Seed funding and venture capital are two types of early-stage funding for startups.Both types of funding can be beneficial to startups, they differ in terms of the amount of investment, timing, and stage of the startup’s growth. Seed Funding or seed capital usually comes from the personal assets of the company’s founder. As the business is in the conceptual stage in the starting, the amount of money is relatively small. Seed Funding is required for carrying out research and development and to cover initial operational expenses. It is also used to attract venture capitalists.
Venture Capital, on the other side is the money provided by investors to startup firms and small businesses with apprehended long-term growth potential. Investment banks, wealthy investors and financial institutions are the main sources of Venture Capital.
Stages involved in the process of venture capital financing
- Seed stage: Seed Funding takes place in this step
- Start-up stage: Involves presentation of business plan by the attendant of the venture to the VC firm
- Second stage: Here, the idea transforms into product and begins to sell
- Third stage: Here, the expansion of market share takes place
- Pre-public stage: As the venture achieves market share, some good prospects begin to come.
Difference Between Seed Funding and Venture Capital
Seed Capital is the cash that a business needs in order to get started. This cash usually comes from family members and friends of the investor. Venture Capital o the other hand, is the fund required to start a bigger business. Thus, the area of focus is usually the group of individuals interested in building real bigger firms. Venture Capital comes in the form of cash in exchange for the shares in the company.
Venture Capital is mostly preferred by the individuals who are looking to start technological companies. On the other hand, seed capital is mainly for individuals who are starting up. The difference also comes in the value and amount of cash released. Seed Capital doesn’t involve large chunk of money while venture capital involves very handsome amount that can further help in the growth of a big company.
Risk involved in the seed funding and venture capital is also a point of difference between the two. As seed funding takes place during the initial stage of a startup, higher amount of risk is involved on the part of investors. In the venture capital, the risk is low as the entrepreneur has already made the profit out of sales.
FAQs on Venture and Seed Funding
Q1: Who is known as Venture Capitalist?
Ans: Venture Capitalists are basically the investment professionals and general partners of the venture capital firm.
Q2: What is the difference between Angel Investing and Venture Capital?
Ans: Angel Investing is a kind of informal network of investors who have their own interests associated with the company in which they invest. On the other side, Venture capital firms are more of professional investors dedicated to investing and building innovative companies on the part of third party investors.
Q3: How a Venture Capitalist is advantageous for the start-ups ?
Ans: A venture capitalist can prove to be very advantageous for the start-ups as he/she brings with him/her a noticeable experience and contacts for the start-ups. The capitalist not only provides funds without the regular repayment liability to a start-up with his/her expertise but also provides some other less tangible advantages such as coaching and handholding.