Capital is the ‘lifeline’ of every Business. Taking from a Startup to a business venture, everyone needs Capital to grow which will help to take off startup from the ground to the heights of a successful business. Every startup needs two types of Capital – One is Pre-seed Capital and another is Seed capital.
Pre-seed capital is the earliest stage in fundraising which is required to validate the business proposal by performing market research, surveys, interviews, existing and futuristic problems that may arise, etc.
Well, Pre-seed capital is the critical stage toward the success of a startup as it helps in bringing potential stakeholders who can add value to the startup and will do planning & decision making too. Other tasks done through pre-seed capital are such as the registration process, paperwork, legal & official documents preparation, blueprints of the organization, licenses, patent rights, and trademarks, etc. are brought up.
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The amount of capital to be raised through Pre-seed capital should be less amount to avoid funding which leads to reckless spending. This Capital is raised through Personal funds, incubators, accelerators, etc. By taking into consideration their trustworthiness and aligned interest in the organization. Hence, Pre-seed capital is used to generate traction in the market.
On the other hand, Seed capital is the next stage of fundraising for the startups where an idea forms the shape of a business. Seed capital funding is considered to be having higher risk as the startup is in the stage functional stage within initial operational activities are also done through seed capital including SWOT Analysis which means Strengths, Weaknesses, opportunities, and Threats of the organization.
Seed capital is raised through financial Institutions, banks, potential investors, crowdfunding, etc. All that is required to raise seed capital through investors is to persuade them and gain their confidence in the business plan. Seed capital can also be raised by diluting the Capital through Equity shares or by issuing debts that can be convertible too. Seed capital is raised that much which will make the startup profitable, and not need raising funds again.