5min
Module 1: The Funding Landscape
Module 2: The Pre-Seed and Seed Stage
Module 3: The Series A Stage
Module 4: Later Stage Funding (Series B and Beyond)
Module 5: The Fundraising Process
5/16 Lessons
Content
Assignment
Seed funding is the first official money a startup raises from external investors. It's called "seed" because it's meant to plant the initial seed of the company and give it the resources to grow. Unlike pre-seed funding, which is about proving a basic idea, seed funding is about building the foundation of a real business.
1. Pre-Seed vs. Seed: A Key Distinction
While the terms are often used interchangeably, there is a key difference.
Pre-Seed
This is the earliest stage, typically a founder's personal capital and money from friends and family. The goal is to get a prototype built and prove a basic concept.
Seed
At this stage, you have moved beyond a basic idea and have some initial "traction". Seed funding is used to refine your product, build a team, and find product-market fit to prepare for a larger Series A round.
2. The Purpose of a Seed Round
The primary purpose of a seed round is to get your company from a validated idea to a functioning business with a clear path to growth. This funding is used to:
Build the Team:
Hire key full-time employees, like engineers, designers, or a marketing lead.
Refine the Product:
Move beyond your MVP and build out a more robust, stable product.
Find Product-Market Fit:
Focus on finding a repeatable and scalable way to acquire and retain customers.
Achieve Key Metrics:
Collect the data and traction you need to be an attractive candidate for a larger Series A round.
3. What Investors Look for
At this stage, investors are no longer just betting on a founder's passion. They are looking for early proof that the business has potential.
Traction:
This is the most important factor. Investors want to see evidence of customer interest, such as a large number of downloads, a growing email list, or even early revenue.
Team:
They want to see a full team with the skills to execute the vision. Your founding team should be strong and have a clear understanding of the market.
Business Model:
You need a clear idea of how your company will make money. It doesn't have to be perfect, but the logic should be sound and based on your initial customer validation.
Seed rounds can range from a few hundred thousand to several million dollars, and they typically come from "angel investors" or "early-stage VC firms".
4. Traction from Big Companies
To illustrate what this looks like in practice, here are some examples of what companies had at their seed stage:
Airbnb:
The founders were generating early revenue by manually renting out their own air mattresses and taking high-quality photos for their early listings. Their traction was in the form of a small but growing number of paying customers, proving the concept worked.
Buffer:
The social media scheduling tool launched a simple landing page that described the product. The key metric they tracked was how many people clicked a button that said "Plans & Pricing." The overwhelming positive response to that click was their traction, showing that people would be willing to pay for the service.