- Seed funding: A startup’s guide to raising a seed round
- What is seed funding?
- How much seed funding should you raise?
- Pre-seed vs. seed vs. Series A
- What type of financing structures are used during a seed financing?
- Convertible note
- SAFE (Simple Agreement for Future Equity)
- Preferred stock
- Pitching the seed round
- How to prepare for a seed round with scenario modeling
- Modeling a convertible round (SAFEs and convertible notes)
- Modeling a priced round
- Additional tools for financial modeling
- Closing the seed round with Carta
- Frequently asked questions about seed funding
What is seed funding?
Seed funding is the first official round of institutional financing a startup raises to validate its product, hire a founding team, and prove product-market fit before scaling. Also known as seed capital or seed money, seed funding usually comes from investors willing to take high risks on early-stage companies for potentially high returns. This includes angel investors, venture capital (VC) firms, friends and family, or startup accelerators and incubators who receive equity or convertible securities in exchange for their investment.
A seed round takes you from a minimum viable product (MVP) to a Series A, buying you runway to prove your model before you raise to scale. Companies are typically ready for seed fundraising when they have an actual product to demo, though they may still need further product development before a full launch.
Seed funding may be used to:
Develop an MVP or prototype
Assemble a founding team and hire first employees
Set up operational infrastructure
Conduct market research and validation
Launch initial marketing initiatives and sales motions
Secure early-adopters and develop partnerships
Protect intellectual property (IP) through patents, trademarks, or trade secrets
Investors in seed rounds take on financial risk because early-stage startups may not have a proven product, established market fit, or reliable cash flow. For those who back the right companies, the potential upside is significant.
This video covers seed funding in depth, walks through the investors you'll meet, and outlines the questions worth asking before you raise. This video is a part of Carta's free Startup Fundraising 101 curriculum.
How much seed funding should you raise?
There's no universal number, but recent market data gives you a strong benchmark. Seed rounds are relatively small compared to later funding rounds and typically range from $500,000 to $5 million. According to Carta’s Q2 2026 fundraising benchmarks, the median seed round was $4.5 million raised at a $23.9 million post-money valuation. Median seed dilution landed at 19.4%, which is a useful anchor when you're deciding how much of your company to sell.
The broader market matters too. Venture funding is recovering. Startups raised $30.4 billion in the first quarter of 2026, and Carta's State of Private Markets report shows fewer down rounds and less dilution across stages. A healthier market can mean better terms, but it doesn't change the core question.
Start with your runway. Most founders aim to raise enough to fund 18-24 months of operations, long enough to hit the milestones that set up a strong Series A, with a buffer for the unexpected. Work backward from your burn rate and your goals, then size the round to reach the next stage rather than to chase the biggest headline number.
Valuation follows from how much money you raise and how much equity you give up. As Peter Walker, former Head of Insights at Carta, explains: “Valuations are often simply the output of the other two parts of the equation (cash raised and dilution). Most massive valuation rounds also come with massive funding amounts. How much cash do you really need?”
Raise what you need to reach real milestones. Overraising can mean giving up more ownership than necessary, while underraising can leave you short before you've proven enough to command a strong Series A.
Pre-seed vs. seed vs. Series A
Pre-seed funding is often used to develop an idea while Series A capital supports growth and product-market fit. The seed round sits between them: when you know you have a great idea, know the market well enough, and are ready to start selling.
Pre-seed and seed are sometimes used interchangeably, but there are some key differences between the two types of funding. The chart below breaks down pre-seed vs. seed vs. Series A funding.
Round | Typical amount raised | Priced or convertible | Equity issued | Use of funds | Investors |
Pre-seed round | Up to $200k | Convertible | SAFEs or convertible notes | To test your idea | Friends and family, crowdfunding platforms, angels, accelerators, syndicates, pre-seed and seed stage VC firms, or bootstrapping (no investors) |
Seed round | $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 VCs 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 convertible notes) that will later convert into stock.
For most companies, seed-stage financing uses convertible instruments because they're faster and simpler than a priced preferred stock round. From the start of Q4 2023 through the end of Q3 2024, about 64% of all seed rounds raised on Carta were SAFEs. Priced equity rounds made up 27% of the sample, and convertible notes about 10%. The smaller the seed round, the more likely it is to be a SAFE—some 86% of seed rounds smaller than $500,000 were SAFEs. Up to $2 million, a seed round is still more likely than not to be structured as a SAFE.
