Seed Funding (Early Traction Stage) | Startup Basics

Seed funding is one of the initial stages to startup funding where founders prove their scalability and business model in front of professional investors.

It is not for complete beginners without an MVP.

This round is all about proving traction, refining the product, and preparing for future growth. Seed investors tend to back startups with high growth potential and clear market demand.

While the pre-seed phase is known as the “idea phase,” the seed phase is known as the “prototype phase”. This means evaluating your functional minimum viable product (MVP) to its limits.

To succeed during the seed round, you also must have:

• some traction,
• strong team,
• a solid pitch.

This is the moment when the real competition begins.

At this point you’ll encounter many funding-thirsty founders, visioners and entrepreneurs – all doing their best to stand out.

Make sure your unique selling point is properly highlighted.

• Funding Size: $500K – $5M+ (varies by industry & market),
• Startup Stage: Early-stage, some traction but not fully scaled. Need strong traction and a scalable vision. Must prove demand & business model potential,
• Investors: Angel Investors, Seed Venture Capitalists (VCs), Accelerators,
• Equity Dilution: 10% – 25% (depending on valuation),
• Risk Level: Still High, but lower than pre-seed. (There is some traction but unproven scalability.)

One of the primary goals of this phase is refining the product.

The seed round allows startups to improve features based on user feedback. It helps founders to ensure they are building something valuable. Seed funding also aims at boosting customer acquisition.

Another crucial aspect is hiring key team members, such as:

• engineers,
• sales,
• marketing professionals, etc.

Additionally, startups use seed funding for proving their business model, demonstrating that they can generate revenue and sustain long-term growth.

Finally, seed funding plays a vital role in preparing for Series A, the next level of startup funding game.

• Build a strong pitch deck – Clearly show problem, solution, traction, and business model.
• Demonstrate early traction – Show growing user base, engagement, or revenue.
• Have a scalable business model – Investors want to see how you’ll grow long-term.
• Network with investors – Attend pitch events, use LinkedIn, and apply to accelerators.
• Leverage warm introductions – Investors are more likely to fund startups referred by trusted sources

In short: investors type.

The pre-seed round is geared towards funding from friends and family, dedicated startup accelerators, or even crowdfunding. Seed funding is more likely from angel investors and potentially early-stage venture capitalists.

Seed startups can attract investment from various sources.

For many, this comes in the form of venture capital. Here are four major types you may encounter while pitching your vision during the seed stage:

• Accelerators and incubators – Organizations like Y Combinator and Techstars, not only offer funding but also provide mentorship and networking.
• Corporate investors – Large and well-known industry giants play a significant role in the seed funding stage.
• Angel investors – typically high-net-worth individuals, provide funding in exchange for equity, often taking a hands-on approach.
• Seed venture capitalists – VCs such as First Round Capital, Accel, and Sequoia Seed, focus on promising early-stage startups with high growth potential.
• Additionally, equity crowdfunding platforms like SeedInvest, Republic, and AngelList allow startups to raise capital from a broad pool of investors. A notable example is Airbnb, which secured $600K in seed funding from Sequoia Capital and Y Combinator, enabling the company to refine its platform before expanding globally.

Example: Stripe used its early traction and Y Combinator backing to secure a $2M seed round from investors like Peter Thiel and Sequoia Capital.