StateofPreSeedQ22023.pdf
State of Pre-Seed
Q22023
Executive summary
Every startup begins as a pre-seed company. At Carta, we define “pre-seed” as any company that has yet to
raise a priced equity round. These nascent businesses usually raise capital with convertible instruments, the
most common being SAFEs (Simple Agreement for Future Equity) or convertible notes.
For the first time, we’re diving deep into our pre-seed cap table data to understand how founders at this stage
raise capital from friends & family, angel investors, and pre-seed VCs. And there is a lot of data: tens of
thousands of startups that use Carta are currently pre-seed and 2,103 of them raised capital with convertible
financings in H1 2023.
In this report, we touch on all the basics of pre-seed financing, including:³
- SAFEs, in all their many flavor½
- Convertible notes and their associated interest rate½
- Valuation caps and discount½
- Angel check sizes and industry segments
Q2 highlightÄ
- SAFEs have taken over: Investment through SAFEs accounted for 80% of pre-seed invested capital in Q2
- However, certain industries such as Medical Devices, Hardware, and Biotech still see significant
investment using Convertible NotesR
- Valuation caps have gently declined: The median valuation cap for post-money SAFEs was $10M this past
quarter, down from $15M at the beginning of 2022. This median is highly sensitive to round size, dipping
down to $6.5M for raises between $250K-$499KR - Legacy venture ecosystems dominate the pre-seed stage: Of the 2,103 companies that raised some form
of pre-seed financing in H1 2023, over half came from either California or New York. Companies in these
mature VC ecosystems were also more likely to raise mega pre-seed rounds ($2.5M or more on SAFEs).
Key Overall Trends
Pre-seed investing may have stabilized after recent declines
Total dollars invested and total pre-seed companies raising on SAFEs or Convertible Notes | Q12020–Q22023
| Year | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2020 | $1.5B | |||
| 2021 | $702M | $870M | $1,016M | $1,445M |
| 2022 | $1,431M | $1,508M | $1,142M | $1,072M |
| 2023 | $827M | $972M |
The majority of pre-seed investment flows through SAFEs
Total dollars invested and total pre-seed companies raising on SAFEs or Convertible Notes | Q12020–Q22023
| Type | Dollar Amount |
|---|---|
| SAFEs | $1.5B |
| Convertible Notes | $1.0B |
| Total Companies | 792 |
Convertible Notes still lead in specific sectors
Total dollars invested and percentage of total dollars by SAFEs or Convertible Notes in specific industries | H1 2023
| Industry | Total capital invested | Percent by investment type | # companies |
|---|---|---|---|
| Medical Devices | $30.2M | 40% | 57 |
| Hardware / Electronics / IT | $126.4M | 45% | 117 |
| Pharmaceuticals/Biotech | $99.6M | 55% | 140 |
| Energy | $35.8M | 70% | 57 |
| Consumer Products and Services | $140.8M | 72% | 336 |
| Healthcare Technology / Software | $132.6M | 68% | 237 |
| B2B SaaS | $464.7M | 86% | 793 |
| Fintech | $149.4M | 89% | 216 |
| Web3 | $15.5M | 96% | 31 |
| Education | $21.3M | 98% | 58 |
| Media | $50.6M | 98% | 27 |
SAFEs | Types & Terms
Post-money SAFEs consistently outpace pre-money
Total dollars invested and percentage of total dollars between post-money, pre-money, and uncapped SAFEs | Q12020-Q22023
| Year | $ Amount | % of Total Dollar Amount |
|---|---|---|
| 2020 | $66M | 19% |
| 2021 | $121M | 18% |
| 2022 | $163M | 15% |
| 2023 | $274M | 18% |
96% of SAFE investment has a valuation cap in 2023
