What is seed funding and how does it work?
Seed funding is an investment made by an individual to a business, aiding this business to grow further. It is an early investment made in a business to generate capital. Seed funding is also called ‘seed money’ or ‘seed capital’.
What are the types of seed funding?
Understanding the different types of seed funding helps to determine what kind of seed funding a business needs.
Crowdfunding has become one of the reputed types of seed funding. The idea or concept behind a crowdfunding platform is well-received among many people worldwide. There are more than five hundred crowdfunding platforms 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, started with seed funding. A corporate seed fund is a big source for startups. These corporate funds are mixed funds from several big companies. They are a way to invest in newer and smaller companies to eventually make a profit.
A fund that has undergone incubation is one that has made its initial private offering. Employees connected to the fund and their families are frequently investors in this type of fund. Incubated funds are frequently used by hedge funds to test out novel offers and tactics.
Developing and supporting business growth is the objective of acceleratory programs. Accelerators’ professional and mentor services enhance the startups’ growth.
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 with 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 as loans by banks or any other financial party is considered to be debt funding. This category is also applicable if you have borrowed money from friends and relatives. You may also get loans from venture capitalists instead of equity investments.
8. Convertible Securities
Depending upon the progress or growth of the company, convertible securities are applicable when loans provided as seed rounds change into equity. Changing loans to shares is a well-known tactic and usually occurs when the revenue target is achieved.
9. Angel Funds or Angel Networks
When investors are pooled together to invest money in the early stages of a company, such a formation is known as an Angel Network. For example, Angel Network, and Lead Angels are angel network investment companies.
10. VC Funding
Venture capital (VC) usually is private equity and financing provided by investors to start-up enterprises and small businesses with the potential for long-term growth. The majority of venture capital is often provided by wealthy individuals, investment banks, and other financial organizations. The fund providers take equity or stake in the fund they provide.
A seed-stage company
Early-stage, pre-revenue firms are known as seed or start-up companies. They’re probably trying to raise money to create a notion, idea, or product. Because seed companies have a considerably larger possibility of failing, investing in them can be dangerous.
How long should seed funding last?
Usually, seed funding lasts for 6-18 months. After that period of time, a startup company usually creates an alternative arrangement to attract capital. Ideally, a founder does not prolong this time for the seed funding phase once he gets sufficient capital.
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 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 and life partner. Think of us like a late founder — championing the vision, sparring ideas, celebrating the wins, and 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.