Updated · 3 min read
What is seed funding? How a seed round works
Seed funding explained: what a seed round is, who invests, typical round structure, what investors look for, and how to get seed funding for your startup.
Seed funding is usually the first institutional money a startup raises. It pays for the work of finding product-market fit: building the product, hiring the first team, and proving that customers want what you sell.
What a seed round is
A seed round is a priced or unpriced investment in which investors put money into the company in exchange for equity (or the right to equity later). It comes after any friends-and-family or pre-seed money, and before a Series A.
Round sizes vary a lot by market and year. As a rough guide, seed rounds range from a few hundred thousand dollars to a few million, and are larger in the US than in most other markets. Founders typically sell 10% to 25% of the company in a seed round.
Who invests at seed
- Seed-stage venture capital firms that specialise in this round and often lead it. Browse seed investors by sector and region.
- Angel investors, individually or through angel networks and syndicates.
- Accelerators, which invest a small amount alongside a programme.
- Larger VC firms with dedicated seed programmes or scout funds.
Most seed rounds have one lead investor who sets the terms and several others who participate.
How seed rounds are structured
SAFEs and convertible notes
Many seed rounds use a SAFE (simple agreement for future equity) or a convertible note. The investor's money converts into shares at the next priced round, usually with a valuation cap and sometimes a discount. These are faster and cheaper to close than a priced round.
Priced equity rounds
In a priced round, the company and investors agree a valuation, and investors buy preferred shares at a set price. Priced seed rounds are more common for larger seed rounds and in some markets.
| SAFE or convertible note | Priced round | |
|---|---|---|
| Valuation set now | No (cap only) | Yes |
| Legal cost and time | Lower | Higher |
| Board seat for investor | Rare | More common |
| Typical use | Smaller, faster rounds | Larger seed rounds |
What seed investors look for
- Team. Why you are the right people to build this, and whether you can recruit.
- Market. A large or fast-growing market, and a clear wedge into it.
- Early proof. Users, pilots, revenue or strong engagement, depending on the business.
- Insight. Something you understand about the problem that others don't.
How to get seed funding
- Build a list of seed investors who match your sector, geography and check size. The guide on how to find investors for a startup covers this step by step.
- Watch recent seed rounds in your sector to see which investors are active.
- Prepare a short deck: problem, solution, traction, market, team, and the raise.
- Run a tight process: line up meetings close together, follow up quickly, and close the lead investor first.
What comes after seed
The next round is usually a Series A, raised once the company has repeatable growth. See seed vs Series A funding for how the two rounds differ.
Questions
What is seed funding?
Seed funding is usually a startup's first institutional investment. It pays for building the product and finding product-market fit, and comes after pre-seed and before a Series A.
How much equity do founders give up in a seed round?
Founders typically sell between 10% and 25% of the company in a seed round, depending on the round size and valuation.
Who invests in seed rounds?
Seed-stage venture capital firms, angel investors and angel networks, accelerators, and larger VC firms with seed programmes. One investor usually leads and sets the terms.
Is a SAFE a seed round?
A SAFE is one way to structure a seed round. The investor's money converts into equity at the next priced round, usually subject to a valuation cap.
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