You have a real company, a clear problem to solve, and perhaps a prototype—but no product revenue yet. A seed round is the first formal, priced equity financing round: a new investor sets a price per share in exchange for ownership. It usually comes before Series A and gives an early startup funding plus practice for later, tougher financings. section 5.2 section 10.0
Seed is not just “getting some money.” It is a structured transaction with lawyers, documents, and a new seed preferred-share class for investors; founders and employees generally hold common shares. The agreed price affects ownership, so the cap table—the record of company securities and ownership—matters from the start. section 10.3 section 10.2
A practical readiness check:
- Form a real company, generally a C corporation. section 10.3
- Articulate the product or service clearly; a demonstrable prototype is better. section 10.3
- Do not assume customers are required. Some seed investors ask for them, but that expectation is more typical of Series A. section 10.3
- Seek investors suited to the stage: organized angel groups, small VC funds, and occasionally large VCs with dedicated seed funds. section 10.2
A seed extension is not automatically failure
A startup can spend its initial seed cash before it qualifies for Series A. Rather than force an A too early, it may raise Seed II: additional seed capital while concentrating on the milestones needed for Series A. Raising too high a round before proving product-market fit can make a later down round especially damaging. section 10.0 section 10.7 section 10.8
The goal is to use seed as a disciplined warmup: find and pitch investors, compare lead candidates and term sheets, close the financing, then turn the cash into progress toward Series A. A seed round can help, but it is not mandatory; a company can qualify for Series A without having raised one. section 10.8 section 10.7
Table 5.1 The who, what, and when of the various stages of venture capital financing rounds
|
Round
|
Pre-seed
|
Seed
|
Series A
|
Series B
|
Series C
|
|---|---|---|---|---|---|
|
Form
|
Cash or debt
|
Equity
|
Preferred “A” equity
|
Preferred “B” equity
|
Preferred “C” equity
|
|
Who
|
Founders Friends and family
|
Venture capitalists Angels
|
Venture capitalists Corporate
|
Venture capitalists Private equity Corporate
|
Private equity Corporate
|
|
What
|
Early working capital to get to first financing
|
First formal financing round after formation from investors focused on early-stage investing
|
First significant financing round in which one or more VCs become involved in a company previously financed by founders, seed VCs, and/or angels
|
Scaling round when the company has proven it is able to grow fast
|
Management and investors are contemplating an exit and need to prepare and raise the value of the company in preparation.
|
|
When
|
Immediately upon formation
|
When they agree with and buy into your “story” of opportunity
|
Once proof of product-market fit is shown (typically three paying customers)
|
When sales and marketing are what is needed to grow
|
When the company is contemplating an exit
|
|
Size
|
$100,000 to $750,000
|
$1 million to $2 million
|
$2 million to $10 million
|
$10 million to $25 million
|
$25 million and up
|
Compare seed with pre-seed and later venture rounds by financing form, typical investors, purpose, and timing. section 5.2
