Seed Capital
Capital d'amorçage in French
Quick definition
Seed capital is the first outside money a new business raises: enough to build a product, make the first hires and prove that someone will pay. It typically comes from founders, friends and family, angel investors or early-stage funds, usually in exchange for equity.
What seed money buys
Seed capital funds the unproven stage, when the business is an idea plus early evidence. Most ventures start even earlier as a self-funded sole proprietorship running on the founder's savings; seed money is the step beyond that. It buys a working product, the first hires, and above all proof that customers will pay, which is what every later investor will ask to see.
Where it comes from and what it costs
The usual sources, roughly in order, are the founders themselves, friends and family, angel investors, and early-stage funds, with crowdfunding as another route for some businesses. Larger venture capital rounds, if they ever come, come later.
What it costs is ownership. In a priced round, investors buy shares at an agreed company value. Many seed deals are not priced at all: the investor hands over cash now through a convertible note or a SAFE, an agreement that converts into shares at the next financing round. Either way, you are trading a permanent slice of the company for money at its riskiest moment, which is why seed money is the most expensive equity you will ever sell.
The friends-and-family caution
Be honest about what a friends-and-family round is. Relationships fund most first cheques, and they also absorb most first losses. Document every dollar: is it a gift, a loan with terms, or shares at a stated value? Put it in writing, say out loud that the money can be lost entirely, and take only what the person can genuinely afford to lose. A failed startup is recoverable; a vague $30,000 between siblings can poison a family for decades.
The dilution arithmetic
Keep the math this simple: sell 20% of the company for $100,000 and you have implicitly valued the whole business at $500,000 after the money is in. Every later round dilutes you again, so founders who sell too much too early can reach success owning surprisingly little of it.
In Canada
Canada has active angel groups, incubators and early-stage funds in most major cities, alongside federal and provincial programs that support young companies with grants, loans and tax incentives. A practical note: money raised by selling shares is not income to the company, while grants and some contributions can be taxable, so the form of your seed money matters at tax time. An accountant's hour is cheap at this stage.
Worked example
Amara needs $80,000 to turn her prototype into a sellable product. She puts in $20,000 of her own savings, raises $20,000 from her parents documented as shares in a signed agreement, and closes $40,000 from a local angel group, selling 16% of the company in total. A year later, with paying customers, she raises a larger round at four times the value. The seed investors were her most expensive money, and the only money anyone would give her when nothing was proven.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated August 2026