What is Seed Capital?
This post is part of the collection “Samaipata Basics”: a first introduction to the world of venture capital and startups.
In essence, seed capital or seed money is the money utilized to initiate a project, often this money comes from the founders’ personal savings, friends, or family. Seed capital can come from practically anywhere, typically it’s raised from FFF (Friends, Family, and Fools), business angels or VC funds; however this highly depepnds on the stage of the company and the viability of its success.
Much like nearly every other form of investment, the invested capital in the seed stage of a startup is raised in exchange for equity in the venture.
In the vast majority of cases, institutional investors, like VC funds or PE firms, tend to avoid participating in seed rounds as it is the riskiest stage of an enterprise, and therefor has the highest chance of failure.
Following the seed stage of the startup, the company will enter a series A round of funding which typically involves a much larger capital inflow at a much higher valuation. Check out the infographic below explaining the essentials on the different stages of capital in a startup.