Definition: The Seed Capital is the initial money required to start a new business. Simply, the initial funding required to start the operations of a new business is termed as a seed capital.
Generally, the initial capital comes from the company’s founder personal assets or from friends, family or angel investors (the wealthy individuals who provide capital with some personal interest in the company).
The amount of money is generally small because the business is still in its conceptual stage and the funds are required to finance the preliminary activities such as research and development, marketing research, etc. Thus, seed capital is required to cover the initial operating expenses until the product and services start generating the revenues on their own.
The seed capital is considered to be at high risk because the business is in its formation stage and has no track record. But however, the founder could earn substantial rewards because of the early stage of investment.
The investors who fund the seed capital, do so to have a stake in the company and once the company starts reaping the rewards it becomes the growth enterprise. Once it reaches a growth stage, several investors are likely to provide funds to finance the further operations of the business. Thus, the venture capital and angel investment are likely to get attracted after the startup shows feasibility.