What's happening in pre-seed startup funding

Peter Walker - Head of Insights @ Carta | Data Storyteller via LinkedIn

What's happening in pre-seed startup funding (real data included).

Definitions upfront! This chart considers "pre-seed" funding to be:

• Before any priced rounds
• On post-money SAFEs
• Total capital raised between $800K and $2M

Your definition may vary - totally get it. Problem is there isn't one definition and we want to ground things in some sort of quantitative metric because things like "product quality" and "velocity" get messy.

To the bubbles:

• Lots of clustering around the $10M-$11M valuation cap. Obviously if you're raising $1M the cap will be different than if you're raising $2M, but the clusters are clear nonetheless.

• Certain industries are perpetually low in the val cap analysis. These include food, personal products, apparel, and medical devices.

• AI companies appear in each and every one of these bubbles (yes, even apparel). They typically see a 15-20% bump in metrics vs non-AI. But honestly, especially in software categories, there is less and less non-AI to be found.

• We consider it a "new round" when you change the valuation cap. But some founders continue to prefer the tranche-round approach, where you raise a little money at one cap then lift it and raise a little more in quick succession. When it works, it works! When it doesn't, it's a real mess.

• What percent of these companies have revenue? Not sure, but I'd guess 70%+ in the software categories. If you need funding for a pre-revenue software product, angels are a better bet.

• Geography influences things. There are strong concentrations of pre-seed angels and funds in the core venture markets like SF, which means more rounds there, which means those rounds affect the national medians. Raising in Charlotte? Probably expect a little less.

• If you're raising on SAFEs and don't expect to need any more capital (which is a more common expectation today), please do right by your investors and convert their SAFEs to real equity at some point. Maybe 2-3 years post-investment, for instance.

Go get that pre-seed, folks 🙏