Seed Capital

Seed capital is the earliest stage of formal start-up funding. It often comes from founders themselves, friends and family, angel investors, accelerators, crowdfunding or specialist seed-stage venture capital funds.

At the seed stage, companies usually have an idea, a small team and perhaps an early version of their product, but limited revenue. Seed funding helps them prove their concept and demonstrate enough progress to raise a larger round, typically a Series A.

For example, a start-up developing an app might raise seed funding of 1 million to hire engineers, build the product and gain its first users.

Seed investments are often structured as convertible notes or simple agreements for future equity, which convert into shares at a later funding round, avoiding the need to agree a precise valuation at such an early stage. Equity investments with an agreed valuation are also common.

Seed investing carries very high risk, since most early-stage companies fail. Investors accept this in the hope that a small number of successful investments will produce very large returns.