Seed money refers to the money that is invested at the very beginning of a business venture or project. This is the money that is used as capital to get the business started and is used to ensure that the enterprise has enough money to begin operations until the business can get additional sources of funding or until it starts making a profit as well. Seed money can come from a variety of sources and is also known by other names: seed funding, friends and family funding, angel funding, and sometimes, even venture capital.
As the starting funds, seed money is used for a variety of activities and purposes. Even before the business gets off the ground, the seed money is often used to do market research and product or service development, as well as other related activities. These are important aspects of starting any business but they can take time, money, and effort. As such, having the seed money to fund these preliminary activities is an essential part of a startup business.
While venture capital is sometimes used to refer to seed money, there is a distinction between them. For the most part, seed funding involves smaller amounts of money as compared to venture capital. More so, seed money usually comes from friends, families, and even the business person starting the enterprise. On the other hand, venture capital involves much larger sums of money. There are some venture capitalists who will provide seed money, though; hence the use of the term venture capital occasionally.