October 26, 2026
A seed round is the money a startup raises to go from early traction to a repeatable business, and it comes in one of two forms: a larger round of post-money SAFEs, or the company's first priced round, where investors buy Series Seed Preferred Stock at a fixed price per share. If you price your seed, your pre-seed SAFEs convert at the same closing, the term sheet sets the rules your company will live with until the Series A, and the terms that matter most are valuation, the option pool, the board and the liquidation preference.
We've been helping founders raise money since we started Westaway in 2008, and the seed round is where we see the most avoidable mistakes. It's often the first time a founder negotiates with a professional investor, the first time the company issues preferred stock, and the first time all those pre-seed SAFEs turn into real shares on the cap table. This guide walks through the whole thing in the order you'll meet it: choosing between a SAFE round and a priced round, picking the documents, understanding how your SAFEs convert, reading a seed term sheet term by term, and getting through diligence and closing. Read it start to finish before your first investor meeting, or jump to the section you need.
Key takeaways
A seed round funds the push from an early product with some users or revenue to a business that can show Series A investors repeatable growth. Investors at seed are usually angels, seed funds and sometimes a multistage venture fund writing an early check. They're betting on the team and the market, but they also want to see real usage, early revenue or strong pilots, plus a credible plan to hit the milestones a Series A lead will look for.
The names of rounds are marketing, not law. Some companies call their first priced round a "seed," others call a large seed a "Series A," and plenty of companies raise a "pre-seed" that's bigger than another company's seed. The legal question is what you're selling: SAFEs, convertible notes, or preferred stock at a fixed price. See Startup Funding Stages.
Round sizes and valuations move every month and vary widely by sector, location and team. Before you set a cap or agree to a price, check current market data for your stage. Founder Fridays publishes median seed round sizes and post-money valuations each month, and the founders who closed a round in your sector in the last few months are the best source of all.
Seed money isn't right for every company. If you're building a profitable business that won't grow fast enough for a venture fund's math, look at angels, family offices, revenue-based financing and bank debt instead. See Venture Capital 101: Is It Right for Me?
This is the first decision, and it shapes everything after it. A SAFE round sells a contract right to future shares. A priced round sells preferred stock today, at a fixed price per share, and comes with a new certificate of incorporation and a set of investor agreements.
| Feature | Post-money SAFE round | Priced seed round |
|---|---|---|
| What investors get | A contract right to shares in the next priced round | Series Seed Preferred Stock at closing |
| Valuation | A cap that limits the conversion price, not a valuation | A negotiated pre-money valuation and price per share |
| Documents | One short SAFE per investor plus a board consent | A term sheet, a purchase agreement, an amended charter, and in an NVCA round several investor agreements |
| Governance changes | Usually none | Protective provisions, investor rights, sometimes an investor board seat |
| Typical company legal cost | Low single-digit thousands to about $10,000 | About $15,000 to $40,000 |
| Typical timeline | Days to two weeks | Four to eight weeks from a signed term sheet |
For a round under about $2 million, a post-money SAFE is almost always the right tool, unless a lead investor insists on pricing it. Above that, it depends on who is leading. Plenty of seed rounds of $2 million to $5 million are still done on SAFEs, especially when a seed fund sets the cap and the rest of the round follows. A round becomes a priced round when the lead wants preferred stock now, a board seat or information and pro rata rights written into the charter and investor agreements, or a defined valuation rather than a cap.
There's also a quieter reason to price a seed round: SAFE stacking. Every post-money SAFE you sell dilutes the founders, not the earlier SAFE holders, and the total can get large before anyone notices. If you've already sold 15% to 20% of the company on SAFEs, pricing the seed resets the cap table, converts all of that into stock, and gives the company a clean starting point for the Series A.
If you're raising your seed on SAFEs, our Founder Guide to SAFEs covers that process from start to finish. If an investor insists on debt, see our Founder Guide to Convertible Notes. For the comparison in short form, see SAFE vs. Convertible Note vs. Priced Round. The rest of this guide focuses on the priced seed round.
