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What is the difference between a friends and family round, a seed round and a Series A?

FundraisingEquity

The stages are named for the investors more than the amounts. A friends and family round is money from people who know the founders, usually tens of thousands to a few hundred thousand dollars, on a SAFE or a note. A seed round is the first money from people who invest in startups for a living, angels, angel groups and seed funds, and today it is very often SAFEs too, though a larger seed may be a priced Series Seed round. A Series A is the first institutional venture round, priced, with a lead fund that takes a board seat and a set of controls. Each stage brings more money and heavier paper than the last.

Friends and family

The risk at this stage is not the terms, it is the paperwork being skipped. Money from a parent or a college friend often arrives with nothing written down, and years later nobody agrees whether it was a loan, a gift or a purchase of some part of the company. Put it on a SAFE or a note like any other investment, so the investor knows the money is at risk and the cap table is clean for the next round. There is also a securities rule to respect: selling securities to people who are not accredited investors is allowed, but it brings disclosure requirements, and most companies keep this round to accredited investors or take the non-accredited ones with advice.

Seed

A seed round from professional investors commonly raises between $500,000 and a few million dollars. Below a couple of million, SAFEs with a post-money cap are the norm. Above that, and especially when a fund leads, investors increasingly want a priced round, because at that size they care about their exact percentage and about a few protective terms, and a priced Series Seed gives them both without the weight of Series A documents. A Series Seed round has a simple 1x non-participating preference, a short list of vetoes, and information rights, and it leaves most control with the founders.

Series A

A Series A funds scaling rather than starting. The check is larger, the investors end up owning a substantial minority of the company, and the documents are the full set: an amended charter, a stock purchase agreement, an investors' rights agreement, a voting agreement and a right of first refusal and co-sale agreement, usually built on the NVCA model forms. The board is reconstituted with an investor director. Diligence is thorough, the process takes months, and the terms agreed here carry into every later round, which is why the Series A term sheet is the one to negotiate with care.

Companies often call their first priced round Series Seed rather than Series A on purpose, to keep the Series A name for a later, larger round. The label matters less than the terms.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.