What is Seed Capital?

by Investing School on March 14, 2011

The term “seed capital” makes reference to the initial money that is used to get a business up and running. Seed capital can come from a variety of different sources, but often is taken from the individual assets of the people who have founded the company, or from the assets of their family members and/or friends.

Initially, the amount of money needed for seed capital can be somewhat smaller, because in the early stages a business is in more of a conceptual state. These early stages are also usually not creating any revenues, so the seed capital is utilized for covering operating expenditures, research & development, and generating notice from venture capitalists and other investors.

The support of seed capital is a requirement for getting most companies going in the early stages. Seed capital is also seen as a higher-risk investment, but it can certainly bring high financial rewards in the event that the new company develops into a genuine enterprise. Seed capital funding will often be received in exchange for an equity stake in the new company.

Financial institutions and venture capital investors tend to consider seed capital as an “at risk” investment that is made by those who support the development of a new company. Because of this, seed capital represents a serious commitment for the investors when it comes to making the company a successful one. Often, investors prefer to wait a little while before making an investment in a business, because with time comes more stability and more development.

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