There are two standard starting points for a priced seed round.
The Series Seed documents are the short form: a term sheet, a stock investment agreement and an amended and restated certificate of incorporation. They keep the core economics of a preferred stock round (liquidation preference, anti-dilution, conversion, protective provisions) and fold the basic investor rights, such as information rights and pro rata rights, into the investment agreement. They're designed for a first priced round led by angels or a seed fund.
The NVCA model documents are the long form, published by the National Venture Capital Association and updated regularly. A full NVCA set adds a separate investors' rights agreement, a right of first refusal and co-sale agreement and a voting agreement, along with registration rights, a drag-along and detailed board arrangements. Every venture fund and its lawyers know them line by line.
The old rule of thumb that rounds under $2 million use Series Seed and bigger rounds use NVCA no longer holds. Choose by lead investor, not by round size. If your lead is a venture fund that wants a board seat, a voting agreement and the full package of rights, you'll be on NVCA documents, and fighting it rarely saves money. If your round is led by angels or a seed fund that wants preferred stock without heavy governance, Series Seed gets you there faster and with lower legal fees on both sides. See Series Seed vs. NVCA Documents.
Either way, the security is usually called Series Seed Preferred Stock, and the terms in the term sheet are the same kinds of terms. The sections below describe them at seed scale. Our Founder Guide to Series A walks through the full NVCA term sheet as it's negotiated at the next stage.
Both sets are public. The NVCA posts its model legal documents free on its website, and the Series Seed documents are open source, so you can read the forms before your lead's counsel sends a draft.
Most companies that price a seed round already have SAFEs outstanding, often several rounds of them at different caps. You don't need to do anything to convert them before the round. Under their terms, they convert automatically when the priced round closes. What founders often don't expect is how much of the company those SAFEs turn into, and who absorbs the option pool increase.
A post-money SAFE converts at the lower of two prices: the price per share set by its valuation cap, or the price the new investors pay (less any discount). The cap price is the post-money cap divided by the company's capitalization just before the priced round. That capitalization counts all outstanding shares, all options and the existing unissued option pool, and all the SAFEs and notes converting at the same time. Under the standard Y Combinator post-money SAFE, it does not count any option pool increase made as part of the priced round. So the SAFE holders' shares are calculated first, and the pool increase then dilutes them along with the founders. See Valuation Cap and SAFE.
Because each SAFE converts at its own price, SAFE holders usually receive a "shadow" series of preferred stock, such as Series Seed-1 and Series Seed-2. The shadow series carries the same rights as the new investors' Series Seed, but its liquidation preference and conversion price are set at the SAFE holder's lower effective price, so the SAFE holder's preference roughly equals what they actually paid rather than what their shares are worth at the round price.
Here's how a typical conversion plays out. The founders hold 8,000,000 shares and the company has a 1,000,000-share option pool, none of it granted yet, so it has 9,000,000 shares on a fully diluted basis. (At Westaway, fully diluted means issued and outstanding shares plus the full option pool, granted and ungranted, plus warrants. SAFEs and notes aren't counted until they convert.)
Before the seed, the company sold two rounds of post-money SAFEs: $500,000 on a $5,000,000 cap, which is 10%, and $750,000 on a $10,000,000 cap, which is 7.5%. Together the SAFE holders own 17.5% of the company capitalization just before the priced round, which works out to about 10,909,091 shares. The first SAFE converts into about 1,090,909 shares and the second into about 818,182.
