Bure Valley Group is an investment brokerage business which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Similar to other types of equity funding, seed investment operates on an ownership model; i.e. the investor offers money to a company in exchange for a stake in the business. The investment amounts at the seed stage range widely, but a good estimate is between $10,000–$2,000,000 (placing it on the lower side of equity capital).
Seed funding is a crucial part of a startup’s journey towards maturity and can be a powerful way for investors to generate strong returns. In this article, our investment team here at Bure Valley Group shares how this type of funding works and how investors can develop their portfolios by accessing promising investment opportunities. To find out more about our own EIS and other investment opportunities, visit our portfolio page here. To enquire about our latest projects and funding, you can reach us via:
+44 160 334 0827
Seed funding: an overview
This type of investment is sometimes also called seed capital or seed money. The main purpose of seed funding is to help get a startup business off the ground, using capital to nudge it in the right direction towards profit and business stability. Quite often, companies such as tech startups struggle to generate profits due to a lack of funding for research and development, staffing or for the stock required to build their product – ready for market.
Getting hold of debt-based capital is also difficult for such companies due to a lack of cashflow and limited operating history. This is where seed funding comes into play. Here, the different sources might include angel investors, accredited investors and equity crowdfunding investors who have an interest in startup investing, a higher risk tolerance (e.g. due to a long investment horizon) and who are seeking the potential for higher returns.
There is a distinction between seed funding and early-stage funding, which is important for investors to understand. Although the former is usually performed during the company’s first stage, early-stage funding typically consists of two separate parts: Series A and Series B. In other words, seed funding help provide the necessary capital for a startup business to get off the ground and start turning a profit. Early-stage funding helps to expand the already profitable operations of a business.
Investing in a startup isn’t as simple as handing them a blank cheque from your bank account, for it to use at it pleases. There are a range of seed funding options which an investor will want to consider based on their investment goals and horizon, risk tolerance and the business itself:
- Bootstrapping. This is a different approach to a startup seeking outside seed money. Here, the business owner may make an initial personal investment and fund your growth with your early profits. It’s important for an investor to ask any company seeking seed funding whether this option has been explored by the startup and the reasons why.
- Debt. Bank loans or personal loans might be sought by the company from friends and relatives. Angel investors may also issue these instead of seeking an equity stake.
- Equity. Perhaps the most common form of seed investing. In this case, the investor offers a lump sum in exchange for a percentage of ownership in the startup.
- Crowdfunding. This is why platforms such as Kickstarter and Indiegogo exist – to help promising new businesses present their offer to a wide range of investors, and gain seed funding. In 2016, this type of funding outstripped even venture capital funding.
- Convertible securities. With this type of seed investment, you (the investor) might agree to one type of security with the company at the beginning, on the understanding that it will change later. Convertible debt is a good example. Here, you might offer funding in the form of a loan which later is changed into equity shares.
- Corporate seed funding. It isn’t simply individual investors who might want to invest in a promising startup. Large corporates such as Google, Facebook or Amazon may wish to offer seed funding to promising startups which could form an important business partner in the future.
It’s also worth mentioning that seed investing can be divided into private and public forms. The former is usually more common and would encompass investments made by co-founders, family members, friends and individual angel investors. The latter might take the form of issuing an IPO or placing advertisements seeking investments.
Conclusion & invitation
Here at Bure Valley Group our main purpose is to help join successful investors with promising, pre-vetted startup companies who are seeking funding (e.g. seed investment) to take their business to its next level. Our network of angel investors is a great opportunity to access exclusive, promising projects and to gain the information and insights required to conduct a more accurate valuation.
Get in touch today to start a conversation with our team, and discuss some of the great investment memorandums we have available:
+44 160 334 0827