Glossary - Seed Money
Seed money, often known as seed funding or seed capital, is the initial investment used to start a business or a new venture. This form of financing supports the early-stage development of a company, allowing it to progress from concept to product development and market research. Seed money is typically provided in exchange for equity in the company or convertible debt.
Also known as
- Seed funding
- Startup seed funding
- Seed capital
Use cases examples
- Term Sheet: The term sheet outlines the conditions under which the investor agrees to provide seed money to the startup, including the amount of investment, equity stake, valuation, and governance terms.
- Shareholders' Agreement: The shareholders' agreement specifies the rights and obligations of the founders and the seed investors, including provisions related to future funding rounds, exit strategies, and decision-making processes.
Considerations for investors
- Due diligence: Investors should thoroughly assess the business idea, the team's capabilities, and the market potential before investing.
- Exit strategy: Consider the startup's potential for growth and exit strategies, including acquisition or IPO, to understand the return on investment.
- Founders' commitment: Assess the commitment and passion of the founders for their venture, as it is a critical factor in the success of early-stage startups.
Considerations for founders
- Dilution of ownership: Founders should consider how much of their company they are willing to give up in exchange for seed money.
- Investor fit: It is crucial to choose investors who not only provide capital but also bring value through expertise, network, and mentorship.
- Term flexibility: Consider the terms attached to the seed funding, including valuation, and ensure they are favorable and flexible enough for future fundraising rounds.
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