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seed (funding round)

In the venture capital ecosystem, the Seed Round is typically the first "official" institutional funding stage for a startup. It follows the "pre-seed" or "friends and family" stage and precedes the Series A round.

At this stage, you are generally raising capital to prove that your product satisfies a market need—often referred to as finding Product-Market Fit (PMF).'

Here is a breakdown of what defines a Seed round in today's market:

The Purpose of the Capital

Investors expect Seed capital to be used to move from a prototype or beta version to a scalable product with real traction.
  1. Key Goals: Finalize product development, hire the founding team (key engineers/early sales), and acquire early paying customers.
  2. The Milestone: The goal is usually to reach enough Monthly Recurring Revenue (MRR) or user growth to justify a Series A.

Typical Deal Size and Valuation

These numbers fluctuate based on market conditions (e.g., the difference between the 2021 bull market and the 2023-2024 correction), but current general ranges in the US include:
  1. Raise Amount: $1M – $4M (though "Mega Seeds" can go much higher).
  2. Pre-Money Valuation: $8M – $15M is common, though highly dependent on the sector (e.g., AI and Deep Tech often command premiums).

Who Invests?

  1. Micro VCs / Seed Funds: Firms specifically dedicated to early-stage risk (e.g., First Round Capital, SV Angel).
  2. Angel Investors: High-net-worth individuals who often write smaller checks ($25k–$100k).
  3. Multi-Stage Firms: Large VC firms (e.g., Sequoia, a16z) that have dedicated seed programs to capture equity early.

Instrument and Terms

While equity (priced rounds) used to be the standard, Seed deals are frequently done using convertible instruments today to speed up the process and delay valuation discussions.
  1. SAFEs (Simple Agreement for Future Equity): Popularized by Y Combinator. It is not debt; it converts to equity at the next priced round.
  2. Convertible Notes: Debt that converts to equity. These carry an interest rate and a maturity date.

What Investors Look For

In a Series A, we look for hard metrics and repeatable sales motions. In a Seed round, we are betting on:
  1. Team: Is this the right group of people to solve this specific problem? Do they have unique insight?
  2. Market Size (TAM): If this works, can it be a billion-dollar company?
  3. Early Signals: A working MVP, early pilot customers, or waitlists that show demand.

Summary Table

Feature

Seed Round Characteristics

Primary Goal

Prove Product-Market Fit (PMF)

Typical Raise

$1M – $4M

Typical Dilution

15% – 25%

Key Hires

Early engineers, Product Lead, maybe a Founding Sales role

Risk Profile

High (Product/Market Risk)



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