What is seed funding?

seed funding

Seed funding is also known as seed money and seed capital. It is a kind of equity-based funding where an entrepreneur or businessman persuades investors to invest money in a business in its initial days in exchange for an equity stake.

An investor gets partial ownership of the business based on the basis of capital invested by him, and on the other hand, a business owner gets initial capital to support his idea and take it off the ground. An investor can sell his share or portion in exchange for money after the company becomes successful.

What is the purpose of seed funding?

A majority of the startups cannot breathe without startup funding. Most of the time, it is difficult for founders and their family/friends to finance a startup to the level when it becomes profitable.

It is known that high-growth companies require to burn initial capital to withstand their growth before it starts making a profit. A few exceptional companies can secure funds for themselves easily.

Cash not only helps companies to live and grow, but it is also essential for small tasks such as public relations, sales, hiring key staff and marketing, etc., for the competitive advantage. Thus, all startups are required to secure money.

The good news for such startups is that there are various investors who want to invest money in potential startups. The process of convincing investors to invest in your business is often ego-deflating, arduous, and complex.  

Moreover, it is a path that every company must walk.

Why is Seed Funding important?

Seed funding proves to be very useful for start-ups. Below mentioned are the advantages of seed funding.

  • It acts as a source of working capital
  • It reduces the risk to the founder in a new venture.
  • It expands a business relationship by bringing strategic partners
  • It covers for the fund's insufficiency
  • It provides a means to scale up, and it accelerate growth

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