Total dollars invested and percentage of total dollars by terms of SAFE | Val Cap, No Discount | Val Cap + Discount | Discount, No Val Cap | Neither
| Type | Year | Total dollars invested | Percent of dollars by SAFE terms |
|---|---|---|---|
| Post-money | 2021 | $1,900M | 65% |
| 2022 | $2,769M | 70% | |
| 2023 | $1,132M | 49% |
SAFEs | Valuation Caps
Median valuation caps have trended lower over the past year
25th, 50th,and 75th percentile valuation caps for pre-seed SAFEs | Q12022-Q22023
| Total Raise | 2021Q1 | 2021Q2 | 2021Q3 | 2021Q4 | 2022Q1 | 2022Q2 | 2022Q3 | 2022Q4 | 2023Q1 | 2023Q2 |
|---|---|---|---|---|---|---|---|---|---|---|
| Under$250K | $5.0M | $5.0M | $5.0M | $5.0M | $5.0M | $6.0M | $5.0M | $6.0M | $6.0M | $5.5M |
| $250K-$499K | $6.0M | $6.0M | $7.0M | $5.8M | $7.0M | $7.5M | $8.0M | $6.7M | $7.0M | $6.5M |
| $500K-$999K | $8.0M | $7.0M | $8.0M | $8.0M | $8.0M | $10.0M | $10.0M | $10.0M | $10.0M | $10.0M |
| $1M-$2.4M | $10.0M | $10.0M | $11.5M | $10.0M | $12.0M | $12.5M | $12.5M | $11.5M | $12.3M | $15.0M |
SAFEs | Round & Check Size
Median check size remains relatively small until $2.5M raised
Median check size /% of all SAFEs by check size split by total fundraising | H1 2023
| Total Raise | Median Check | % Distribution |
|---|---|---|
| Under $250K | $15,000 | $9.9K or less(27%), $10K-$24.9K(32%), $25K-$49.9K(19%), $50K-$99K(13%), $100K+(9%) |
| $250K-$499K | $25,000 | $9.9K or less(13%), $10K-$24.9K(26%), $25K-$49.9K(26%), $50K-$99K(17%), $100K+(19%) |
| $500K-$999K | $25,000 | $9.9K or less(9%), $10K-$24.9K(22%), $25K-$49.9K(27%), $50K-$99K(20%), $100K+(22%) |
| $1M-$2.4M | $36,932 | $9.9K or less(9%), $10K-$24.9K(20%), $25K-$49.9K(22%), $50K-$99K(18%), $100K+(30%) |
| $2.5M-$4.9M | $50,000 | $9.9K or less(7%), $10K-$24.9K(19%), $25K-$49.9K(18%), $50K-$99K(17%), $100K+(40%) |
| $5M+ | $100,000 | $9.9K or less(3%), $10K-$24.9K(11%), $25K-$49.9K(16%), $50K-$99K(14%), $100K+(56%) |
SAFEs | Industry Map
Many industries cluster around $8M and $10M val caps
Medians by industry for companies raising $1M or less on post-money SAFEs | Min 6 companies per industry | H1 2023
| Industry | Median Valuation Cap | Median Amount Raised |
|---|---|---|
| Logistics | $8M | $950K |
| Medical Devices | $8M | $900K |
| Transportation | $8M | $850K |
| Biotech | $8M | $800K |
| B2B SaaS | $8M | $700K |
Convertible Notes | Types & Terms
The majority of Convertible Notes are pre-money
Total dollars invested and percentage of total dollars between post-money, pre-money, and uncapped Convertible Notes | Q12020-Q22023
| Year | $ Amount | % of Total Dollar Amount |
|---|---|---|
| 2020 | $40M | 91% |
| 2021 | $49M | 87% |
| 2022 | $93M | 90% |
| 2023 | $144M | 93% |
Convertible Notes | Discounts & Interest Rates
The median discount rate on Notes was 20% in H1 2023
Total Convertible Notes by Note terms and the percent of Notes with a discount by discount percentage | H1 2023
| All Notes by terms | Percent of Notes by discount percentage tiers |
|---|---|
| Valuation Cap, No Discount | 9% |
| Valuation Cap + Discount | 66% |
| Discount, No Valuation Cap | 9% |
The median interest rate has held at 6% for 7 straight quarters
Median and average interest rates for Convertible Notes by quarter | Q1 2020–Q2 2023
| Year | Median Interest Rate |
|---|---|
| 2020 | 6% |
| 2023 | 6% |
Focus on Biotech and Healthtech in Convertible Note rounds
Medians by industry for companies raising using Convertible Notes | Min 6 companies per industry | H1 2023
| Industry | Median Valuation Cap | Median Amount Raised |
|---|---|---|
| Biotech | $2.4M | $10M |
| Healthtech | $2.3M | $10M |