Seed funding: how much to raise and how to close the round

What seed funding is and who provides it

Seed funding pays for the stretch between a tested idea and a company that has a team and a shipped product with its first customers. Founders usually raise it after their own savings and any friends-and-family money, and before a Series A led by a venture fund.

The investor gets one of three things in return:

• shares at a set price, in a priced round;
• a right to shares at a later priced round, through a SAFE;³
• a short-term loan that converts into shares, through a convertible note.⁴

The section below compares these instruments term by term.

The money buys a defined amount of work:

• salaries for the first engineers and the first sales or growth hire;
• building the product and shipping it to paying users;
• tools, hosting, insurance and legal costs;
• the evidence the next round asks for, such as revenue growth with retention, or signed contracts.

A seed round ends at the milestone. When the team reaches it, the company raises a Series A on the new numbers, or revenue pays for the next stage. If the money runs out first, the company raises again on weaker terms or shuts down.

Where seed sits: pre-seed, seed, Series A

Each stage is defined by what you have proved by its end. The check size follows from the work that proof costs.

At pre-seed the evidence is mostly qualitative: notes from customer interviews, sign-ups from a demand test, a prototype in front of users. You can run both with our guide to customer interviews and a demand test.

At seed, investors want a product in use and numbers that move month over month. A Series A investor looks for growth that repeats and acquisition costs that stay in line with revenue per customer as spending rises.

The only stage amount this page quotes is the seed median: $4.5 million in Q2 2026.² Pre-seed and Series A amounts vary by sector and year, so put a date next to any figure you plan around.

Write the milestones down before you size anything. A product roadmap with dates gives you the months-to-milestone figure the formula in the next section needs.

How much seed funding to raise

Raise enough to reach the milestone your next round needs, plus a buffer. Our method sizes the round from monthly net burn and months of runway:

R = B × M

Count the heads you plan to have after the hires the round pays for. A burn based on today’s team understates B from the third or fourth hire onward.

For M, seed rounds are commonly sized for 18–24 months of runway, and some newer guidance recommends 24–30 months or more.¹ Count the months to the milestone first. Then add a buffer for the next raise, which itself takes months of meetings and diligence while the burn continues.

Then check your number against current benchmarks:

A median means half the rounds in that dataset were at or below it. Your burn and your milestone set your round. The median tells you whether investors will read the amount as normal for the stage.

The rules our method applies:

1. Size R from the milestone. A target valuation never sets the amount.
2. Before you compare two offers, convert both valuations to pre-money, or both to post-money.
3. Model the SAFE stack before you sign the next SAFE.
4. Date every benchmark you quote.
5. Compare d with the 19.4% median.² When your total seed dilution runs above 25% (our threshold, an assumption), cut R back to the milestone or split the raise so part of it comes in at a higher price after a milestone.

Example: sizing a $2.2M seed round

This is an example by our method. No real company is involved. Every input is an assumption, and the other figures are arithmetic on those inputs.

The case: a six-person B2B software startup that raised a pre-seed round, has its product in pilots and no revenue yet (assumption).

Step 1, burn. In our example, six people cost a fully loaded $15,000 a month each, plus $20,000 a month of other costs (assumptions), with no revenue: B = 6 × $15,000 + $20,000 = $110,000 a month.

Step 2, runway. The team needs 16 months to reach the revenue milestone a Series A investor would ask for, plus a 4-month buffer (assumptions). M = 20 months, inside the 18–24 month range.¹

Step 3, the round. In our example, R = $110,000 × 20 = $2,200,000.

Step 4, a priced round. At an $8 million pre-money valuation (assumption), post-money in our example is $10.2 million. In our example, new investors own 2.2 ÷ 10.2 = 21.6%, and founders and earlier holders keep 78.4%.

Step 5, one headline on two bases. An investor offers «$10 million» (assumption). In our example, read as a pre-money valuation, post-money is $12.2 million and dilution is 2.2 ÷ 12.2 = 18.0%. As a post-money SAFE cap, dilution is 2.2 ÷ 10 = 22.0%.⁵ One word in the offer moves your dilution by 4 points.

