Which funding round primarily tests product demand?

The seed round is a critical stage in the startup funding process where entrepreneurs seek initial capital to validate their idea and test product demand in the market. This round typically follows the pre-seed stage and is geared towards developing a minimum viable product (MVP) and acquiring early users or customers. The primary focus during the seed round is to gather feedback on the product and determine whether there is substantial demand for it before scaling further.

During this phase, startups often have a prototype or MVP and aim to achieve specific milestones such as user acquisition, refining the product based on user feedback, and proving the viability of their business model. The results from this round are crucial as they provide insights into the potential success of the product and guide future fundraising efforts, particularly for the Series A round, which is often focused on growth and scaling after initial demand is confirmed.

Validation of product demand is essential because it informs subsequent decisions regarding investment, marketing strategies, and product development. Therefore, the seed round serves as a foundational step in establishing whether the startup's concept has traction in the marketplace.