Convertible note
A convertible note is convertible debt that can convert into equity upon a future qualifying event or transaction, such as a priced equity round raised from VC 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 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.).
Liquidation preferences, for example, guarantee preferred shareholders are paid first after an exit event like an initial public offering (IPO) or acquisition, ensuring they recover at least their initial investment before any proceeds go to common stockholders.
Pitching the seed round
For most founders, the real work starts well before the raise. Sending monthly updates, sharing milestones, and staying in regular contact with potential investors builds the trust that turns early interest into committed capital.
Pitch meetings are your opportunity to walk investors through your business model, pitch your business plan, and make the case for funding. Investors will conduct due diligence—reviewing your team, financial projections, market opportunity, and intellectual property—before issuing a term sheet.
After a pitch secures a term sheet, use your fundraise benchmarks and scenario models to negotiate better terms. Involve legal counsel to make sure the terms are market-standard and nothing is unnecessarily disadvantageous to the company.
Term sheets are more frequently seen before priced rounds, but some convertible rounds may also involve term sheets.
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.
Dilution scenarios may differ depending on some of the following factors:
Whether the round is priced or on convertibles
The terms of outstanding convertible securities
The pricing terms of the priced round, including valuation and round size, as well as size of the option pool
Modeling a convertible round (SAFEs and convertible notes)
Fundraise modeling during your earliest rounds can be done using tools like Carta's scenario modeling or deal pro forma. These tools can help you understand your dilution and your investors' dilution when you raise your first priced round.
Modeling a priced round
Building a fundraise model, or pro forma cap table model, is the first step of a priced round after you receive a term sheet. Because of the level of precision required, this can be done with the help of a lawyer and by using an advanced tool like Carta's Deal Pro Forma. You may even want to run a few scenarios through modeling before you get a term sheet, to inform your negotiations with investors.
Additional tools for financial modeling
Calculating burn rates, compensation benchmarks, and other metrics before your meetings will save time during the fundraising process. Carta has several free tools and resources to help you get ready:
Burn rate calculator: Plan your next 18-24 months of cash spend so you can make smarter decisions about spending pace and when to raise your next round. → Use Carta's free Burn Rate Calculator to estimate potential runway.
Compensation benchmarking: Compensation is typically a startup's largest expense. Benchmarking helps you estimate future headcount costs and avoid overspending on salary and equity. → Get a demo of Carta Total Comp for the latest private market compensation data.
IRR calculator: Internal rate of return helps VCs and seed investors track performance before profitability metrics are available. A spreadsheet-based calculator is the easiest way to stay ahead of that question. → Calculate internal rate of return (IRR) to get ahead of investor expectations.
Employee option pool calculator: Sizing an option pool is difficult when you don't yet know how many hires or advisors you'll bring on. A calculator helps you set aside the right amount of equity from the start. → Download our free option pool calculator.
Cap table template: Your cap table tracks ownership across every round and gets more complex with each raise. Make sure it's current before any investor meeting, especially for priced rounds. → Download Carta's free Cap Table Template to create your first cap table.
Accelerator directory: A list of 100+ global accelerator programs filterable by vertical and location, so you can find the right accelerator for your stage and industry. → Download the full list.
Carta Launch: Carta's free platform for early-stage founders to build a cap table, issue equity, and raise their first round — no payment info required. → Get started with Carta Launch.
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 Y Combinator, Carta, and custom templates and side letters. Your cap table updates automatically as investors sign, so you stay investor-ready for the next round.
Raising a first round is a milestone, not the finish line. Get your instruments, valuation, and cap table right now, and every future raise gets easier. Get started fundraising on Carta, or request a demo to see how it works.
Frequently asked questions about seed funding
Who qualifies for seed funding?
There is no formal qualification, but investors typically look for a working product or prototype, a capable founding team, and early evidence of demand.
Do you pay back seed funding?
Usually not. Most seed funding is raised through equity financing or instruments like SAFEs, so investors receive ownership rather than repayment. Convertible notes are the exception, since they are technically debt and can require repayment if they never convert. In practice, most convert into equity at the next priced round.
How much equity do you give up in a seed round?
As of Q2 2026, median seed dilution is 19.4% according to Carta's fundraising benchmarks, though your exact figure depends on how much you raise and at what valuation.
Is seed funding risky?
Seed investing carries real risk because early-stage startups often lack a proven product or steady revenue. That risk cuts both ways: founders take on pressure to deliver, while investors accept that many seed bets won't return capital, which is why they look for outsized upside.
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