Most founders do not have the means to bootstrap, or solely fund, initial startup activities.
Seed financing provides capital needed to support salaries for the management team, R&D, proof-of-concept, prototype development, and testing, etc. Sources of capital may include personal funds ("bootstrapping"), friends, family, and angel investors (typically a wealthy individual who invests in start-up companies). Valuations at this stage are typically driven by subjective factors like appraisals of the CEO and management team, novelty of the value proposition, evaluation of intellectual property, expected time-to-market, expected path to profitability, estimated capital needs and burn rate, syndicate risk, sector volatility, and deal structure. Capital raised is limited due to its dilutive impact at minimal valuations. The goal during the seed stage is to assemble a talented team, and achieve development milestones, proof-of-concept, and anything else that will enable a company to attract investors for the next round of financing.