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Seed Money Agreement

The term “seed” means that seed capital is an early investment. Start-up capital supports the business until it can generate cash on its own or until it is ready to invest more. This is often a small amount, because the activity is still in the idea or design phase. Since a seed investment represents such a high risk, this type of financing is often exchanged for a stake in the capital in the company, but with less formal contractual overheads than for standard equity financing. Seed capital is often used to fund a company`s preliminary operations such as research and development. At that point, in the life of a startup, the business is in business, but founders need seed funding to raise enough money for a year or two to prove the viability of their product.

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