How to Evaluate Equity Offers at AI Startups
By
Samantha Cox
•
Jun 26, 2025
Raising money doesn’t stop after a company goes public. In fact, many fast-growing companies (especially in the AI space) turn to a lesser-known tool to fund their next big leap: the seasoned equity offering (SEO). Unlike an IPO, which marks a company’s debut on the public market, an SEO is a second act, used by already-public companies to raise more capital. In this article, we’ll break down what SEOs are, how they compare to IPOs, and why they’re especially relevant for AI startups aiming to scale.
Key Takeaways
Seasoned equity offerings (SEOs) enable publicly traded AI startups to raise additional capital efficiently, supporting their growth and innovation without the stringent regulations of initial public offerings (IPOs).
Evaluating equity offers requires understanding key factors such as company valuation, revenue growth, and potential dilution, which are critical for making informed investment decisions.
The rise of SEOs in the AI sector reflects the industry’s need for substantial funding to advance technological capabilities, with successful examples like Suno and Perplexity demonstrating how this approach can drive market growth.
What is a Seasoned Equity Offering?
A seasoned equity offering (SEO) is a method companies use to raise additional capital by issuing new shares after their initial public offering (IPO). Unlike IPOs, companies do not need to comply with stringent SEC regulations regarding financial reporting during an SEO, as they have already established their public status. This makes SEOs a more streamlined and cost-effective way for companies to secure additional funding.
In contrast to private equity rounds, which involve raising funds from private investors before going public, SEOs are conducted by companies that are already publicly traded. This allows these companies to leverage their existing market presence and investor base to attract new capital. The process typically involves issuing new shares, which can dilute the ownership percentage of existing shareholders but provides the company with the necessary funds for expansion and growth.
For AI startups, engaging in an SEO can be a strategic move to accelerate their growth trajectory. Raising additional capital through SEOs allows these startups to invest in research and development, expand their market reach, and enhance their technological capabilities. This not only strengthens their competitive position but also attracts new investors who are keen to be part of their success story.
How SEOs Differ from IPOs
An initial public offering (IPO) is the process where a privately-owned company first offers its shares to the public to raise capital. This transition marks the company’s shift from private to public ownership, opening up investment opportunities to a broader audience. On the other hand, a seasoned equity offering (SEO) involves an already publicly traded company issuing additional shares to raise more capital.
During an IPO, companies often hire underwriters to help manage the sale and set the initial share price. This phase is crucial as it determines the company’s market valuation and future stock performance. In contrast, SEOs involve pricing shares based on the current market price, which reflects the company’s established value and investor sentiment. This distinction highlights the different stages of a company’s lifecycle and the varying objectives of IPOs and SEOs.
While IPOs enable private companies to access public capital markets for the first time, SEOs are used by public companies to raise additional funds for further growth. One of the critical impacts of SEOs is the potential dilution of existing shares due to the issuance of new stock.
However, SEOs can also enhance a company’s visibility and credibility in the market, particularly advantageous for emerging AI startups. This increased market presence can attract more investors and strategic partners, driving further growth and innovation.
Why AI Startups Opt for Seasoned Equity Offerings
AI startups are increasingly seeking funding through seasoned equity offerings as they experience rapid growth and expansion in an evolving market. The fast-paced nature of the AI industry demands substantial capital to stay ahead of the competition and develop cutting-edge technologies. Engaging in SEOs enables AI startups to leverage existing investor relationships and attract new investors for further expansion.
One of the primary reasons AI startups opt for SEOs is the ability to raise significant funds without the immediate repayment obligations associated with debt financing. This equity financing approach offers several advantages:
Allows startups to share financial risks with investors.
Makes funding more accessible for early-stage companies that may lack the credit history required for traditional debt financing.
Investors often provide strategic support and mentorship, accelerating the startup’s growth and market entry.
The funds raised through SEOs can be pivotal in scaling operations, investing in research and development, and expanding market reach. Choosing seasoned equity offerings helps AI startups strengthen their balance sheets and position themselves for long-term success. This strategic move not only supports their immediate growth needs but also enhances their credibility and attractiveness to future investors.
Evaluating Equity Offers at AI Startups
Evaluating equity offers at AI startups is essential for making informed investment decisions. One of the critical indicators to assess is the startup’s steady revenue growth. A company that demonstrates consistent revenue growth signals its potential to succeed in the competitive AI market. Additionally, an achievable path to profitability is crucial, as it attracts investors looking for long-term viability.
