Funding early product and team development
Seed capital is generally used to hire a small core team, build a first real product, and generate early evidence of demand. Investors at this stage are betting mainly on the team and market, since financial metrics are usually thin or absent. See convertible note for the mechanics.
Common seed round structures in Europe
- Priced equity round: new preferred shares issued at an agreed valuation, most common in mature European hubs like London, Berlin, and Amsterdam
- Convertible loan note: debt that converts to equity at a future priced round, common in the UK, Germany, and elsewhere for speed and lower legal cost
- SAFE-equivalents: some funds use SAFE-style agreements adapted to local law, though true US-style SAFEs are not always legally recognized in every European jurisdiction
- UK advance subscription agreement (ASA): cash advanced now for shares issued later, used partly to satisfy SEIS/EIS tax relief timing requirements
Seed investors in Europe increasingly expect a light set of investor rights even at this stage, including pro rata rights, basic information rights, and board observer rights, though full board seats are less common than at Series A.
Valuation and dilution for seed investments
A company raises EUR 1.5m at a EUR 6m pre-money valuation, using a priced equity round. Post-money valuation is EUR 7.5m (6m + 1.5m). The investor receives 20% of the company (1.5m / 7.5m). If the option pool is topped up to 12% as part of the same round, existing shareholders are diluted by the pool top-up in addition to the new investor's stake, an effect that also applies when a SAFE converts alongside a pool refresh.
Due diligence on IP and vesting
- Founder vesting is in place
- Cap table is clean, with no unresolved advisor or early-investor promises
- IP is properly assigned to the company
- Option pool is appropriately sized for planned hiring
Seed round questions we get asked
- Is a convertible note or priced round better for a seed raise?
- Convertible notes are faster and cheaper to execute but defer the valuation conversation; priced rounds give certainty on ownership immediately but cost more in legal fees.
- Do seed investors get a board seat?
- Sometimes a board observer seat, less commonly a full board seat, which is more typical from Series A onward.
- How long does a seed round usually take to close?
- Typically 6 to 12 weeks from first investor conversations to funds landing, though this varies widely.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.