Given a graph , that is, a collection of vertices and of labeled arrows between them, the free groupoid on is the groupoid that has the vertices of as objects, and whose morphisms are constructed recursively by formal composition (i.e., juxtaposition) from identity maps, the arrows of and formal inverses for the arrows of .
The only relations between morphisms of are the necessary ones defining the identity of each object, the inverse of each arrow in and the associativity of composition. This is clearly a groupoid, which comes with an evident morphism of quivers.
The above sketched construction could be made more precise, but what really matters is the universal property it enjoys: the free groupoid is the universal (initial) groupoid mapping out of . By varying , the free groupoid yields a functor from directed graphs to groupoids, left adjoint to the forgetful functor.
This last conceptual characterization is best taken as the definition. Similarly, it is possible to construct the left adjoint to the forgetful functor from groupoids to categories, that is the free groupoid over a category.
For instance (Cote, theorem 2.3).
Philip Higgins, Categories and groupoids, Van Nostrand Reinhold, 1971; Reprints in Theory and Applications of Categories, No. 7 (2005) pp 1-195 (pdf available)