What is Seed Funding for Startups? How to Raise a Seed Round

Seed funding

Author: Shubhi Nigam
Read time: 7 minutes
Published date: April 2, 2025

Fundraising for a startup is never easy, but raising a seed round can feel impossible without the right resources. In this article, we’ll walk you through all the steps of seed funding.

Contents

What is seed funding?

Seed funding is the initial capital an early-stage startup raises in order to reach the next stage of growth. Also known as seed capital or seed money, seed funding is typically the first official round of institutional fundraising. Seed funding usually comes from investors who are willing to take high risks on early-stage companies for potentially high returns. This includes angel investors, venture capital firms, friends and family, or startup accelerators and incubators who receive equity or convertible securities in exchange for their investment, giving them a share of ownership in the company.

Seed funding is primarily used to validate an idea and develop the concept into operational business. Companies are typically “ready” for seed fundraising when they have an actual product to demo, although they may still need further product development to create a user-ready minimum viable product (MVP) or proof-of-concept before they’re ready to fully launch their product. Seed funding may be used to:

Typically, seed rounds are relatively small compared to later funding rounds (like Series A, Series B, Series C, etc.) and can vary greatly from about $500,000 to $5 million. The median fundraising amount for seed rounds in 2024 was $3.5 million, according to Carta’s data.

Investors in seed rounds take on significant financial risk because early-stage startups may not have a proven product, market fit, or cash flow. However, the potential returns on investment in high-growth startups are equally high, as successful startups can grow exponentially.

When to raise seed funding

Pre-seed funding is often used to develop an idea and Series A capital can be used to grow your company and secure product-market fit. The seed round sits somewhere in the middle of those two funding stages: When you know you have a great idea, know the market well enough, and are ready to start selling. These terms can sometimes be used interchangeably.

Pre-seed vs. seed vs. Series A

Pre-seed and seed fundraising are often conflated, but there are some key differences between the two types of funding. In the chart below, we break down pre-seed vs. seed vs. Series A funding.
Ro und Typical amount raised Priced or convertible Equity issued Use of funds Investors
Pre-seed Up to $200k Convertible SAFEs or convertible notes To test your idea Friends & family, crowdfunding, angels, accelerators, syndicates, pre-seed and seed stage VC firms, or bootstrapping (no investors)
Seed $500k to $5M Either SAFEs or convertible note or preferred stock To gain early traction and start selling All of the above, plus super angels and seed VC firms
Series A $3M to $10M Priced Preferred stock To grow and build product-market fit All of the above, plus venture capitalists that focus on Series A rounds

What type of financing structures are used during a seed financing?

Seed rounds can be either priced or convertible (sometimes called “unpriced”). A priced round is when you sell preferred stock in your company at a set price per share in exchange for capital to grow your company. A convertible round is when you sell convertible securities—such as SAFEs or notes—for capital amounts that will later convert into stock.

For most companies, seed-stage financing is on convertible instruments because it’s usually faster and easier to use convertibles (like SAFEs and convertible notes) instead of doing a priced preferred stock financing.

Convertible note

A convertible note is debt that can convert into equity upon a future qualifying event or transaction, such as a priced equity round raised from venture capital investors.

SAFE (Simple Agreement for Future Equity)

SAFEs are equity, not debt. They convert into stock in a future priced round. SAFEs have become the most common convertible instrument in recent years due to their relative simplicity. SAFEs are not debt and don't require the company to pay back the investment with interest.

SAFEs can be “pre-money” or “post-money.” Post-money SAFEs calculate conversion ownership based on the company’s capitalization immediately before the priced round (including any additional financing that came in after that particular SAFE). Pre-money SAFEs convert based on the company’s capitalization not including SAFE investor’s initial investment. A post-money SAFE provides more certainty to investors as to their ownership in the company going into the priced round, whereas a pre-money SAFE investor may be diluted by future investments before the priced round.

Preferred stock

Preferred stock comes with additional rights and preferences that are valuable to investors. These include control rights (protective provisions, information rights, board seats, etc.) and economic rights (liquidation preference, anti-dilution adjustments, registration rights, pro-rata rights, etc.).

Pitching the seed round

For most founders, investor communication and relationship nurturing happens well before the actual seed round. Sending monthly company updates, communicating goals, and connecting with prospects regularly builds the kind of reputation that an entrepreneur needs to turn passive supporters into active investors.

Building a pitch deck

Pitch meetings are your opportunity to tell potential investors about your business model, pitch your business plan, and secure funding.
After your pitch secures you a term sheet from an investor, use the insights you've learned through fundraise benchmarking insights and your fundraise models to negotiate better terms for your company. You should also involve your legal counsel in term sheet negotiation to ensure the terms you’re offered are not off-market or unnecessarily disadvantageous to the company.

How to prepare for a seed round with scenario modeling

To prepare your company for seed funding, you can use dilution and fundraise modeling tools to show how different financing scenarios will impact your company’s cap table and your personal ownership in the company.

Closing the seed round with Carta

When you’re ready to close your seed round, you can use Carta to send SAFEs to your investors to sign and facilitate transfer of funds. Most seed funding will be financed through SAFEs. You can generate, issue, and fund your SAFEs directly on Carta. We support YC, Carta, and custom templates and side letters.

Author: Shubhi Nigam

Shubhi Nigam is a lead product manager at Carta.