Pre-seed’s plot twist: dollars down, tiny rounds pricier
Pre-seed dollars fell in Q2 while the smallest rounds got pricier. That tension is the story. It also hints at how the market now values speed, learning, and optionality.
Zoom out. AI keeps lowering the cost to try. With leaner teams and sharper tools, credible founders can ship MVPs and get first signal with less capital. When the cost of learning drops, the value of a good experiment rises. Investors respond by paying higher caps on the tiniest checks, while deferring governance by pushing bigger checks onto convertibles. Cheaper experiments, costlier options, paperwork that wants reconciliation later.
What Carta’s data actually says
The Q2 read shows a step down in activity from Q1 alongside a notable rise in valuation caps for the smallest rounds. Pre-seed dollars decreased, and the count of SAFEs and notes slipped for a second quarter. At the same time, median caps ticked up for sub-$250k post-money SAFEs and again for the $250k to $500k band. In the first half of the year, most $3 to $4 million early rounds still ran on convertibles, where priced equity used to take over around $3 million. Crypto and biotech sit at the top of the cap charts. Nashville quietly joined the top 20 metros for pre-seed after a solid year of activity. Treat these as trend lines that may shift as administrative lag fills in. Carta
Why this is happening
Imagine pre-seed as a giant options board. A founder with a high learning rate and a credible distribution wedge makes each small dollar worth more. That shows up as higher caps on tiny rounds. Meanwhile, everyone wants to move fast, so teams choose convertibles for $3 to $4 million raises that would once have been priced equity. It buys time. It also stacks complexity for later when the cap table needs a cleanup.
How we invest now: a two-speed model
We separate optionality bets from execution bets.
Optionality bets are tiny rounds for founders who demonstrate a scary-good learning loop. We care less about feature lists and more about cycle time between hypothesis and proof. Execution bets fit the larger convertibles when the team already shows a repeatable wedge into distribution or a defensible data advantage. In both cases we push for clean terms, short stacks, and a clear plan to convert to equity on a timetable.
AI makes demos cheap, so we weight distribution over demo sparkle. Pull from a repeatable channel beats yet another slick interface. Data moats matter when they compound and when workflow lock-in improves with every new customer, not just because the deck says “moat.”
Founder playbook
Earn the cap with speed. Show weekly product velocity and proof of pull.
If you raise more than $3 million on convertibles, behave as if you priced it. Set reporting cadence, align on consent for secondary, and time-box a cleanup into equity.
Keep scope tight with two or three dated milestones that de-risk distribution or data advantage.
Avoid SAFE soup. Align caps and discounts. Know your sources and uses on one clean page.
Investor playbook
Underwrite the learning rate, not the demo. Pay up on sub-$250k only when the team proves fast loops and a credible distribution wedge.
Governance does not have to wait. For $3 to $4 million convertibles, require reporting and a plan to reconcile into equity within 9 to 15 months.
Mind the A gap. Assume 18 to 24 months to a priced round. Pre-plan bridges that do not become purgatory.
The questions we now ask every pre-seed founder
What is your fastest recurring learning cycle, and how do you measure it weekly?
What will make the tenth customer easier than the first, beyond founder hustle?
Which moat compounds as you grow: data, workflow lock-in, or distribution?
If the A takes 24+ months, what breaks in your plan and where is the flex on burn and milestones?
Which feature would you delete to double speed next month?
Risks and traps
Convertible cliffs appear when multiple notes with mixed discounts and uneven caps collide. Clean early or pay later. The AI halo tempts investors to fund teams that can ship fast without building a durable edge. Look for compounding data and distribution. If A rounds stay choosy, extended pre-seed stacks will keep more companies alive but can mute ownership outcomes unless teams hit crisp milestones.
What to watch next
Do tiny-round caps hold if A rounds stay tight. Does the norm of $4 million convertibles harden or snap back as boards push for clarity. Are rising tiny-round caps predicting better seed outcomes or just optionality FOMO. We will keep separating signal from noise by tracking learning rates and distribution proof over headline valuations.
Sources
Carta, “Q2 2025 State of Pre-Seed,” Aug 21, 2025. Carta