Now a lead invests $3,000,000 at a $12,000,000 pre-money valuation, a $15,000,000 post-money, and requires a 10% unallocated option pool after closing, counted in the pre-money. To get there, the company adds about 415,584 shares to the pool, the new investors buy about 2,831,169 shares at about $1.06 per share, and the company ends up with about 14,155,844 shares fully diluted.
| Holder | Shares | Fully diluted ownership after the seed | Value at the seed price |
|---|---|---|---|
| Founders | 8,000,000 | 56.5% | About $8,480,000 |
| $500,000 SAFE ($5M cap) | 1,090,909 | 7.7% | About $1,156,000 |
| $750,000 SAFE ($10M cap) | 818,182 | 5.8% | About $867,000 |
| Option pool | 1,415,584 | 10.0% | About $1,500,000 |
| Seed investors | 2,831,169 | 20.0% | $3,000,000 |
Three things are worth noticing. First, the founders went from about 88.9% of the fully diluted company to 56.5% in one closing, and more than a third of that drop came from SAFEs they signed months or years earlier. Second, both SAFEs converted well below the new investors' price (about $0.46 and $0.92 per share against $1.06), which is the reward for investing early. Third, the 415,584-share pool top-up came out of the founders and the converted SAFE holders, not the new investors. That's the post-money SAFE working as designed.
Build this model before you negotiate the term sheet, not after. Every term that touches the denominator (the pre-money valuation, the pool size, the amount raised) changes the result, and the SAFEs make the effects bigger. See Equity Dilution.
Pull every SAFE and convertible note and confirm the cap, any discount, and any most-favored-nation clause. An MFN clause in an early SAFE can entitle that investor to better terms you gave later investors. Check for side letters granting pro rata or information rights, because the YC pro rata side letter gives the SAFE holder a right to buy into this exact round. Convertible notes convert under their own terms, usually on a pre-money basis and with accrued interest converting too, so notes need their own line in the model. See Convertible Notes.
SAFE holders don't need to approve their conversion, but the company usually asks them to sign the purchase agreement or a joinder, and in an NVCA round the investor agreements, so they're bound by the same terms. They're often the hardest signatures to collect, so start early.
The headline number in a term sheet is the pre-money valuation. What actually matters is the price per share, which is the pre-money valuation divided by the pre-money fully diluted share count, and the term sheet usually defines that count to include the option pool the investors require. The valuation term often reads something like this: "a pre-money valuation of $12,000,000, which includes an unallocated option pool equal to 10% of the post-money fully diluted capitalization." Most seed term sheets also count the shares your SAFEs and notes convert into as part of the pre-money, which is what our example assumes. That's market practice, not a rule of law, so read the definition and model it.
That clause is where the option pool shuffle happens. Because the pool is created inside the pre-money, the new investors aren't diluted by it. The existing holders are. In the example above, the 10% pool is worth $1,500,000 at the seed price, and the 415,584-share increase is paid for entirely by the founders and SAFE holders. A smaller pool can be worth more to founders than a higher headline valuation.
Your best tool here is a hiring plan. Build a hire-by-hire option budget through the Series A, usually 12 to 18 months: each role, when you'll hire it, and the grant size. Add a modest cushion and propose that total as the pool. Our default for pool size is 10%, 15% or 20% depending on how aggressively you'll hire before the next round, and seed term sheets commonly land around 10% post-money. Make sure the calculation credits the unallocated shares you already have and any grants you've promised but not yet made, so you don't pay twice. If the investor wants more than your plan supports, ask for the excess to come out of the post-money. See Negotiating an Option Pool and Employee Option Pool.
Finally, don't judge a term sheet by valuation alone. A seed lead who helps you hire, opens doors for the Series A and stays steady when a quarter goes badly can be worth more than a higher price from an investor who won't.
A seed term sheet is non-binding on the deal terms, but it sets the frame for every document that follows. Once it's signed, reopening a term costs credibility, so negotiate here. The terms below appear in both Series Seed and NVCA-based seed term sheets, in roughly the order you'll see them.
The term sheet names the security (Series Seed Preferred Stock), the total amount raised, the lead's commitment, and a target closing date. It usually permits additional closings, often for up to 90 days after the first close, on the same terms, up to a capped number of shares. That lets you close with committed investors and bring in stragglers later. See Can You Have Multiple Closings?
Conditions to closing are usually standard: satisfactory diligence, final documents, the amended charter filed in Delaware, and any required consents. Read them anyway. A condition like "satisfactory completion of business diligence" or a requirement to hire a particular executive before closing gives the investor a way out.
