What is Seed Venture Capital?

Seed venture capital is money invested in a company by private investors at the earliest stages of the company's inception. Such capital is used by start-up companies as a way to fund market research, develop products, or perform some other function crucial to get the business up and running. The investors who provide the seed venture capital can benefit in the future if the company in which they invested grows and becomes successful. These investments are particularly risky but generally require far less capital than investments in companies that are more established.

Private business investment is something that is usually reserved for investors with a great deal of capital who can purchase equity in mid-market companies looking to move up in the business world. There are companies that may be in the opening stages of existence that need the kind of capital that even investors with moderate capital can provide. These companies just need money to get off the ground, and seed venture capital can allow them to do just that.

Whereas other venture capital investments usually take place through investment firms that require a significant minimum contribution from investors, seed venture capital is often done on an individual level. For example, those starting up a company might reach out to family, friends, or other acquaintances in an effort to raise funds. Investors in such cases will have a personal stake in the success of the company as well as their obvious financial concerns.

Since some companies requiring seed venture capital may not have even opened their business to the public, any investment in these companies generally requires a leap of faith from investors. The money they provide might help fund a necessary business expense that the company might not be able to otherwise afford. Still, there is no track record or earnings report for investors to study in such cases, so there is no guarantee that any of their investment capital will ever be returned to them.

The upside to seed venture capital investment for investors is that it generally requires a smaller amount than other types of venture capital or private equity arrangements. For their help with funding, the investors generally get some share of ownership in the nascent business, which is usually determined by the amount of capital they provide. This ownership share can be extremely valuable down the road if the start-up company manages to survive its early stages and becomes established in the industry in which it competes.