Pre-Seed Funding Gets Standardized

While the total cash invested in pre-seed startups saw only a 1% decline in 2025, the number of financing instruments issued dropped by 13%, indicating a concentration of capital into fewer, more promising ventures. U.S.-based startups still raised a significant $10.4 billion through 50,316 SAFEs and convertible notes over the course of the year. Contrary to a tightening market, valuation caps on SAFEs have actually been on the rise. For funding rounds between $250,000 and $1 million, the median valuation cap was around $10 million in 2025, increasing to a $15 million median cap for raises between $1 million and $2.5 million. The "post-money" SAFE, which calculates ownership after the new investment, solidifies its position as the standard, making up 92% of all pre-priced rounds in the third quarter of 2025. This structure provides investors with immediate clarity on their exact ownership percentage. Founder-market fit is being scrutinized through tangible evidence of deep market knowledge and a founder's unique ability to solve a specific problem. Investors are looking for signs of early inbound interest and qualitative feedback from initial customer conversations as proof points. While SaaS continues to be the dominant industry for startups, there has been a notable shift in investment towards companies dealing with the physical world. In 2025, hardware and biotech/pharma emerged as the second and third largest industries by total pre-seed cash raised. In the Los Angeles ecosystem, firms like Wonder Ventures and Crosscut Ventures are key players in the pre-seed stage, focusing on sectors such as FinTech, SaaS, and Consumer Internet. Other notable local investors include Amplify, which also provides accelerator programs, and Watertower Ventures, which emphasizes support for diverse founders.