Seed money is typically used to pay for such preliminary operations as market research and product development. Investors are often the business founders themselves, using savings, mortgage money, or funds borrowed from family and friends. They may also be outside angel investors, venture capitalists or accredited investors who are acquainted in some way with the founders. Seed capital is not necessarily a large amount of money. Many people start up new business ventures with $10,000 or less.
Seed money can be distinguished from venture capital in that venture capital investment tends to involve significantly more money, an arm’s length transaction, and much greater complexity in the contracts and corporate structure that accompany the investment.