The term “seed capital” makes reference to the initial money that is used to get a business up and running. Seed capital [1] can come from a variety of different sources, but often is taken from the individual assets [2] of the people who have founded the company, or from the assets of their family members and/or friends.
Initially, the amount of money needed for seed capital [3] can be somewhat smaller, because in the early stages a business is in more of a conceptual state. These early stages are also usually not creating any revenues, so the seed capital is utilized for covering operating expenditures, research & development, and generating notice from venture capitalists and other investors.
The support of seed capital is a requirement for getting most companies going in the early stages. Seed capital is also seen as a higher-risk investment, but it can certainly bring high financial rewards in the event that the new company develops into a genuine enterprise. Seed capital funding will often be received in exchange for an equity [4] stake in the new company.
Financial institutions and venture capital [5] investors tend to consider seed capital as an “at risk” investment that is made by those who support the development of a new company. Because of this, seed capital represents a serious commitment for the investors when it comes to making the company a successful one. Often, investors prefer to wait a little while before making an investment in a business, because with time comes more stability and more development.