What Actually Counts as a Seed Round in Startup Fundraising

Founders - what is a seed round?

I get it. Everyone had a different definition of "seed round".

But I thought $1 million was a decent quantitative cutoff since it's unlikely you'll raise that much from friends and family (depending on your friends, of course).

We looked at 13,657 rounds by companies on Carta cap table since 2020. Each round raised at least $1 million (and if it was a priced round it had to be the first one for a given company).

𝗦𝗼 𝘄𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗲 𝗱𝗮𝘁𝗮 𝘀𝗵𝗼𝘄?

A dramatic shift away from priced equity towards convertible instruments, primarily SAFEs.

In 2020, 62% of the rounds that raised $1 million or more were priced (again, just looking at the first priced round here, not counting Series Bs and such).

In 2023 so far, only 35% of such rounds were done the traditional way.

You can see the two blue segments (dark blue = SAFEs, light blue = Convertible Notes) grow with each passing year.

𝗢𝗸𝗮𝘆, 𝗯𝘂𝘁 𝘄𝗵𝘆? 𝗦𝗼𝗺𝗲 𝗶𝗱𝗲𝗮𝘀:

• SAFEs are simpler to close and fundraising is like water - it flows to the path of least resistance.

• Tools for SAFE issuance have gotten much better (like ours!) over the past 3-4 years.

• Seed rounds done on priced equity still raise more cash ($3.3M or so), but the benchmarks for such a raise have inflated - so these big SAFE rounds function as another checkpoint in company maturity.

Open question - is this good for the startup ecosystem? Should major investments into these nascent companies be done without deciding on a set valuation, which is really the point of using convertibles in the first place?

Drop your thinking in the comments. Then head over to the link in graphic to see everything Carta can do to help you fundraise right now - it's a pretty amazing set of tools!

#cartadata #seed #fundraising #founders #startups #SAFEs