The majority of startups need external funding to get their idea up and running. The seed funding round is the first official stage of gaining capital. It happens before the startup is making revenue. Just like seeds are the first stage in growing a plant, the seed round is a small sum that is the first stage in growing a business. Potential investors at this stage include the founder and their close family and friends. External sources like accelerators, angel investors, and venture capital companies among others might also be investing at this phase. Grants are also an option to raise seed round funding.
Pre-seed VS. Seed Funding
You may have heard the term “pre-seed” thrown around when researching funding rounds. Both pre-seed and seed rounds happen before the business is making revenue, but what’s the difference between the two?
The pre-seed round isn’t a formal round like the seed round (and subsequent A, B, and C rounds of funding). This informal stage may include investment from the founder and their family and friends, but investors at this stage are likely not receiving equity like they might in a seed round. You won’t find sources like angel investors involved this early.
Why is Seed Funding Important?
Seed funding gives founders the extra boost they need to get off the ground. Most importantly, the risk in the venture as a founder is reduced with each funding round. The seed round can be used as working capital or a cash reserve. It can also be used to cover costs of anything from market research, beginning development, or setting up initial marketing. It allows for easier and faster growth, as well as padding for emergencies. The opportunity to attract strategic partners and allies is on the table with seed funding too.
