Much like a planted seed is what turns a field of potential into acres of cash-yielding crops, seed capital is the funding that brings a business from the idea stage to its launch.
In the initial stage of development, companies need seed capital - money that is often used to conduct market research, build a product prototype and pay company expenses - while their business gains momentum. Private investors, often called business angels or angel investors, provide this first round of funding since securing a loan and gaining capital is hard for new and first-time business owners. Private investors often consist of individual business angels or groups, but in some cases, seed capital is provided by the entrepreneur’s friends and family (hence the reference to seed capital in some places as the “friends and family round”).
Since the amount is usually small (generally under £50,000) and usually only covers the business’ initial objectives, business angels are more likely to invest seed capital than banks or venture capitalists in exchange for some control in the company’s operations and financial decisions.
Once seed capital is in place, however, and the business begins to grow, business owners have an easier time seeking venture capital, funding that ranges upward of £100,000, where the business investors at that point will usually own shares and have a stake in running the company.
By getting in touch with business angels on the Angel Investment Network, entrepreneurs can seize these initial funding opportunities, such as seed capital, and get their business ideas on the right track.