These are two financing methods for startups and emerging companies. Usually both are mentioned regulartly in the area of ​​entrepreneurship. But currently, most people often confuse these terms. For this reason, we’re going to take the time to compare them and define how they differ.

The differences between venture capital and seed capital

Both seed capital and venture capital are two main forms of financing for companies. Even before crowdfunding, despite the fact that the latter has become popular in the past years. Before starting to point out the differences between the two, it’s important to define both terms separately. So that it’s possible to understand what they mean.

What is seed capital?

In most of the world, seed capital is understood as the money you need to start your business. If you’re looking to start a digital marketing company and an investor gives you $10,000, that’s considered seed capital. Seed capital investments can come from your family, friends or someone rich who trusts your business. The return on investment of seed capital is presented in the form of a shareholding.

This means that every investor who gives money to an emerging company will own a percentage of the company. From here, the investor can expect the company to grow and sell their shares. Or take the time to continue investing in it and earn more money. In general, angel investors are seen as individuals who grant seed capital to a startup.

what is seed capital
Seed capital is a very effective way to obtain financing for any emerging company. And put it into operation. Source: Bitcoin Isle

What is venture capital?

This method of financing is similar to the previous one, but with clear differences. Venture capital involves making a fairly high investment. In the case of the United States, we refer to millions of dollars (sometimes even in cash). And this financing is aimed at startups, companies that are in their early stages. But because they have a high growth potential, they’re granted this high investment.

However, its name comes from the high risk that this entails. These startups, being at an early stage, are full of a lot of uncertainty. But when the chances of winning are also high, certain investors (in this case called “venture capitalists”) don’t hesitate to bet on success. Another characteristic of venture capital is that it’s usually applied for large startups. Those that foresee becoming high-class companies.

what is venture capital
Venture capital seeks to give a high investment to a startup with great potential to be a large and successful business. But under high risk conditions and uncertainty. Source: Trade Ready

Distinguishable differences (and similarities)

Clearly, both financing methods include an investment. That in one way or another seeks to grant funds to a business that needs it to emerge. However, one of them doesn’t discriminate against any company. Nor does it usually discriminate against the investor. A seed capital can come from almost any person or entity in a certain amount.

On the other hand, venture capital is thought more for startups with great potential. Those that show great growth (in income, employees, etc.) and glimpse potential to be of high caliber. But that in one way or another, they remain in the uncertainty of perhaps not achieving such success. Wealthy individuals and investors who have a lot of money are the ones who usually do this type of financing.

financing seed risk capital
Both seed capital and venture capital provide the financing that a business needs. Although in a different way and with varied results. Source: Exitosa

If you’re looking to finance your business, it’s good that you know how to identify what type of financing is best suited to you. And of course, which of both is more suited to your company or startup. An entrepreneur must know how to find the financing that best suits their situation. Recall that both types of investment lead to offer shares as return on investment. Therefore, it’s necessary to take this into account.

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Related: How Crowdfunding Has Driven Agriculture & The Food Industry

Do you get the differences between seed and risk capital now?