Raising a seed round is one of the most consequential moments in the life of an early-stage venture. It is often the first time founders engage seriously with institutional investors, formal valuation discussions and legally binding governance structures.

Decisions made at this stage can shape not only the company’s capitalisation, but also its flexibility, incentives and investor relationships for years to come.

Seed rounds can be structured in several different ways, each with advantages and trade-offs for both founders and investors.

The most common structures are priced equity rounds, convertible notes and SAFEs with valuation caps. Understanding how these instruments work is essential for founders preparing to raise seed capital.

Priced Equity Rounds

A priced equity round involves selling shares in the company at a negotiated valuation. This requires the founders and investors to agree on a pre-money or post-money valuation, which determines how much ownership is exchanged for the capital invested. Priced rounds provide clarity and certainty around ownership from the outset and are often favoured by institutional investors, particularly as companies approach later stages.

However, priced rounds can be more complex and time-consuming to execute. They typically require more extensive legal documentation, formal shareholder agreements and board structures. At seed stage founders must be prepared to justify their valuation with data, traction and a clear growth narrative. Without sufficient evidence, valuation negotiations can become challenging or result in unfavourable terms.

Convertible Notes

Convertible notes are another common structure at seed stage. These are debt instruments which convert into equity at a later funding round, usually at a discount to the next round’s valuation. Convertible notes defer the valuation discussion, which can be attractive when the company is still early and metrics are emerging. They are often quicker and cheaper to implement than priced rounds.

However, convertible notes introduce complexity around repayment terms, interest rates and maturity dates. While these features are often designed to be founder-friendly, they can create pressure if the company does not raise a subsequent round before maturity. Founders should understand the implications of these terms and ensure they align with realistic fundraising timelines.

Simple Agreements for Future Equity

SAFEs, or Simple Agreements for Future Equity, are similar to convertible notes but are not debt instruments. Instead, they grant investors the right to receive equity in a future priced round, typically subject to a valuation cap and sometimes a discount. SAFEs are popular because they are relatively simple, fast to execute and do not accrue interest or have maturity dates.

Valuation caps in SAFEs play a critical role in determining eventual ownership. A lower cap benefits investors by securing a larger equity stake if the company performs well, while a higher cap favours founders. At seed stage, founders must think carefully about how caps accumulate across multiple SAFEs and how this will affect dilution in future rounds.

Regardless of structure, valuation becomes more central at seed stage. Even when valuation is deferred, as with notes or SAFEs, the implied valuation created by caps and discounts sets expectations for future rounds. Founders should approach these decisions strategically rather than viewing them as purely tactical or short-term.