What is a Seed Money?
Seed money, also known as seed funding, is a form of capital investment raised into a new business to help it to grow and scale up. Seed money is often used to help early-stage companies develop initial products and businesses. Seed money can come from various sources, including:
- Angel investors
- Friends and family members.
- Government programs that provide funding for new businesses.
Understanding seed money
While a bank loan might be an option, many entrepreneurs don’t use this method as the loan will often require collateral, a property you give the bank as a guarantee to pay back the loan, and companies may not have assets in the early stages.
This funding is typically used to cover the costs of:
- Product development
- Market research
- Business plan creation
- Get the new business off the ground.
- Acquire assets, such as land, building, machines, and vehicles.
Seed money can allow the founders to build their businesses without worrying about making a profit immediately. Seed money can also give the founders a chance to test their business model and assess the market potential for their product.
Benefits of seed money:
- Fund the initial stages of new startups
- Reduce the debt liability as the fund is provided in exchange for equity
- Favorable terms than borrowing and venture capitalist investment
- Sometimes, the fund comes with guidance, connections, and knowledge sharing to the entrepreneurs to grow the business.
In conclusion, seed money is an important aspect of business and venture capital. It gives entrepreneurs and small businesses the financial support needed to get off the ground and pursue their goals. While it may be challenging to secure seed money, it is worth the effort as it can help turn a business idea into a reality.