In Q1 2025, U.S.-based pre‑seed startups using Carta raised $737 million across 5,119 convertible instruments—down from $923 million and 6,251 instruments in Q4 2024. That’s roughly a 20% decline in both deal count and total funding, marking the third consecutive quarter of contraction carta.com+9carta.com+9carta.com+9.
Year-over-year comparisons echo the downturn: Q1 2024 featured around 3,800 rounds under $1 million and 2,900 above, compared to 3,400 under $1m and 1,700 above $1m in Q1 2025. This disproportionate shrink in larger rounds suggests the market slowdown is driven by a decline in high-ticket pre-seed deals carta.com+2carta.com+2carta.com+2.
✅ Pre‑Seed Deal Size: Small Rounds Dominate
Key Insight: The lion’s share of deal volume continues to come from smaller rounds.
- Pre‑seed rounds under $1 million still dominate in count.
- Rounds above $1 million are halved compared to last year, leading to lower overall funding volume.
For founders, this reflects trending investor preference for lower-risk, early-stage bets—a sign that securing significant pre‑seed checks demands clear differentiation.
🔒 Valuation Caps on the Rise
Despite deal count falling, valuation caps for both SAFEs and convertible notes are trending upward:
- For post‑money SAFE rounds above $500k, valuation caps increased marginally from Q4 2024 to Q1 2025 carta.com+9carta.com+9carta.com+9.
Takeaway: While the number of investors deploying capital is shrinking, those that are investing are offering better terms—suggesting increased selectivity but deeper conviction in chosen startups.
⚖️ SAFEs Vs. Convertible Notes
SAFEs continue to dominate pre-seed financing:
- In Q1 2025, 90% of pre-seed rounds used SAFEs, up from previous quarters; convertible notes made up the remaining 10% carta.com+3carta.com+3carta.com+3.
- However, because some large convertible note rounds occurred in Q1, SAFEs accounted for only 82% of capital invested carta.com+9carta.com+9carta.com+9.
Notably, SAFEs have surged in biotech, pharma, and medical device-backed rounds—sectors that historically favored convertible notes. This underscores SAFE’s growing dominance due to their simplicity, speed, and favorable terms.
📉 Interest Rates on Convertible Notes Steady
The median interest rate for convertible notes held at 7% in Q1 2025—down from as high as 8% in Q2 2024 carta.com+5carta.com+5carta.com+5.
Why it matters: A slight decline in rate signals strengthening founder negotiation leverage, possibly aided by general macroeconomic stability and reduced capital availability for riskier deals.
🌍 Regional Distribution: Rising Southern Presence
Carta data shows six of the top 20 pre-seed metros are in the U.S. South: Austin, Dallas, Houston, DC, Atlanta, and Miami. Collectively, the South captured 18% of all pre-seed funding between Q1 2023 and Q1 2025 carta.com+5carta.com+5carta.com+5.
This geographic shift highlights the ongoing decentralization of startup capital—especially away from traditional hubs.
🔍 Industry Insights: Who’s Leading?
🛠️ Hardware
- Ranked 3rd in total cash raised behind SaaS and Healthtech in Q1 2025 carta.com+2carta.com+2carta.com+2.
- Among top heads in SAFE valuation caps.
🧬 Biotech/Pharma & Hardware
- Among the industries with the highest valuation caps in SAFE rounds carta.com+3carta.com+3carta.com+3.
🧭 Other sectors
- Crypto, SaaS, Healthtech also posted high valuation caps in pre‑seed SAFEs.
This suggests that sophisticated sectors like biotech, hardware, and crypto are still attracting premium valuations—even in early stages—owing to their capital intensity and differentiated value potential.
⏳ Dilution and Discounts: Behind the Scenes
Although detailed figures weren’t shared, the full report covers trends in dilution (equity founders give up) and discount rates (for conversion mechanisms). Given the rise in valuation caps and constant interest rates, dilution may modestly compress, while discount negotiation remains crucial to optimize cap table outcomes.
📊 Trends Recap: What Changed From Q4 to Q1?
| Metric | Q4 2024 | Q1 2025 | Change |
| Deal Count | 6,251 | 5,119 | ↓ 18% |
| Total Funding | $923m | $737m | ↓ 20% |
| SAFEs as % of Deals | — | 90% | Record-high adoption |
| SAFEs as % of Capital | >82% | 82% | Slight dip due to large notes |
| Interest Rate (Convertible Notes) | ~8% (Q2) | 7% (Q1) | Downward adjustment |
| Valuation Caps (SAFE > $500k) | Baseline | Slightly up | Higher founder-favorable terms |
| South’s share of pre-seed capital | — | 18% over past 2 yrs | Regional capital diversification |
These metrics reflect a maturing pre-seed ecosystem: smaller, selective rounds but better terms for those who can attract capital.
💡 What This Means for Founders & Investors
For Founders:
- Pitch for impact over size: You’re competing for brand-name checks. Focus on ROI, traction, and defensibility.
- Leverage regional advantages: Southern hubs are gaining prominence—consider tapping local networks.
- Negotiate valuation caps hard: Securing higher caps can reduce dilution for founder teams.
For Investors:
- Be picky, but get in early: SAFEs continue to dominate. Quickly deploying into high-potential pre-seed rounds may yield strong returns.
- Consider sector premium: Hardware, biotech, and crypto command top valuations—look for unique differentiation.
- Use interest as a lever: With rates stabilizing at 7%, offering even slightly lower interest can improve deal terms.
📈 Where to Watch — Future Outlook
1. Deal Flow Trends
After three quarters of decline, will Q2 2025 see stabilization or a rebound? Seasonal patterns suggest Q1 is often the quietest, hinting potential uptick later in the year.
2. Regional Capitals
The South’s momentum may accelerate as others chase more favourable unit economics. Can hubs like Austin and Miami truly rival California?
3. SAFE Innovation
As SAFEs become standard, novel structures may emerge—pre-money vs post-money, valuation floors, pro‑rata protections—shaping best practices.
4. Sector Shake‑up
Are valuation premiums warranted, or indicative of bubbles? Biotech, hardware, and crypto thrive on high-capital bets—but founder execution will be tested.
📚 Bonus Reading & Resources
- Carta’s full Q1 2025 report reveals 30+ charts on dilution, discounts, instrument use, industry breakdowns, valuation heatmaps, and geographic analysis.
- Carta Q1 2024 pre‑seed report for historical context, especially SAFE vs convertible note evolution carta.com+7carta.com+7carta.com+7carta.com+4carta.com+4carta.com+4carta.com.
- Guides on pre-seed instrument choices, SAFE vs convertible note best practices, and founder dilution management—Costa Rica founders, choose wisely!
📝 Final Thoughts
Q1 2025 marks a clear turning point in the pre‑seed ecosystem: deal volume declines, but improved deal terms signal stronger founder negotiation. SAFEs dominate the landscape, valuation caps rise, and regional power diversifies beyond Silicon Valley. For founders, it’s a time to stand out, secure favourable terms, and tap new geographies. For investors, it’s about selective deployment, sector precision, and early-stage conviction.
As the remainder of 2025 unfolds, watch for rebound in deal activity, new SAFE structures, and regional capitals like Austin and Miami challenging the status quo. In the ever-shifting world of pre-seed, agility—and data—remain your strongest allies.
Also published on Medium.