Getting a business off the ground, or expanding an existing one, comes with its challenges – many of which stem from lack of funding. While you may possess a game-changing product or service – with a business model to match – lack of funding ultimately spells the difference between success and failure.
Whether you’re already an established business owner, preparing to start-up, or maybe you just have a keen interest in the space – it’s more than likely that you have come across the terms seed funding and venture capital. In this article, we will look at the difference between the two, and outline some of the advantages and disadvantages that each possess.
Understanding Seed Funding
Seed capital refers to the type of financing used in order to get a business off the ground. It’s the much needed funds that help early-stage businesses garner revenue – even with little to no customer traction. Funding is provided by private investors—usually in exchange for a share in the profits of a product stake in the company. Obtaining seed capital is considered the first of four funding stages required for a business to go from a start up to an established business.
Seed funding can also come in the form of crowdfunding, small business grants, incubators, bartering, or even friends and family.
Some of the advantages of seed funding include it’s a no debt kind of financing, with zero monthly fees and attracts investors willing to take risks. Not only that, but seed funding also provides the ability for start ups to build networks, relationships and a community.
Seed funding does, however, have some drawbacks. The main disadvantage is that many investors require the business to give up equity in order to get funding. And if funding is attained, it can often divert the attention from vital business operations to fulfilling the seed funding requirements.
Understanding Venture Capital
Venture Capital (VC), on the other hand, is generally private equity provided to start-ups and small businesses that possess long- term growth potential, and is usually provided by investment banks, wealthy investors and financial institutions. It can be in the form of money as well as non-monetary forms such as strategic advice or technical expertise.
While the investment may come with risks: if the business captures returns, rewards can be highly lucrative for VC partners. This is because large ownership is awarded to the investors in exchange for the capital. Additionally, VCs are regulated by authorities in the space – meaning that they can be considered trustworthy business partners. There are of course downsides, as a VC partnership can often mean founders giving up equity in their business which can dilute business control and ownership. Yes, giving up equity can lead to diluting their equity position, however, the key is understanding that a synergistic partnership can lead to successes far beyond what was possible before.
At Think10, we’re committed to providing forward-thinking entrepreneurs with the support that you need for long-term success throughout all phases of starting up and running a successful business. We match promising entrepreneurs with capital and co-investment opportunities, strategic support, networking and mentoring.
We take an informed and reasonable approach to investment, supporting all stages of start-up growth and always thinking ten steps ahead. If you want to learn more about the nature of crypto markets, contact us today.