Is Seed Capital Different From Startup Capital?
Another email came in over the weekend asking what the difference is between seed capital and startup capital.
To be honest, it’s a bit of a gray area where people tend to disagree over the definitions. Some claim that both terms point to the same stage of funding and are, therefore, interchangeable.
I prefer to make a distinction as follows:
Seed capital is defined as the initial money provided to an entrepreneur at the concept stage so that he or she can conduct a more thorough research and investigation. For example, it’s quite common for an entrepreneur to conclude that an opportunity exists based on free data available to the public. However, to maximize certainty one sometimes needs to purchase copies of expensive studies and reports from investment banks and specialty research firms. An investor who has an interest in the project but isn’t yet sold on it, may offer to provide money to purchase a few of these documents to settle the question. The investor’s unspoken attitude is that the provision of seed capital is a roll of the dice. He’s fully prepared to lose it all and indeed probably expects to, however the potential opportunity is attractive enough to warrant the seed capital gamble.
Startup capital is defined as the money provided to an entrepreneur so that he or she can begin to implement the idea. Startup capital is no longer a mere roll of the die. For one thing, it’s usually a larger sum of money. Furthermore, with it comes the expectation of results. The entrepreneur is usually expected to use the money to register the company, put up the website, set up an office, buy the office equipment and furnishings, and perhaps most importantly, get something to sell in order to truly test the waters and hopefully gain traction.
As you can readily see, startup capital follows seed capital. They are not the same thing.