Seed money / Seed capital

The purpose of the seed investment is to provide the startup with the capital it needs to operate until the company generates revenue. The investor receives an ownership stake during the transaction.

Seed capital provides financing for startup businesses. The purpose of the investment is for the company to be able to map its markets and to validate its ideas and product initiatives (MVP) in real conditions. As a result of these steps, startups can compile a viable business plan and business strategy. In the seeding phase, the goal is not to increase the number of people working in the company, but to prove the marketability of the product or service.

The primary difference between venture capital and seed capital is the size and source of the amounts. Venture capital typically comes from institutional investors and represents a larger amount. Seed capital often comes from private investors, such as from angel investors. However, the involvement of other alternative resource is also conceivable. This can be, for example, crowdfunding. It is also common for the first capital injection of a startup to be the result of a seed capital, seed money.

Many of the angel investors are people who have already gone through one or more successful exits or have achieved success in entrepreneurial life in other ways. Thus, the angel investor does not only provide financial resources in the seed investment, but can also act as a professional mentor.

Typical areas for building relationships with business angels are startup themed conferences, lectures, meetups, professional events and online professional communities on social media. Well-known business angels receive a lot of investment requests, but they reject the majority of requests based on their own intuition and experience.

Another typical field for seed capital investments is incubator and acceleration programme. These are typically associated with professional workshops, co-working offices or large enterprises. In these places, there is a joint group of capital investors, angel investors and experts. Thus, these programs are also useful in terms of building relationships and professional assistance.