The initial capital used to start a business is seed finance. It often comes from the company founders’ personal assets or borrowings, but there are new entrants and approaches to seed-stage funding that can supplement this.
The “seed stage” is defined as the critical period when the founders of a business need funding to do solution and business-model development to prove that their new product or service works, before trying to sell it to customers.
The amount of money is usually relatively small, because the business is still very much in its nascent stages – certainly pre-profit, usually pre-revenue and pre-proof of concept.
Most investment vehicles are not available at seed stage, so often finance comes from family, friends and business connections. However, there are increasing numbers of organisations that offer seed finance, and many resources available for more information.
Some of the options available at this stage, include:
- In some instances a start-up loan may be available, including those from the British Business Bank's Start up Loans scheme.
- Seed-stage angel finance (not all angels offer this and the UK Business Angels Association can offer more information).
- Equity crowdfunding
- Micro-venture capital firms invest institutional money (ie other people’s money) in projects that are at the seed stage.
- Incubator or accelerator schemes may be available in your area.
- Bank loans or loans via peer-to-peer lenders secured against personal assets can also be used, but this does carry personal risk.
- Some mature companies or corporate ventures offer seed funding to promising start-ups working on innovative technologies that might be good acquisition candidates later.
Finance at every stage
Business financing is not a one-off decision, but an ongoing and evolving situation. No decision can be made in isolation to the businesses journey. Find out more about what options are suitable now and what might work at another stage.
- If you are looking for seed finance, you should always seek professional financial advice. Find out more on how to secure the right financial advice.
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