What Carta's Q1 2026 Pre-Seed Report Tells Founders — And Two Things to Stop Doing

Carta's Q1 2026 State of Pre-Seed report just dropped, covering 10,000+ convertible instruments raised by 3,000 companies in the first quarter. That's an unusually clean dataset — cap tables don't lie.

The headline: pre-seed funding is stable. Roughly $2.3B raised in Q1, expected to reach ~$2.9B as data catches up, in line with recent quarters. The early-stage market isn't collapsing or booming — it's just there.

But buried in the data are signals that matter a lot if you're raising right now. And a few trends that founders keep ignoring to their own detriment.

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The Five Things Worth Paying Attention To

1. The middle is hollowing out.

Rounds between $1M and $2.5M represented 24% of all pre-seed rounds in Q1 2023. By Q1 2026, they're down to 18%. Meanwhile, smaller rounds (under $1M) have become more prevalent, and mega-rounds (above $2.5M) have held steady.

What this means in practice: the pre-seed market is bifurcating. There are a lot of scrappy rounds under $1M and a handful of well-funded outliers. The comfortable middle — enough to hire a couple of people and run a real pilot — is harder to close. If you're targeting $1.5M on a cap of $10M, you're raising in the most competitive part of the market.

2. SAFEs are dominant. Convertible notes are nearly gone.

SAFEs accounted for 93% of pre-seed rounds in Q1 2026. Convertible notes hit a record low of just 7% of instruments and 8% of dollars. If you're still using a convertible note at the pre-seed stage, you're swimming against a strong current.

The practical implication: there's no reason to use a convertible note for a pre-seed round unless an investor specifically demands it. Notes have a maturity date, accrue interest, and create pressure points that SAFEs don't. The YC post-money SAFE is the market standard. Use it.

3. Valuation caps on SAFEs have been trending upward.

The data shows SAFE valuation caps rising over recent quarters as round sizes stay roughly flat. More value in the cap for the same amount of cash raised. This reflects the AI productivity premium — investors are paying for optionality on the upside at earlier stages.

What this means: if you raised 18 months ago and are going back to raise again, your comparable cap should be higher. Don't anchor on what you saw in 2023 or 2024. Benchmark against current data.

4. AI startups now receive 50% of all pre-seed dollars.

Up from about 30% a few years ago, AI startups crossed the 50% threshold in Q1 2026 — in line with what's happening at later stages. This is the fundraising market reflecting the broader bet on AI productivity.

If your company has a credible AI component, lean into it. If it doesn't, you're competing for a shrinking share of the non-AI pool.

5. Geography is shifting. The South is a real thing now.

The South overtook the Northeast in overall pre-seed share in Q1 2026. Miami specifically hit the number three spot as a funding hub, eclipsing LA and Boston. This isn't a one-quarter blip — it's a continuation of a trend Carta has tracked for several quarters.

If you're building outside SF and NYC, your odds are better than they've been in years. Remote-first investors are real.

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Two Things to Stop Doing

The data in the report provides context, but we want to add two pieces of direct editorial that the numbers support.

Stop using cap + discount

A "cap + discount" SAFE has both a valuation cap and a conversion discount (typically 15–20%) that applies at the next priced round. Investors get whichever is more favorable at conversion — the lower implied price from the cap, or the discounted price off the priced round.

This structure is an investor-favorable term that most early-stage founders agree to without fully understanding the consequences.

The data point that matters: the most common SAFE structure in Carta's dataset is post-money with a valuation cap only — no discount. That's the YC standard, and it's the market. Cap-only is what you should be doing.

Here's the problem with adding a discount: the cap already gives your early investors a favorable price at conversion. The discount is an additional sweetener on top. At a small pre-seed round size, founders often agree to it because "it's just 20%." But at conversion, that discount can compound in ways that aren't intuitive — particularly if the round converts at a price close to the cap.

Run the math before you agree to it. Better yet, don't agree to it. If an investor pushes back, your response is simple: "The standard YC SAFE doesn't have a discount, and that's what we're using."

Understand what SAFE stacking actually does to your cap table

"SAFE stacking" means raising multiple rounds of SAFEs over time — often at different valuation caps as the company matures. Common example: $500K at a $5M cap, then $750K at an $8M cap, then $1M at a $12M cap before raising a priced seed round.

This is extremely common. It's also a source of significant confusion about how diluted founders will actually be.

Here's why it matters: each SAFE tranche converts separately at its own cap when the priced round closes. This means:

• The $500K SAFE converts at a price implied by the $5M cap
• The $750K SAFE converts at a price implied by the $8M cap
• The $1M SAFE converts at a price implied by the $12M cap

The problem isn't the math — it's that most founders haven't run it. We routinely see founders going into a Series A conversation who can't accurately describe what percentage of the company SAFE holders will own post-conversion. They've been operating on a rough intuition about "the cap" rather than modeling the actual dilution.

The cap table impact of stacking multiple SAFEs at different caps is not simply additive. It's cumulative in a way that catches founders off guard at exactly the wrong moment — when an investor asks them to model the fully diluted ownership at the priced round.

Before you issue another SAFE at a different cap, model the conversion. Know what percentage the SAFE holders will own at various priced round scenarios. Know what your ownership looks like before and after each scenario. Then decide whether the terms you're agreeing to reflect the economics you intend.

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The Practical Takeaways

If you're raising a pre-seed round right now:

• Use a post-money SAFE with a cap only. No discount. That's the market standard — the data confirms it.
• Model your SAFE stack before issuing another one. If you have multiple SAFEs outstanding at different caps, map out the conversion waterfall before you raise again.
• If you're targeting $1M–$2.5M, understand you're in the hardest part of the market. Consider whether a smaller initial close with a path to rolling additional capital makes more sense than trying to close a specific number.
• Benchmark your valuation cap against current data, not 2023 comps. Caps have risen — don't leave negotiating leverage on the table.
• Read the actual report. The full dataset covers dilution benchmarks, industry comparisons, and geographic trends that are worth 30 minutes of your time: Carta State of Pre-Seed Q1 2026.

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If you're raising a pre-seed round and want to make sure the SAFE terms you're agreeing to are market-standard — and that your cap table math is right before you sign — that's a conversation worth having with counsel before the close, not after.