Startup Advisory
How to Raise Seed Funding in India: A Founder's Practical Guide
Lekha Editorial Team
CA-reviewed · Published
India's seed funding market in 2024 looks very different from 2021. The cheques are smaller, the diligence is deeper, and investors are asking about unit economics in pre-revenue conversations. Founders who understand what seed investors are actually looking for are closing rounds that founders with better products aren't.
How Much to Raise at Seed
The most common seed round mistake is raising too little to demonstrate anything and too much to justify the dilution. The right seed round size for an Indian startup is typically 18–24 months of runway at your projected burn rate, plus a buffer of 3–4 months for the next raise process.
In the Indian market, seed rounds for tech startups typically range from ₹50 lakh to ₹5 crore at pre-money valuations of ₹3 crore to ₹25 crore. The variance is wide because 'seed' covers everything from the first capital after a friends-and-family round (sometimes called pre-seed) to a ₹5 crore round with 2–3 institutional micro-VCs participating.
A simple model: if your team of 4 costs ₹60 lakh per year in salaries, your infrastructure and tools cost ₹15 lakh, and marketing/customer acquisition costs ₹25 lakh, your annual burn is ₹1 crore. A 20-month runway seed round at this burn is ₹1.67 crore. Raise that amount, aim to hit specific milestones that justify a Series A, and start the Series A process at month 15.
Who Funds at Seed in India
Angel investors: individual investors writing cheques from ₹5 lakh to ₹50 lakh from personal funds. Angels are more likely to back teams they know personally or through a trusted introduction. The decision process is fast (2–4 weeks) but the capital is also less: a seed round from angels often requires 10–20 investors, which creates coordination complexity.
Angel networks: platforms like Let's Ignite, Indian Angel Network, and AngelList India aggregate angels for co-investment. These platforms provide deal access to founders and co-investment infrastructure to angels. Rounds through networks are typically ₹50 lakh–₹2 crore with 5–15 investors participating through a single SPV (Special Purpose Vehicle).
Micro-VCs: India's micro-VC ecosystem (Titan Capital, Gemba Capital, Fluid VC, Better Capital, Blume Ventures' early programs) writes cheques of ₹50 lakh–₹5 crore and leads seed rounds. Micro-VC diligence is more structured than angels and takes 4–8 weeks. In exchange, micro-VCs bring portfolio support, network access, and a signal that makes later institutional raises easier.
The Fundraising Process Step by Step
Most seed rounds in India follow a similar sequence, whether the lead is an angel or a micro-VC:
Week 1–4: introductions and initial meetings. Every investor meeting is a referral request if the investor passes — always ask 'who else should I be talking to?' Work warm introductions from your network, your CA's network, and portfolio founders of target investors. Cold outreach via email has a 3–5% response rate; warm introductions have 40–60%.
Week 4–8: investor interest, preliminary diligence. Investors who are interested after the first meeting ask for the detailed pitch deck, financial model, and key metrics. Some conduct founder reference calls. This is when you share your basic data room.
Week 8–12: term sheet, legal diligence. A term sheet arrives, typically binding only on a few provisions (exclusivity, confidentiality). Legal diligence on the full data room begins after the term sheet. This is when cap table issues, compliance gaps, or IP problems create friction.
Week 12–16: documentation and closing. SHA (Shareholders Agreement), SSHA (Subscription and Share Holder Agreement), and other investment documents are drafted, negotiated, and executed. PAS-3 is filed after share allotment. The round is legally closed when money is in the bank and shares are allotted.
Key takeaway
The best seed rounds are closed by founders who raise because they have a clear plan for what they'll build with the capital, not because they need money to survive. Start fundraising when you have 9 months of runway, not 3. The urgency of a 3-month runway situation destroys negotiating leverage and almost always results in worse terms.
Frequently asked questions
How do Indian micro-VCs evaluate startups at seed stage?
Indian micro-VCs at seed stage primarily evaluate four factors: team (domain expertise, execution track record, why this team for this problem), market size (is the addressable market above ₹500 crore in India or large globally?), product/traction (even at seed, most want either a live product or a compelling prototype with some user validation), and business model clarity (how does this make money, and are the unit economics directionally sensible?). Financial models and projections matter less than market insight and early signal.
Should a founder incorporate in Singapore or the US to raise funding?
Historically, many Indian tech startups incorporated in Singapore or Delaware for cleaner ESOP regulations, more established venture law, and easier foreign investor access. Post-2020, increasing numbers of Indian institutional investors (Elevation Capital, Matrix India, Sequoia India) invest into Indian entities, and the DPIIT recognition framework has improved the domestic environment. The Singapore/US 'flip' still happens for startups targeting global capital or international exits, but it's no longer necessary for raising from Indian institutional investors.
What is a CCPS in Indian startup funding?
CCPS stands for Compulsorily Convertible Preference Shares. These are preference shares that must convert to equity shares at a specified trigger (usually a qualifying IPO or a defined date). CCPS is the most common instrument used by Indian venture investors because it combines the downside protection of preference shares (liquidation preference, dividend priority) with the upside of equity (conversion into common shares for an IPO). From a foreign investment perspective, CCPS qualifies as FDI under the equity instrument route, which is important for FEMA compliance.
How do convertible notes work in Indian seed rounds?
Convertible notes in India are structured as unsecured debt that converts to equity at the next priced round. They typically have a principal amount (the investment), an interest rate (5–8% per annum), a conversion trigger (qualifying priced round above a minimum amount), a discount (10–20% off the price per share at conversion), and sometimes a valuation cap (maximum valuation at which the note converts). They're faster to close than equity rounds (no valuation negotiation) but require careful accounting and FEMA compliance if issued to non-residents.
What is the typical dilution in an Indian seed round?
In India, seed round dilution typically ranges from 15–25% on a post-money basis. A founder selling 20% of the company at a ₹4 crore pre-money valuation raises ₹1 crore. At the low end, pre-seed rounds of ₹25–₹50 lakh may dilute founders only 8–12%. At the high end, a ₹5 crore round at a ₹10 crore pre-money valuation would be 33% dilution — which most founders should resist unless the investor brings exceptional strategic value.
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