How Startup Funding Rounds Differ: Seed vs. Series A (2024)

FAQs

How Startup Funding Rounds Differ: Seed vs. Series A? ›

Both seed funding and Series A funding are important stages of financing for startups. However, the key difference is in the purpose of the funds. Seed funding is used to finance a startup's initial costs, while Series A funding is used to finance a startup's growth.

Series A funding comes after there is already a product and obvious traction. Seed funding is usually the first round of funding and raises a small amount of capital. In series A, the startup receives more capital to support future growth.

Series A is the next round of funding after the seed funding. By this point, a startup probably has a working product or service. And it likely has a few employees. Startups can raise an additional round of funding in return for preferred stock.

This funding type is used for any funding round that is clearly a venture round but where the series has not been specified. Series A and Series B rounds are funding rounds for earlier stage companies and range on average between $1M–$30M. Series C rounds and onwards are for later stage and more established companies.

The investment in series A is higher than the seed round— usually $2 million to $15 million. As such, investors are going to want more substance than they required for the seed funding before they commit to a series A funding round.

A Series A often happens after a seed round, but some companies that have bootstrapped their way to success can skip the seed round. You are probably ready for a Series A if: You have compelling metrics (growth, unit economics), have figured out customer acquisition, and are growing rapidly.

A seed round is a financing round that raises initial capital to start a business. Seed capital often comes from the company founders' personal assets, friends and family, angel investors, and VCs.

Series A. Again, not all startups who raise a seed round go on to raise a Series A, but after raising a seed round, the average time until a startup raises a Series A is 22 months.

The study titled “Series A Landscape Report” said, “Out of the over 2,500 startups that had raised seed funding between 2015-2022, only 29% (i.e., 734 companies) managed to raise a Series A round (typically the first round of institutional venture capital funding).”

The initial round of funding after the seed stage is Series A. The second is the Series B and then the third is Series C.

What do VCs look for in Series A? ›

VCs look for a competitive advantage in the market. They want their portfolio companies to be able to generate sales and profits before competitors enter the market and reduce profitability. The fewer direct competitors operating in the space, the better.

A series A round (also known as series A financing or series A investment) is the name typically given to a company's first significant round of venture capital financing. The name refers to the class of preferred stock sold to investors in exchange for their investment.

VC funds invest in companies across their growth life cycle, from Series A through their public offering. Many invest repeatedly in their portfolio companies when these companies seek to raise subsequent rounds of capital.

After peaking in 2022 at $2.5 million, the median U.S. seed round dipped to $2.3 million in Q1 2023. The average dipped slightly from $3.7 million to $3.6 million. Of course, that's still far above where those deal sizes were less than a decade ago.

In fact, less than 10% of companies that raise a seed round are successful in then raising a Series A investment. A Series A investment provides venture capitalists, in exchange for capital, the first series of preferred stock after the common stock issued during the seed round.

How Much Equity Should be Given Away in a Seed Round? A general rule of thumb is giving away between 10-20% equity during a seed round. This may likely be to angel investors who are willing to put in checks right at the origin of a company during the early stages.

Investor community StartEngine recommends that companies aim to raise their seed round "when they have less than $3 million annual recurring revenue (ARR).” The average amount of funding raised in a seed round is $2.2 million, but it can be as low as $100,000 or as high as $5 million.

Fundraising for startups, in general, is a challenge. Pre-seed investment is even more difficult to secure because you have little to back up your claims. The process will be long, arduous and complex, but securing the support of pre-seed investors has the potential to supercharge a business's growth.

One in five startups, 20%, fail by the end of their first year. Approximately 20% of startups fail by the end of their first year.

Seed funding is typically used to finance a startup's initial costs, such as product development, market research, and business formation expenses. Series A funding is typically used to finance a startup's growth, such as hiring new employees, expanding into new markets, and increasing marketing spend.

Why do most seed startups fail? ›

The four primary causes of seed stage startup failures are an inability to generate revenue, an inexperienced team, unrealistic expectations, and a lack of focus. However, with a clear understanding of these risks and how to avoid them, some seed stage startups will be successful.

The funding amount at this stage is typically between $50,000 – $200,000 and the target runaway is 3 to 9 months. About 60% of companies that reach pre-series A funding fail to make it to Series A, so the success rate is only 30%-40%. We can name such successful examples of pre-seed funding startups in 2021: Copy.ai.

At pre-seed, founder equity is approximately 38.65%. This decreases by 9% at seed to 27.18%, and then another 9% at Series A to 18.52% (founders tend to give away 20-25% of their equity per round.)

Series A startups raise anywhere from $2-$20M with lots of variations in valuation. They usually have established proof of product-market-fit by delivering revenue at a consistent growing cadence and have validated various customer acquisition channels. You may also want to read our Seed Funding guide.

Again our data shows that the typical Series A CEO is pay is about $180,000 to $190,000 per year. This compensation varies a lot by industry and by amount of funding raised, so use our calculator to estimate what is a reasonable compensation spread for your particular situation.

On average, post-Series A startups are less competitive on base salary than you would find at a more prominent tech company. Startups will often justify this in two ways: “The experience, growth, and responsibility you'll find here will be much more meaningful than what you would find at a later-stage company.”

In a series A round, founders are advised to give up around 20-25% of equity to investors. These equity investments are often dependent on the kind of startup or business. Some businesses may give up more, while others must give out less equity.

