financial institutions do not typically lend money to start-ups as they are a risky proposition since many brand new businesses fail.

Some business owners fund their new venture with their own resources and do not rely on outside help. This is often referred to bootstrapping, but for most entrepreneurs this is not a viable option since in many cases, they simply cannot afford the initial capital investment. This can especially be the case when expensive activities such as product development is required. Generally, some of these kinds of activities require a large amount of money to be successful and this is often out of reach for an entrepreneur with limited funds looking to launch a small business.

A modern way for a business to raise seed capital is to use crowdfunding. This doesn't suit all companies, but in some cases, it can be a useful way to raise fairly small amounts of investment into a business.

Grants are also sometimes available for startups looking to launch. These grants are often available to help early-stage companies get off the ground. The problem with grants is that they are often specifically designed to help a certain kind of business, whether that be based on the industry that they target, the type of business owner looking to launch, or the location that the business is either based.

How Private Investors Help Small Business

Private investors, often called business angels or angel investors, commonly provide this first round of funding since securing a loan and gaining capital is hard for new and first-time business owners.

Private investors often consist of individual business angels or groups, but in some cases, seed capital is provided by the entrepreneur’s friends and family (hence the reference to seed capital in some places as the “friends and family round”).

Since the amount is usually small and usually only covers the business’ initial objectives, business angels are more likely to invest seed capital than banks or venture capitalists in exchange for some control in the company’s operations and financial decisions.

In some cases, a startup company may go through a number of seed rounds to raise enough capital to launch. Often this early investment for business development or to launch new products is called Series A Funding.

When it comes to entrepreneurship, investors will not hand over money for just any idea. Investors will do their due diligence, explore in detail an entrepreneur's business plan, and if available, their existing track record before they hand over any seed money.

Once seed capital is in place, and the business begins to grow, business owners tend to have an easier time seeking finance from venture capital firms, where the business investors at that point will usually own shares and have an equity stake in running the company. Often raising money at this point is called Series B Funding.

If a business reaches the Series B Funding stage, then potential investors are looking for a business that displays high growth. They will provide investment based on the valuation of the company and on its future potential. Often, investors at this point will be looking to get on-board before a company approaches the stage of Initial Public Offering (IPO).

How the Angel Investment Network Helps Raise Seed Capital / Seed Funding

Entrepreneurs that are looking to raise seed capital for their business idea can use the Angel Investment Network to pitch their project to seed investors and high-net-worth individuals located all over the globe.

By getting in touch with business angels on the Angel Investment Network, entrepreneurs can seize these initial funding opportunities, such as seed capital, and get their business ideas on the right track.