SEED MONEY

Excerpted By: TimoStevens (2009)

Seed money is the capital raised by the entrepreneur from family and friends to fund the initial startup of a business.

A seed round, sometimes known as a friends and family round, is a securities offering whereby one or more parties that have some connection to a new enterprise invest the funds necessary to start the business.

Seed money is typically used to pay for such preliminary operations as market research and product development. Investors are often the business founders themselves, using savings, mortgage money, or funds borrowed from family and friends.

They may also be outside angel investors, venture capitalists or accredited investors who are acquainted in some way with the founders. Seed capital is not necessarily a large amount of money. Many people start up new business ventures with $10,000 or less.

Seed money can be distinguished from venture capital in that venture capital investment tends to involve significantly more money, an arm's length transaction, and much greater complexity in the contracts and corporate structure that accompany the investment.

Seed money may come from financial bootstrapping rather than an offering. Other means of raising seed money include purchasing second-hand equipment rather than new or leasing rather than buying; paying sales people or agents on commission rather than having people on the payroll; or otherwise deferring expenses.

Source: www.wikipedia.org