Seed funding is an initial investment in a business in exchange for a stake in the company. Seed funding tends to be done at the start of a business’ life to inject money into the project. It’s money to help germinate the company. Usually, seed funding is there to get a company to its next round of funding or into a position where it can generate its own income.
What is Seed funding used for?
Seed funding can be used for a wide variety of things as, ultimately, it becomes the company’s money to use it as it pleases. Some investors may stipulate what the money goes towards, but others may not.
Usually, money generated from seed funding goes towards market research and product development, alongside other preliminary tasks.
7 Seed Stage Funding Sources
- A crowd Funding Campaign
Crowd funding is rapidly becoming the major source of funding for seed-stage startups. According to recent statistics, there are already more than 500 online crowd funding platforms available (i.e. Kickstarter). Crowd funding can work for those of us without a rich uncle.
- A seed-stage “super angel.”
This is a relatively new term loosely applied to angels who invest their own money in a portfolio of startups (typically 20 or more) and are willing to lead multiple rounds, usually starting with a seed round. Ron Conway of SV Angels and Reid Hoffman, LinkedIn’s founder, are names often mentioned in this category.
- A micro venture capital firm
Micro-VCs, by definition, are firms that invest institutional money (meaning other people’s money) in projects that are at the seed stage or are too small to attract the attention of more traditional venture capitalists. Currently, there are about 250 micro-VC firms, including notable names like Mike Maples of FloodGate Fund.
- A “genesis” venture capital round
A new VC seed market has been emerging, especially over the past five years: It usually appears in the form of a prototypical seed round of $1 million to $1.5 million and is normally syndicated from one to three institutional seed investors or larger VC funds. These funders often offer convertible notes, rather than the traditional priced equity.
- Business accelerator funding
Business accelerators like YCombinator and TechStars are sometimes able to help startups looking for seed-stage funding. Most accelerators provide small seed investment in the range of $25,000, as well as mentoring, workspace and professional services, in exchange for an equity stake in the company.
- Startup incubator seed funding
While an accelerator offers a specific program to startups for a fixed period of time, usually 90 days to four months, incubators tend to be more open-ended. Yet, they often provide small seed investments similar to those of accelerators. Many municipalities offer these to facilitate local business development.
- Corporate seed funds for startups