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What Is Seed Funding and How Does It Work?

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Seed funding is a type of equity-based funding in which investors invest money in a business in order to get it up and running. In return, the investor acquires partial ownership of the company.

However, don’t confuse seed funding with early stage funding. Early stage funding focuses more on helping an already thriving business while seed funding is just about getting it operational.

The benefit of the business owner is that they receive funds that will ultimately help them grow and fine-tune their business. In return, as the business thrives, the investor can sell his or her shares at a later date for a higher profit. In an ideal world, it’s a win-win.

Start-ups often struggle with getting their business up and running during the earliest days. It can be difficult to get loans through traditional means, so seed funding opens up a door that otherwise wouldn’t exist for these companies.

Of course, the business will have to prove their valuation in order to attract seed funding. Nobody wants to put their money in a business that has a higher potential to fail. The valuation of the company determines the return on investment, or more specifically, how much of the business the investor will acquire once they transfer the money.

Seed funding is a mixed bag. It’s not idea for every business. If you’d like to learn more about your funding options, reach out to LawTrades. The fundraising lawyers are fully vetted, affordable, and easy to connect with. 24/7 support, simple payment options, and free price quotes are all incuded.