Seed funding or angel investing is funding of a business at the earliest stage in its life-cycle, which is usually anytime during its formation at the idea stage, having just a plan, prototype, or in a trial phase, with no or negligible customers.
Angel investors are usually individuals or groups investing their own money, after ascertaining the potential of the startup. The investment is expected to yield returns in multiples but also carries the risk of being lost if the startup goes belly-up.
An angel investor or seed funder invests equity as the startups are most often fledgeling and unsuitable for debt. The mode of investment could be stake in lieu of funding or a right to buy shares in a future exercise of raising equity.
The angel investor is often someone with a deep vertical knowledge of the business of the startup and has the resources to assess the entrepreneur’s potential.