Seed capital is the amount of money as an investment by the investors in the business and that investors can be family, friends, lenders, owners, financial investors, etc on personal interest. It acts as a startup capital, equity financing and money collect for future purpose.
Seed capital is like a foundation that is put to build a house. Likewise, seed capital is the cost of starting a new business that covers all the operating expenses such as rent, electricity, land, bills, etc, and other business starting investments such as marketing research, consultants, purchasing, financial advisors, planning, etc.
Every business startup has a budget called business startup budget that they invest in and it fulfills startup basic requirements that belong to every business.
It is necessary to invest money once in business so that basic requirements can be completed and the business can be operational but later on, slowly the major requirements of the business which are natural in any kind of business like advertising, purchase brand name, hire professional advisors, marketing consultant. To this, the business also needs money, so that money is taken from professional investors like banks or other financial institutions( provide money on the rate of interest without an exchange of any equity stakeholders in the business, and venture capitalists, (which invest money in exchange for equity shareholders), it means venture capitalist get a position of the shareholder in the company in exchange for money.
Is Seed Capital like a Startup Capital?
The requirement of seed capital also quite acts as startup capital, startup capital fulfills the basic requirements of a business, and seed capital also fulfills the basic requirements along with promotes business ideas and spread ideas.
Ideas and business planning are also in the mind before starting a business and the business is developed along with those ideas. Seed capital is invested with the same ideas by private investors such as friends or family who provide capital without knowing whether business startup ideas are innovative, creative, and successful or not, they just give money to them at a personal rate of interest. On the other hand, venture capitalists are the one who invests money and gets a shareable profit from business as a shareholder but before investing any single money in new business, but before investing even single money, they get to know the business plans, ideas, structure and invest only when they find the business ideas attractive and feasible.
Types of Investors
Angel investors: These investors are of two types whose amount also varies. After investing, they have equal rights in the company’s investment, decisions, dissolution, and anything related to the company.
Some angel investors are the ones who provide a small amount of money at a high rate of interest.
Some angel investors are the one who invests money to maintain their reputed position in the company as a shareholder.
Bank or other financial institutions: These investors are the public investors who provide sufficient amounts of capital at a rate of interest in exchange for collateral security such as bonds, gold, houses.
Initial Public Offerings: This is different from other investors because, in this, private companies convert into public companies like companies sell their shares of stock to the public to get public ownership.
But this type of investment is not so good for our business because it contains high risk.
Family or friends: These investors provide money to the owner of the company at a personal rate of interest because these investors can be any relative such as friends or family, colleagues, etc.
Venture capitalists: These investors are the company who already run their company but they also invest money in other companies to get a position of equity shareholder.
In simple words, Seed capital is used for developing and showing business creativity with innovative ideas or products which includes all the cost incurred in business and after that, business needs a professional investor like a venture capitalist, banks, or other financial institutions for additional financing to achieve high potential goals and compete with competitors by investing so much according to the market status.
Every business requires a capital structure that contains all the needed capital in the business future for investing such as startup capital, seed capital, equity financing, large capital, etc.