Every startup begins as a pre-seed company, the team at Carta notes in a blog post.
At Carta, they define “pre-seed” as any company that “has yet to raise a priced equity round.”
These nascent businesses usually raise capital “with convertible instruments, the most common being SAFEs (Simple Agreements for Future Equity) or convertible notes.”
For the first time, Carta says it is diving deep into their pre-seed cap table data “to understand how founders at this stage raise capital from friends & family, angel investors, and pre-seed VCs.”
And there is a lot of data: Tens of thousands of startups that use Carta “are currently pre-seed and 2,103 of them raised capital with convertible financings in H1 2023.”
In a new report, Carta touches on “all the basics of pre-seed financing,” including:
- SAFEs, in all their many flavors
- Convertible notes and their associated interest rates
- Valuation caps and discounts
- Angel check sizes and industry segments
You may review the full report for everything you ever wanted to know about how fundraising works for the earliest startup companies.
Q2 highlights
- SAFEs have taken over: Investment through SAFEs accounted for 80% of pre-seed invested capital in Q2 2023. However, certain industries such as medical devices, hardware, and biotech still see significant investment using convertible notes.
- Valuation caps have gently declined: The median valuation cap for post-money SAFEs was $10 million this past quarter, down from $15 million at the beginning of 2022. This median is highly sensitive to round size, dipping down to $6.5M for raises between $250K-$499K.
- Legacy venture ecosystems dominate the pre-seed stage: Of the 2,103 companies that raised some form of pre-seed financing in H1 2023, over half are headquartered either in California or in New York. Companies in these mature VC ecosystems were also much more likely to raise mega pre-seed rounds ($2.5 million or more on SAFEs).
Key trends
- Total companies raising pre-seed capital by state and total capital raised by state segment | H12023
- Total dollars invested and percentage of total dollars by SAFEs or Convertible Notes in specific industries | H12023
- Total dollars invested and percentage of total dollars by terms of SAFE | Val Cap, No Discount | Val Cap + Discount | Discount, No Val Cap | Neither
