What do VCs look for in a seed-stage startup before investing?

Which industries receive the highest seed funding and why? If you’ve asked yourself these questions, at the end of this article, you will have all your answers.

Funding at seed-level helps founders develop their product, test the market, and scale operations before moving to funding rounds like Series A.

The seed funding that startups can raise varies depending on the industry, business model and investors. Before examining the typical amount for VC funding at Seed Level, let’s get started with a typical seed size.

 
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What is a Typical Seed Size?

This question may have crossed your mind if you’re new to the startup game. The size of every seed round is mostly based on the startup stage and the industry.

Most seed rounds range from $500K to $3 million, with some businesses requiring significantly bigger investments.

Seed rounds in high-growth sectors, such as AI, biotech and deep tech can range from $3 million to $6 million or more due to higher costs.

Let’s move on to the factors that influence typical amount for VC funding at Seed level.

 

Factors Influencing Seed Round Size

1. Industry

Startups that are capital-intensive industries need a lot of funding due to high costs like research and development, equipment, prototyping and so many others.

Software-based startups sometimes require less funding since development costs are lower.
 

2. Market Potential

Investors always consider the Total Addressable Market (TAM) when evaluating the typical amount for VC funding at Seed level.

Startups with disruptive technologies in large markets have the potential to raise bigger rounds.
 

3. Founder and Team Experience

If you’re a founder with a track record of success with similar industry experience, you are more likely to secure larger seed rounds.

Investors mostly go for teams with skills that complement each other with strong network and execution abilities.

 
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4. Revenue

Startups with early revenue and user traction influence the size of a seed round.

This demonstrates product-market fit, making startups more attractive to investors and increasing their chances of securing typical funding for seed-level VCs.

A better potential return on investment and less risk are indicated by revenue growth.

 

Typical Seed Funding Amounts by Industry

The seed funding landscape has seen some major changes in several industries due to things like industry dynamics, technical improvements and so many others.

Each industry has different capital needs, which influences the typical amount for VC funding at Seed level. Here’s a breakdown of the usual seed funding amounts by industry.
 

1. Software & SaaS

The seed funding for Software-as-a-service (SaaS) startups usually ranges from $1 million to $3 million. These businesses often need capital to scale successfully, increase human resources, cover development costs and achieve market adoption.

Seed funding amounts for Software and Software-as-a-Service (SaaS) startups typically range from $1 million to $3 million.

These ventures often require capital to cover development costs, enhance scalability, and achieve market adoption. This range is enough for early growth since it requires less capital than hardware-focused startups.
 

2. Fintech

When it comes to Fintech startups, they mostly secure seed funding between $1.5 million and $4 million.

This range is mostly used for expenses like regulatory compliance, security infrastructure and investing in disruptive user acquisition strategies.
 

3. Biotech & Healthtech

Biotechnology and Health Technology startups often require seed investments ranging from $2 million to $5 million or more.

Clinical studies, acquiring required regulatory permissions, and huge research and development expenses are the main uses of the capital.

Rigorous testing protocols may require more than the typical amount for VC funding at Seed level to ensure innovations successfully reach the market.

 
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4. E-commerce

Seed funding for E-commerce startups ranges between $500,000 and $2 million. The funds are used for inventory management and majorly executing effective targeted campaigns.

This is a very attractive sector because of how easy it is to start and grow quickly, but it also makes it easy for strong competition.

This sector requires smart distribution funds to stand out and retain customers.
 

5. Artificial Intelligence (AI) & Deep Tech

Startups that are focused on artificial intelligence and Tech sectors, often secure the typical amount for VC funding at Seed level ranging from $3 million to $6 million.

It reflects the need for the acquisition of specialized talents and advanced research. The potential of AI in the industry does a pretty good job of attracting investors.

It encourages them to commit a significant amount of capital to support groundbreaking innovations.
 

6. Hardware & Robotics

Hardware and Robotics startups often require seed investments ranging from $2 million to $5 million or more. The capital is necessary for setting up manufacturing processes, prototyping and so much more.

Substantial capital is necessary for prototyping, setting up manufacturing processes, and developing complex supply chains.

Since this industry deals with physical products, it has higher upfront costs than software businesses as earlier mentioned.
 

7. Consumer Startups

Consumer startups, like beauty and personal care brands, usually raise $750,000 to $2.5 million in seed funding.

The typical amount for VC funding at Seed level is distributed to market research, branding, customer engagement and retention.

 
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What Startups Should Know Before Raising Seed Funding

Raising the typical amount for VC funding at Seed level is an important step for startups and it’s important to be fully prepared to increase your chances of securing the investment your startup needs.

Here are key things startups should know before seeking seed funding:

 

1. Understand Your Funding Needs

Your startup should have a clear idea of how much funding you need and a breakdown of how you intend to distribute it. Investors expect a detailed financial breakdown which should include hiring, marketing, product development, operations and estimated expenses.

 

2. Build a Strong Team

A well-balanced team increases credibility in the eyes of investors. They give more listening ears to a startup that has a team ready to go and work like a well-oiled machine.

As a founder, you should highlight the various expertise and abilities to help execute the business plan.

 

3. Validate Your Idea and Market Fit

Investors want proof that your startup has the potential to successfully disrupt the market and pivot. This means having a minimum viable product (MVP), customer feedback, or early traction.

Market research should demonstrate demand for the product and a clear competitive advantage to secure the typical amount for VC funding at Seed level .

 

4. Know Your Valuation and Equity Trade-Off

How much is your startup worth in terms of potential and finances? How much are you willing to give investors? You must determine a realistic valuation before raising funds.

A higher startup value means giving up less ownership, but you need to show strong progress and be prepared to negotiate equity shares with investors.

 
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5. Target the Right Investors

Just because they have the funds you need, doesn’t mean they’re the right investors for your startup. Some investors specialize in certain industries or startup stages.

Adequate research should be done before approaching investors and they should be in alignment with your business model and growth plans.

 

6. Prepare a Strong Pitch Deck

A compelling pitch deck should have the problem, solution, market opportunity, unique value proposition, traction, business model and team.

It should be visually appealing and include accurate, up-to-date data to convince investors and secure the typical amount for VC funding at Seed level
 

7. Understand the Fundraising Process

It takes time to raise seed funding unless you’re having a lucky streak. You should be prepared to have multiple meetings and negotiations.

Get used to the steps, like investor outreach, and term sheet agreements.

 

8. Consider Alternative Funding Options

Seed funding is the popular route for startups, but that shouldn’t stop you from trying out other alternatives like revenue-based financing, bootstrapping, crowdfunding or grants.

 
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How Can RocketDevs Help?

It’s important to take into consideration the ingredients you need to raise a typical seed-level VC funding. Let’s start with the building of the team.

Getting a team that complements each other’s skills, understands the vision and makes your startup look good in the eyes of an investor should be at the top of the list.

RocketDevs was created for this purpose and has successfully helped startups scale easily with Silicon Valley standard developers who have been pre-vetted through a rigorous assessment.

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