Capital that is contributed at the first stage (pre-incorporation stage) of a venture enterprise, i.e., after the business plan is prepared. This capital is usually used to build a prototype, carry out a market feasibility study, formulate a business plan, and form a management team. Most often, a seed investment ranges between $1-5 million. It carries the highest risk and highest potential returns relative to other alternative investments (returns may not appear before 5-8 years). At this stage of financing, a product is tested with customers by sending it free of charge to potential customers and collecting their feedback in terms of viability, design, user friendliness, etc.
The seed capital stage follows the angel investing stage and is followed by the early stage venture capital.
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