| Summary: | Background: Growth oriented entrepreneurial businesses need funding for the development of their idea, technology, product etc. However, for the businesses in the very earliest stages of development, access to funding is very limited. Growing young ventures are important job creators and positively affect growth in an economy. Bridging the gap of funding to these companies is therefore on the agenda of governments around the world. Purpose: To describe the situation facing seed stage investing venture capitalists. I will emphasize difficulties and evaluate venture capitalists ability in addressing them. Effects of the difficulties in form of access to financing for entrepreneurs and a possible need for government intervention will be examined. Method: Empirical information from seed stage investing venture capital organizations have been collected in the form of face-to-face interviews, email- questionnaires and a telephone interview. Organizations from Sweden, Denmark and Germany are included in the study. Result: Several factors make seed stage investing unattractive compared to later stages. Important difficulties are higher risks, high costs for fund management, goal incongruence in the investor – venture capitalist relation and lack of bargaining power for seed venture capitalists. Environmental factorsthat have an impact on seed investing are the deal flow, the investment climate and access to soft funding. Seed stage investing is a very challenging business and the difficulties are to a large extent hard to overcome. The investors more likely have to accept them and I conclude that long term profitability of seed funds is unlikely, at least in absence of government support in form of soft funding towards the entrepreneurial businesses.
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