Series A funding planning and preparation could take around six months, but the actual process of formally pitching investors could be as quick as a few weeks. But one thing always remains true: As you close each round of funding, you should be thinking ahead to the next round.

In exchange for their investment, typical Series A investors will receive common or preferred stock of the company, deferred stock, or deferred debt, or some combination of those. The entire investment is premised on the valuation of the company, how much it is worth, and how that valuation may change over time.

Still, startups can only delay fundraising for so long. Among the slowest quartile of startups, it took an average of 34.5 months to go from Series A to Series B over the past 12 calendar years. It's uncommon to see a gap of four years or more between rounds.

What is the conversion rate from seed to Series A? ›

The average European conversion rate from seed to Series A is 19% within 36 months from the seed. Series A funds can grow your startup, by kickstarting market expansion or developing new products and services. Rocsole, for instance, used its Series A fund to improve its product and focus on adding value for customers.

Most Series A funding is expected to last 12 to 18 months. If a company still needs funds after this period to dominate its market, it can go through Series B funding.

Finally, the Series A valuation is calculated by dividing the post-money valuation by the number of shares outstanding after the funding round. The pre-money valuation is important because it sets the stage for how much equity investors will receive in exchange for their investment.

The primary risk associated with Series A funding is that it comes with strings attached. Investors may be granted veto power over certain decisions, board seats, or even majority control of the company's decision making. This can make it difficult for founders to maintain control of their company.

Series A funding is meant to last between six months and two years to guide development. Business owners need a clear plan for how much money they will need in the Series A round to sustain their business throughout the product launch.

Q: Can I raise a series A round twice? You can.

The seed stage

Market research. Business plan development. Setting up a management team. Product development.

Venture capitalists (VCs) invest in seed rounds to help a startup grow from its early stages into a larger company. A typical seed round includes investments from a few VC firms and angel investors. VCs typically invest between $500,000 and $2 million in a seed round.

After the pre-seed and seed round, series A financing is one of the funding rounds an early stage startup will encounter. By this point, the startup is showing promising growth potential and has achieved great milestones in the process of becoming a well-established business.

The term “seed round” refers to investments in which no more than 15 investors provide early funds to start a new company.

What is the average deal size for a Series A? ›

The typical Series A deal size peaked in 2022 at $14 million (median) and $19.1 million (average). It has since come down to $12 million and $18.7 million, respectively — not a big drop, one could say.

A typical range is somewhere between 12 and 18 months. There are significant differences in the amount raised by companies at this stage, but expect rounds to range from $50,000 to $2,000,000.

Some will suggest making a shallow hole in the center of the potting mix to put the seeds in and others will say to add seed right on the surface. It's best to add 2-3 seeds to each pot, in case one doesn't sprout.

In botany, the radicle is the first part of a seedling (a growing plant embryo) to emerge from the seed during the process of germination. The radicle is the embryonic root of the plant, and grows downward in the soil (the shoot emerges from the plumule).

The radicle (primary embryonic root) emerges from the seed first to enhance water uptake; it is protected by a root cap produced by the root apical meristem. Water is essential for metabolic activity, but so is oxygen.

The Series A funding is about trying to scale the product and the team to take the company to the next level. There are many macro-economic and company-specific variables, but a Series A typically raises between $10 million and $20 million.

In Silicon Valley, it is normal for startup founders to pay themselves a salary after they've raised funding. Seed funded founders usually pay themselves a modest about; our data says $130,000 per year. Later stage founders may pay themselves several multiples of that.

A seed round is used to demonstrate your product, service, or team can seize a market. A series A round is used to scale the product, service, or team to attack and scale in your market (or a new market).

Seed funding provides a startup with the initial funds they need to get off the ground. Series A funding helps a startup grow and scale their business. Series B funding helps a startup scale their business even further. Each type of round has its own benefits, which can help a startup in different ways.

Pre-seed funding is often the earliest stage of startup funding, coming before seed funding and other stages. During this stage, investors provide startups with capital to begin developing products in exchange for equity.

What is seed round size? ›

Seed rounds are typically between $2–$5 million with a post-money valuation between $20–$30 million. Though some seed funding is done on Simple Agreement for Future Equity (SAFEs) and convertible notes, the seed round is often the first round of equity financing.

During a Series A funding round, a business usually will not yet have a proven track record, and may have a higher level of risk. During a Series A round, investors will usually be able to purchase from 10% to 30% of the business.

Seed funding provides smaller amounts of investment capital and occurs before Series A funding. Some businesses may take out a line of credit as part of their seed funding, while Series A funding is equity-based.

The process of seed germination includes the following five changes or steps: imbibition, respiration, effect of light on seed germination, mobilization of reserves during seed germination, and role of growth regulators and development of the embryo axis into a seedling.

It's not uncommon for startups to engage in what is known as "seed" funding or angel investor funding at the outset. Next, these funding rounds can be followed by Series A, B and C funding rounds, as well as additional efforts to earn capital as well, if appropriate.

A strong pre-seed founder will typically look to raise their seed round within 12 months of raising their pre-seed, but investors say it can depend more on how well a startup's executed things like developing its MVP and growing the team than a specific time frame.

This is calculated by taking the total value of the company and subtracting the value of the shares that will be sold to the investor. Post-money valuation is the value of the company after the investment is made. This is calculated by taking the pre-money valuation and adding the amount of the investment.