Understanding both company valuation and investor terms significantly impacts the success of investment strategies. To help you evaluate equity offers effectively, we’ve created a table outlining key factors to consider:
Factors to consider when evaluating a startup:
Company Valuation: Assess the startup’s market value and growth potential.
Revenue Growth: Evaluate the consistency and sustainability of revenue increases.
Path to Profitability: Determine if the startup has a realistic plan to achieve profitability.
Dilution Impact: Understand how new equity issuance will affect your ownership percentage.
Investor Terms: Review the terms and conditions offered by investors.
Market Presence: Consider the startup’s position and reputation in the AI market.
Strategic Partnerships: Look for existing and potential partnerships that can drive growth.
Technological Innovation: Evaluate the startup’s commitment to continuous innovation and R&D.
For example, AI startups like Suno and Perplexity have successfully leveraged SEOs to secure substantial funding. Suno raised $125 million through its SEO, achieving a valuation of $500 million. Similarly, Perplexity secured $165 million through their SEO to enhance its platform significantly. These cases highlight the importance of evaluating key factors to make informed decisions about equity offers.
The Role of SEOs in AI Industry Growth
Seasoned equity offerings play a significant role in the growth and development of the AI industry. Providing a means to raise capital after an initial public offering, SEOs expand access to funding for growth, allowing AI startups to scale their operations and innovate. This is particularly important in an industry where technological advancements and market competition are intense.
In 2024:
AI startups collectively raised over $100 billion.
Nearly half of new unicorns were AI companies.
The enterprise AI market is projected to exceed $170 billion by 2031 due to increasing adoption by large organizations.
Generative AI attracted $33.9 billion in investment, an 18% rise from the previous year.
These statistics underscore the significant impact of SEOs on the AI industry’s growth trajectory.
AI companies that address real-world issues with sustainable AI solutions tend to have a better chance of success. Navigating regulatory risks is also a vital aspect for AI startups, as it impacts their reputation and potential for long-term success in ai development on an ai powered platform. Additionally, the rise of AI applications is transforming the landscape of technology with the help of AI tools and large language models, providing real time insights. These businesses are leveraging innovative strategies to thrive in this competitive environment, which reflects the company’s commitment to excellence.
Investor focus is shifting toward AI startups that demonstrate proven value through partnerships and market traction. SEOs provide the necessary funds to achieve these milestones, fostering a thriving AI ecosystem.
Case Studies: Successful AI Startups Using SEOs
Looking at how leading AI startups have raised capital through SEOs offers a clear view of their strategic impact. Take Suno, for example, after securing $125 million through a seasoned equity offering, the company reached a $500 million valuation and expanded both its technology and market presence. Similarly, Perplexity leveraged an SEO to raise $165 million, fueling major upgrades to its AI search platform. These cases show how SEOs can be a powerful lever for scaling innovation and accelerating growth in the AI sector.
Examples of companies benefiting from SEOs include:
Otter.ai, which surpassed 14 million users by the end of 2023, greatly contributing to its revenue growth.
Deepnote, which raised funding through an SEO to bolster its growth and innovation in the data science field.
Peak AI, which observed a remarkable 670% growth in search metrics following its SEO, demonstrating the effectiveness of their funding strategy.
These case studies illustrate the importance of a solid funding strategy and continuous innovation in maintaining growth post-SEO. Startups funded like Liner and Elicit AI have also expanded their market presence significantly after their SEOs, showcasing the potential of equity offerings to reshape market positioning and drive sales success with memo ventures and brand identity.
Practical Tips for AI Engineers Navigating Equity Offers
When negotiating equity offers, it’s essential to understand the vesting schedule, which typically spans four years with a one-year cliff. Understanding how your equity will vest over time helps you plan your career trajectory and financial goals. Additionally, it’s critical to compare your equity offer with market standards for similar roles to ensure you receive a competitive deal.
Dilution is another important factor to consider. When new investors come on board, it can lower your overall share percentage. Propose specific, measurable performance targets when discussing bonuses, which can align your compensation with your contributions to the company. This approach ensures that your rewards are directly tied to the impact you create, motivating you to achieve greater results.
Following these practical tips helps AI engineers navigate equity offers more effectively, securing deals that reflect their value and potential. Ensuring that you understand the terms and conditions of your equity offer can save money and provide peace of mind as you embark on your journey with an AI startup.