Step 6, a SAFE stack. In our example, instead of one round, the company raises $0.5 million at a $6 million post-money cap, then $1.7 million at a $10 million post-money cap (assumptions). The holders own 0.5 ÷ 6 = 8.3% and 1.7 ÷ 10 = 17.0%, or 25.3% together, before the Series A adds its own dilution.⁵

Step 7, the option pool. In our example’s priced case, investors ask for a pool of 10% of post-money, created before close (assumption). In our example, founders and earlier holders fall to 1 − 0.216 − 0.10 = 68.4%. In our example, the pool comes out of their side of the table: 68.4% of $10.2 million is about $7.0 million, which is the effective pre-money they receive.

Step 8, the benchmark check. The $2.2 million round is below the $4.5 million Q2 2026 median, and the 21.6% priced dilution is above the 19.4% median.² The SAFE stack lands at 25.3%, about 6 points above the median and over the rule 5 threshold. Under rule 3, the founders model the stack before signing the second SAFE. They then negotiate a higher cap on it, or split it so part closes after the pilots convert to revenue.

SAFE, convertible note or priced round

A SAFE (simple agreement for future equity) is a contract for shares in a later priced round. It is not a loan: it pays no interest and has no maturity date.³ Under Y Combinator’s post-money SAFE, the holder owns at least the investment divided by the post-money valuation cap, measured just before the priced round’s new money comes in.⁵ That rule lets you compute each holder’s share on the day you sign, which is why the stack in the example adds up to an exact 25.3%.

A convertible note is short-term debt. It carries interest and a maturity date, and it usually has a valuation cap and a discount on conversion.⁴ Interest accrues into the converting amount, so the holder converts more than the original principal. If the maturity date arrives before a priced round, the note’s own terms decide what happens next. Read that clause before you sign.

In a priced round, investors buy shares at a price per share that the pre-money valuation sets. Legal costs run higher than for a SAFE, and the round fixes everyone’s ownership at close. It also brings the full set of terms, which you negotiate once with a lead investor: board seats and pro rata rights, plus protective provisions.

How to choose:

• Choose a post-money SAFE if you raise from several angels at different times and want each check to close on its own.
• Choose a convertible note if your investors require debt terms and you accept interest and a maturity date.
• Choose a priced round if one lead investor sets the price for most of the amount, or if your SAFE stack has grown large enough that you want dilution fixed now.

How to raise a seed round: 7 steps

Who invests at seed

Angels invest their own money and decide alone or in small groups. Individual angels typically write checks of $25,000 to $100,000.⁶ Several angels can fill a SAFE round with no lead. A seed fund invests money from its own investors, decides through its partners and often leads the round and sets the terms others sign on.

Regulation Crowdfunding lets a company raise up to $5 million from the public in any rolling 12-month period.⁷ The offer runs through a registered funding portal with a Form C filing.

Federal R&D programs fund technical work. A company can receive up to $2 million in NSF SBIR/STTR R&D funding.⁸ Read the current NSF solicitation for the phase limits and the award terms before you count this money in your runway.

Term sheet, diligence and closing

After the round

• Send investors a monthly update: cash in the bank, burn, runway in months, progress on the milestone and one specific ask.
• Recount runway every month on the same formula. When new hires raise B, M falls; the update should say by how much.
• Keep the milestone tied to what the next round needs, and start that raise while the buffer in M is still intact.
• Update the cap table the day you sign any SAFE or note, or any option grant.

Seed funding mistakes

FAQ

Sources

1. allied.vc, 10/22/2026
2. carta.com, 10/22/2026
3. en.wikipedia.org, 10/22/2026
4. waveup.com, 10/22/2026
5. promise.legal, 10/22/2026
6. sheetventure.com, 10/22/2026
7. beancount.io, 05/18/2026
8. manusights.com, 10/22/2026
9. sec.gov, 10/22/2026
10. williamsmullen.com, 10/22/2026