The liquidation preference decides who gets paid first when the company is sold or wound down. The seed standard is a 1x non-participating preference: on a sale, each preferred holder takes the greater of its original investment or what it would get by converting to common. In a good outcome, the investor simply converts and shares pro rata with everyone else. The preference only matters on the downside.
Say seed investors put in $3,000,000 for 20% of the company. If the company sells for $8,000,000, a 1x non-participating investor takes its $3,000,000 preference, since 20% would be only $1,600,000, and the common stockholders share the remaining $5,000,000. If the company sells for $30,000,000, the investor converts and takes 20%, or $6,000,000. A participating preferred investor would take $3,000,000 off the top and then 20% of the remaining $27,000,000, for $8,400,000, and every extra dollar comes out of the founders and employees.
Whatever you give seed investors becomes the starting point for your Series A. If the seed preferred gets participation or a 2x preference, the next lead will expect at least the same, and the preferences stack round after round. A term that costs little on a $3 million seed can cost the common millions once a $15 million Series A sits on top of it.
At seed, ask for 1x non-participating, with all series of Series Seed ranking equally (pari passu) and no cumulative dividends. Treat a multiple above 1x or participation as a major concession that needs a compelling reason. See Liquidation Preference and Preferred Stock vs Common Stock.
Seed preferred usually gets any dividend paid on the common, on an as-converted basis, and nothing more. Startups rarely pay dividends, so this only matters if the dividend is cumulative, meaning it accrues every year and gets added to the liquidation preference. Strike it if you see it.
Anti-dilution protection lowers the price at which preferred stock converts into common if the company later sells stock at a lower price (a down round). The standard, in both Series Seed and NVCA documents, is broad-based weighted average, which adjusts the conversion price based on both the new price and how many shares are sold at it. Accept it. Refuse full ratchet, which resets the conversion price to the new low price no matter how few shares are sold and shifts the cost almost entirely to the founders and employees.
Check the carve-outs. Option grants under the equity plan, SAFE and note conversions, stock splits and board-approved strategic issuances should all be excluded. See Anti-dilution and What Is a Down Round?
Preferred stock can be converted into common at any time at the holder's option, initially one for one. It converts automatically in an IPO, or when the holders of a set percentage of the preferred vote to convert all of it. At seed, that threshold should be a majority of the preferred voting together. A higher threshold gives a single investor a veto over a conversion that might be part of a sale or a recapitalization.
Preferred stock votes alongside the common on an as-converted basis, so a seed investor who owns 20% has 20% of the ordinary stockholder vote. That isn't enough to block anything on its own, which is why the term sheet adds protective provisions: a short list of fundamental actions that need the separate approval of a majority of the preferred.
Series Seed documents use a short list: selling or dissolving the company, changing the charter in a way that hurts the preferred, creating stock senior to or on par with the Series Seed, paying dividends or redeeming shares, and changing the size of the board. NVCA-based seed term sheets often add items such as debt above a threshold, changes to the authorized shares and pool increases.
Three requests are reasonable at seed. Ask for a single vote of a majority of all preferred, not separate votes for each series. Know who controls that majority, because if one fund holds most of the preferred, a "majority" vote is really that fund's veto. And keep operating decisions like budgets, hiring and ordinary contracts with the board, where they can be made quickly.
Watch for vetoes that are bigger than they look. A veto over creating any new series of stock, or over any charter amendment, is really a veto over your Series A, because every priced round does both. Ask that the charter veto cover only changes that hurt the Series Seed, and don't give a veto over issuing stock that ranks equally with it. See What Are Protective Provisions?
Board seats are the real lever of control in a startup. Before a priced round, the board is usually just the founders, and a SAFE round should never come with a board seat. At seed, the question is whether the lead gets a seat at all. Our view is that founders should resist an investor seat in a priced seed unless the lead is writing a large check, roughly $2 million or more. If you do add an investor, a three-person board with two founders and one investor keeps the founders in control.