Fonzi's Role in AI Hiring and Equity Evaluation
Fonzi utilizes AI-powered tools to streamline the hiring process, allowing recruiters to quickly analyze resumes and enhance candidate engagement. Integrating AI helps Fonzi improve the efficiency of recruitment cycles and the quality of candidates selected for positions. This technology supports recruiters in making informed decisions while maintaining human oversight in the hiring process.
One of Fonzi’s key goals is to create a more equitable hiring landscape by reducing biases in candidate evaluation through data-driven insights. Candidates receive upfront information about salary ranges and minimum compensation commitments from companies before interviews, ensuring transparency and fairness. This approach helps candidates make informed decisions about job offers and equity evaluations.
Participants in Fonzi’s Match Day benefit from:
Pre-vetting to ensure connections only with companies genuinely developing AI products.
A personal Talent Concierge who manages all coordination, interview preparation, and offer negotiations.
A platform that prioritizes quality by accepting only highly qualified engineers and compelling developers, contributing to a more effective hiring experience.
Preparing for Interviews at AI Startups
Preparing for interviews at AI startups involves more than just brushing up on technical skills. First, ensure your interview environment is professional and free from distractions to create a positive impression. This means choosing a quiet space, using a reliable internet connection, and minimizing background removal noise and interruptions.
Practice recording your responses to common interview questions to become comfortable with the format and to minimize the chances of technical issues during the actual interview. Focus on delivering concise, structured answers using the STAR method, which includes:
Situation
Task
Approach
Results
This approach helps you clearly articulate your experiences and demonstrate your problem-solving abilities, especially when answering questions related to repetitive tasks.
Negotiating access to professional development resources can enhance your skills and career trajectory. Consider discussing the following during negotiations:
Access to conferences and training
Unique perks like wellness programs
AI publication subscriptions to improve job satisfaction and work engagement
Additional vacation days or sabbaticals to promote work-life balance
Understanding Fonzi’s Match Day
Fonzi organizes a monthly Match Day event that:
Allows candidates to receive salary-confirmed job offers in a structured time frame.
Simplifies the hiring process by enabling candidates to apply just once.
Let multiple companies compete for the candidates’ skills.
Enables candidates to review and choose from multiple offers.
Enhances candidates’ chances of finding a role that aligns with their career ambitions.
Fonzi’s Match Day focuses on connecting AI talent with reputable companies, enhancing the overall job-seeking experience. Streamlining the hiring process ensures that both candidates and employers can find the best fit quickly and efficiently. This high-signal approach reduces the time and effort involved in job hunting, making it a valuable resource for AI professionals and an effective AI meeting assistant.
For candidates, Fonzi’s Match Day offers the opportunity to explore multiple job offers simultaneously, allowing them to make well-informed decisions about their career paths. For employers, it provides access to a curated pool of highly qualified engineers, ensuring that they can find the right talent to drive their AI initiatives forward.
Responsible Use of AI in Hiring
AI can enhance customer experience by:
Providing immediate responses and personalized interactions throughout the hiring journey.
Automatically screening and shortlisting candidates, significantly reducing the time it takes to hire, sometimes by up to 75%.
Reducing unconscious biases in hiring when properly utilized, fostering more diverse and inclusive workplaces.
It’s crucial for organizations to regularly audit their AI algorithms to ensure they are fair and free of bias. AI recruitment tools should be accompanied by human oversight to allow for the ability to override AI decisions when necessary. This ensures that the hiring process remains transparent and fair, maintaining trust between candidates and employers.
AI can help organizations comply with data protection regulations, essential for maintaining candidate trust and legal compliance. Integrating AI responsibly allows companies to enhance their recruitment processes while ensuring that the human element remains central. This balanced approach helps recruiters focus on people, not just processes, reinforcing a positive, human-centered message that AI assists rather than replaces humans in hiring.
Summary
Evaluating equity offers at AI startups requires a deep understanding of SEOs, the differences between IPOs and SEOs, and the strategic reasons AI startups choose SEOs for funding. By leveraging seasoned equity offerings, AI startups can secure the capital needed for growth and innovation. Fonzi plays a crucial role in streamlining the hiring process for AI professionals, ensuring transparency and fairness. Practical tips for negotiating equity offers and preparing for interviews can help AI engineers make informed decisions and advance their careers.
Embracing the responsible use of AI in hiring fosters a more inclusive and efficient recruitment process. With the right knowledge and tools, AI professionals can confidently navigate the job market and seize opportunities in this dynamic industry.
