Legal Definitions - seed money

Seed money refers to the initial capital provided to a new business, project, or venture to cover its very first expenses and help it get started. It's typically used for early-stage development, research, market analysis, or setting up initial operations before the venture can generate its own revenue or attract larger investments.

• Example 1: Tech Startup Development

  A software engineer has an innovative idea for a mobile application that helps users manage their personal finances. To turn this concept into a tangible product, she needs to hire a freelance designer for the user interface, purchase development software licenses, and conduct initial market research to validate the idea. An angel investor provides her with $75,000 to cover these initial costs for the first six months.

  This $75,000 is seed money because it is the foundational investment that allows the engineer to begin building the app's prototype and test its viability, laying the groundwork for future development and potential larger funding rounds.

• Example 2: Community Non-Profit Launch

  A group of local residents wants to establish a new non-profit organization focused on providing free legal aid to low-income families in their community. To get started, they need to register the organization, secure a small office space, purchase basic office supplies, and develop a website to recruit volunteer attorneys. A local philanthropic foundation awards them a grant of $30,000.

  The $30,000 grant serves as seed money because it provides the essential initial funds to legally establish the non-profit and set up its basic operational infrastructure, enabling it to begin its mission and attract further support from donors and volunteers.

• Example 3: New Product Line for an Existing Business

  A small, established coffee shop decides to expand its offerings by launching a new line of artisanal, locally sourced pastries. This new venture requires investing in specialized baking equipment, sourcing new ingredients from local farms, and developing initial marketing materials to introduce the pastries to customers. The owner takes out a small business loan of $20,000 specifically for these purposes.

  This $20,000 functions as seed money for the new artisanal pastry line. It's the initial capital injected to develop and introduce a distinct new offering, separate from the coffee shop's existing beverage sales, enabling its launch and testing in the market.