Think a round ahead. The Series A lead will almost certainly want a seat, and seats are much easier to add than to take back. In an NVCA round, the voting agreement says who designates each seat and requires stockholders to vote for those people. That agreement, not the bylaws, protects the founder seats. Investor directors usually get a director indemnification agreement, and some funds ask for a board observer, which is created by contract and carries no vote. See How Do I Build an Early-Stage Startup Board?
Investors who meet a Major Investor threshold usually get annual and quarterly financial statements and an annual budget. At seed, set the threshold so only a handful of investors qualify. $100,000 to $250,000 invested is a common range. Every holder above the line is someone you owe reports to.
Venture funds sometimes ask for a short management rights letter, which gives the fund the right to consult with and advise management. Many funds need one to keep their fund structured the way their own investors expect under federal pension-plan rules. It costs the company very little, and there's no reason to resist it. Even investors with no formal rights should hear from you regularly. See How Do I Update Investors in My Startup?
A pro rata right lets a Major Investor buy enough of a future round to keep its ownership percentage. It's standard and generally fine for the lead and investors writing meaningful checks. Decline super pro rata, which lets an investor increase its percentage in the next round and takes allocation away from your Series A lead. Too many pro rata holders can crowd out a new lead, so be selective now. Most documents let a majority of Major Investors waive the right for everyone, which is how this gets solved in practice. See Pro Rata Rights.
A right of first refusal (ROFR) lets the company, and then the major investors, buy shares that a stockholder wants to sell to an outsider, on the same terms. A co-sale right lets investors sell alongside a selling stockholder. Before your first priced round, the company's ROFR usually sits in each founder's stock purchase agreement. In an NVCA round, the investors' rights live in the ROFR and co-sale agreement, which binds the founders and other key common holders. It usually doesn't cover the investors' own preferred stock, though some deals extend it. They're standard and keep the cap table under the company's control. Watch the exceptions: transfers for estate planning and small amounts should be permitted without triggering the process. Series Seed documents handle transfer restrictions more lightly. See Right of First Refusal.
A drag-along lets the stockholders who approve a sale of the company require every other stockholder to vote for it and sell on the same terms. Buyers want 100% of a company, and the drag-along keeps a few small holders from blocking a deal. The negotiation is over who can trigger it. The trigger to ask for is approval by the board, a majority of the preferred and a majority of the common, so the investors can't force a sale on their own. Dragged stockholders should get the same price per share within their class, give representations only about their own shares, and have liability capped at what they receive. Because the drag-along binds almost everyone once SAFEs convert, the trigger you agree to at seed tends to carry forward. See Drag-Along Rights.
Investors want to know the founders will stay. If your founder stock is already vesting (our default is four years with a one-year cliff, with an 83(b) election filed within 30 days of the date the shares are issued), that usually settles the question. If it isn't, expect the lead to ask for vesting to be added, and ask for credit for the time you've already put in. If vesting is added, check the vesting start date, which should be when you started working, not the closing, and what happens if the company fires you without cause. Unvested shares are bought back at the price you paid, typically $0.00001 per share for founder stock. Some term sheets also address acceleration on a sale. Double-trigger acceleration, which applies only if the founder is terminated after a sale, is the common compromise. See Vesting Schedule.
The term sheet usually confirms that new employee grants will vest over four years with a one-year cliff, and it requires every current and former founder, employee and contractor to have signed an invention assignment agreement. Missing IP assignments are one of the most common diligence problems we see, so fix them before you sign the term sheet. See Who Owns Startup IP?
Some term sheets also ask founders and key employees to sign non-competes. Ask to strike that requirement and offer a confidentiality and invention assignment agreement plus a narrow non-solicit instead. A reasonable non-solicit usually runs 12 months and covers only the customers and employees the person actually dealt with. California voids most non-solicits, and other states have their own rules, so check each state where you have people. We don't recommend non-competes for employees, a growing number of states ban or limit them, and the law is still moving. See Non-Compete Clauses and Non-Solicitation Clauses.
