What is seed funding and how does it work?

Seed funding is an investment made by an individual for a business to grow. It is an early investment made to a business to generate its capital. Seed funding is also called seed money or seed capital.

What are the types of seed funding?

Understanding different types of seed funding help your business to grow.

1. Crowdfunding

It has become one of the reputed avenues among the seed funding types. The idea or concept behind the crowdfunding platform is well received and topnotch among many people across the world. There are more than five hundred crowdfunding platforms are active at present. For example, Oculus Rift, Pebble wearables, and Exploride crowdfunding campaigns are world-famous.

Related article: Venture Capital Vs Crowdfunding

2. Corporate seed funds

Many giants in the technology sector, such as Apple, Google, and Intel Back companies started with the seed fund. A corporate seed fund is a big source for these company’s startups. These companies, including other big companies, use the fund as a great source for their profit.

3. Incubators

Management training, office spacing, and a small seed investment are provided by incubators. In common, incubation programs never worry about equity and do not take it from the startup. However, these programs help and support companies beyond the level.

4. Accelerators

Developing and supporting business growth is the objective of acceleratory programs. The startups’ growth is enhanced by accelerators’ professional services and mentor services. However, a startup’s early-stage innovation is not supported by accelerators. Due to private-funded features, accelerators take the equity. The best accelerators are Y Combinator and Techstars.

5. Angel investors

Angel investors help businesses with capital funds whenever the startups have issues in growth in the early stages. Instead of ownership equity, the program offers capital.

6. Personal Savings

In this type, the founders of the companies use their wealth and savings as the source for seed funding. In this case, the founders have no influence or pressure for the money they have borrowed to be returned.

Related article: Venture Capital Vs Bootstrapping

7. Debt Funding

Usually, money provided by banks or any other financial as loans is considered to be debt funding. You shall also come under this category if you have borrowed money from friends and relatives. You may also get loans from venture capitalists in the place of equity investments under this type.

8. Convertible Securities

Depending upon the progress or growth of the company, the loans provided as seed round changed to equity form. Also, the change occurs from loan to shares. This change usually occurs when the revenue target is achieved.

9. Angel Funds or Angel Networks

Many a time, many investors are pooled together to invest money in the early stage of the financing round. The formation of investors is known as Angle networks. For example, Angel Network, Lead Angels are Angle network investors.

10. VC Funding

Based on the following parameters, venture capitalists provide funds.

  • Market potential
  • the vision of the company founder
  • Idea
  • growth potential

The fund providers take equity or stake for the fund they provide.

A seed-stage company

Founders and investors have a major difference in a company. Yes, founders have to seek value in their business so they shall seek investors to invest money. However, investors would see the potential in the idea of the business before investing. A founder should know his company’s worth before he pitches for investors to finance his company, which is a prime task or a seed-stage founder.

How long should seed funding last?

Usually, seed funding lasts for six to eighteen months. From here, the company shall move further in the market or make some alternative arrangements for the fund. Seed funding is the prime official money raised by the founder. Ideally, a founder does not prolong the time for the seed funding process once he gets sufficient capital in his hand. In case, the founder had an exit in the past, the seed funding period may last for four weeks too. However, the fresh founder may take at least six weeks.

How Peak differs from other VCs

Peak is an early-stage VC with entrepreneur blood in our veins. We like to get our hands dirty daring Europe’s extraordinary startups to realise their visions quicker.

Peak is based in Amsterdam, Berlin and Stockholm. We are active across Europe —partnering with ambitious early-stage startups who are usually into Marketplaces, SaaS, or platforms. We’re here to find the ways to bring their unique visions to life with more strength and speed.

We’re here to fiercely back the exceptional companies we believe will change millions of lives for the better.
When we do back, we back fiercely. We don’t just hand over capital, we become your journey/life partner. Think of us like a late-founder — championing the vision,  sparring ideas, celebrating the wins, working through the losses.

We back them to make positive change for people: from finding workplace zen, to making finances more personal; from studying efficiently, to creating effortlessly.

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