Seed Money is the first investment for a startup. It is the very beginning where a startup starts shaping up itself on the path of a successful venture.

A startup is a company which has an ability to address variety of problems of different sectors. It proposes an idea for working towards the same. So one has an idea, now what? How does this idea materialize into something that would actually make a difference? What assists during the very first step, taking an idea forth to another level, is the funds. For starting to create anything out of the idea, capital is required. The first capital that the entrepreneur obtains to start up his company is called the seed money.

They bank on the man, not the company – When a startup is seeking to get seed money to begin with, it does not usually have any analysis or anything the investors could bank their cash on. Thus, for seed capital obtaining it is usually the entrepreneur’s spirit, will, courage that is banked upon to obtain the funds. The question most seed investors ask is, ‘How much does he believe in his idea’.

A lot of times, seed capital is also obtained from one’s family, friends, relatives.  The trust factor, a rather important one comes into play here. Since these are the people who are already aware about capabilities of entrepreneur, they may choose to fund him with more ease.

Seek not only money, but understanding. Generally when an entrepreneur commences with his startup, he is too uncertain about its outcome. There may be numerous pitfalls before the startup starts generating even little revenue. Hence, an understanding between the seed investor and the entrepreneur is a sine qua non. This relationship must be established before the funds come into question. Both the investor and the entrepreneur must have faith in the capability and functioning of the other- for a startup to grow bigger.

Also, equity.Most investors become stakeholders in the startup enterprise, which entails them to have an opinion and largely take decisions for the welfare of the enterprise. These decisions largely shape how the company develops through the process.

Takeaways:

• Seed funding is among important source of funds for a startup. The process aims in getting money in exchange of equity stake.
• Compared to other funding, seed investors have high stakes in startups only if they are able to understand the vision and concept behind the startup.