A few provisions appear in model term sheets but are uncommon at seed, and a seed investor who includes them should explain why. Pay-to-play, which penalizes investors who don't buy their share of a later round, is an optional term usually reserved for down rounds. Redemption rights, which let investors force the company to buy back their stock after a set period, are rare in venture deals. Registration rights, which govern investors' ability to sell in a future IPO, are standard in NVCA documents and largely boilerplate at seed, so they're rarely worth negotiating time either way. See Which Seed Investor Terms Should Make Me Walk Away?
The no-shop clause is one of the few binding terms in a term sheet. It bars the company from soliciting or negotiating with other investors for a set period, usually 30 to 45 days. Keep it short, and make sure it ends if the lead walks away. The confidentiality clause bars you from sharing the terms except with your advisors and existing investors. Both are reasonable at those lengths.
Term sheets often ask the company to pay the lead investor's legal fees. We think that's unfair, because the company ends up paying for the lawyer negotiating against it. Ask for each side to pay its own fees. If the lead won't move, cap the amount at a fixed dollar figure, as low as you can get it. $10,000 to $25,000 is a rough market range for investor counsel at seed. See Who Pays the Legal Fees in a Startup Funding Round?
Once the term sheet is signed, investor counsel sends a diligence request and company counsel drafts the documents. A clean priced seed round usually takes four to eight weeks from term sheet to closing. Most of that time isn't spent negotiating. It goes to diligence, cleaning up the corporate record and preparing the disclosure schedule, where the company lists every exception to the representations it makes in the purchase agreement.
What slows rounds down is predictable: missing board consents, unsigned invention assignments, equity promised in emails but never approved, options granted without a 409A valuation, and SAFEs or notes that never made it onto the cap table. Investor counsel will find these, and fixing them under deadline costs more than fixing them now. A good test is whether you could hand over a complete, organized data room tomorrow. See Startup Due Diligence and What Is a Cap Table?
At closing, the board approves the financing, the stockholders approve the amended charter, the charter is filed with Delaware, and signatures and wires come in. Collect signature pages before any money moves. An investor who wires without signing leaves the company holding money with no agreement behind it. Confirm wire instructions by phone, because closings are a favorite target for wire fraud. Every investor should be accredited, and the purchase agreement and an investor questionnaire confirm it. See Can My Startup Raise Money From Non-Accredited Investors? Depending on the type of fundraise, you may need to file a Form D and state blue sky filings.
Closing isn't the end of the legal work. Store one complete, fully signed closing set. Update the cap table the same week, converting the SAFEs and notes and recording the pool increase. Get a new 409A valuation before granting more options, because a priced round makes the old one stale, and then approve any grants you promised during the raise. See 409A Valuation.
If an investor joined the board, make sure they're formally elected and have signed any indemnification agreement the documents call for, and look at directors and officers insurance. Keep a list of the protective provisions so you know when you need investor consent, and calendar the information rights and the deadline for any additional closings. If the new charter authorized more shares, have your accountant calculate the Delaware franchise tax using the assumed par value capital method. See Why Does My Startup Owe So Much on Our Delaware Franchise Tax? and What Comes After Fundraising?
Most seed rounds that go wrong do so in a few predictable ways. Founders stack SAFEs without a running model and discover at the priced round that they've sold a quarter of the company. They win the headline valuation and give most of it back in the pool. They trade an early board seat for a modest check. They grant pro rata and information rights to every angel. And they arrive at diligence with missing IP assignments and undocumented equity promises. All of these are easy to avoid if you plan before the first investor meeting. See our guide to avoiding legal startup mistakes, and if you're a public benefit corporation, our guide to public benefit corporations for how that fits with venture funding.
If your seed is a SAFE round, start with our Founder Guide to SAFEs, or our Founder Guide to Convertible Notes if an investor insists on debt. When you're ready for the next round, our Founder Guide to Series A covers the full NVCA term sheet at that stage.
Westaway has closed seed rounds for startups on flat fees since 2008, on both Series Seed and NVCA documents. If you're planning a seed round, see our Series Seed round and NVCA seed and Series A round services, or contact us.
