If you’re an entrepreneur with a great idea for a startup, you may be wondering how to get the funding you need to make it a reality. Pre-seed funding is one option that may be available to you.
Securing pre seed funding is designed for early-stage startups that are still in the development phase. In most cases, pre-seed startups have not yet reached market and may not even have a prototype. If this sounds like your business, keep reading to learn more about pre-seed funding and how to get it from my experience advising companies raising seed funding.
What Really are Pre Seed Funds for Startups?
Pre-seed funding is investment in an idea, before it has initial traction and a customer base. A pre-seed round is typically used to help entrepreneurs get their business off the ground. It’s a good idea to have a minimum viable product before you attempt to receive any pre-seeding capital.
Pre-seed capital can be used for a variety of purposes, such as developing a prototype, conducting market research and perfecting product-market fit, or building out the team. If you’re able to secure pre-seed funding, it can be a great way to get your business going. It’s considered the first of many funding rounds.
When is a Startup Really in the Pre-Seed Stage?
There’s no one hard and fast answer to this question. Every startup is different, and the pre-seed stage can vary depending on the business and the industry it is in. Most of the time the startup has a great idea and is the early stages of it’s development. It’s usually the first step in funding rounds for a startup company.
In general, though, a startup is usually in the pre-seed stage if it meets the following criteria:
-The startup has an idea for a product or service, but hasn’t yet developed it.
-The startup has not yet reached market.
-The startup may or may not have a prototype.
-The startup does not yet have initial traction or a customer base.
If this sounds like your business, you may be ready for pre seed funding.
Why Is Pre-Seed Capital Important for Startup Founders?
There is a lot of discussion in the startup world about the importance of raising capital, and how difficult it can be to get venture capitalists on board.
However, there is one stage of funding that is often overlooked: pre-seed funding. This is the money that goes into building the foundation of your company, including developing your product and hiring your first few employees.
Without pre-seed funding, it can be very difficult to get your business off the ground. Luckily, there are a number of venture capital firms that focus on investing in early-stage companies.
Pre-seed capital is important for startup founders because it can help fund key steps in taking a business from idea stage to getting to market and developing a customer base.
It’s the money that helps an idea become a real, money-making business that is ready to grow!
Learn more about the 15 Pre-Seed Venture Capital Firms Who Invest in Early Stage Startups.
What Should Pre-Seed Funding Be Used For?
A pre-seed round can be used for a variety of purposes as a startup grows from idea stage .
Some common uses for pre-seed funding include:
-Developing a prototype
-Conducting market research
-Getting to product-market fit
-Building out the team
-Creating a marketing plan
-Launching a product or service
How Long Should Pre Seed Funds Last?
Pre seed funds are typically the first round of funding for a startup. It is used to cover the costs of getting the business off the ground, including salaries, office space, and initial marketing expenses.
The amount of pre seed funds vary depending on the startup’s needs, but it is typically in the range of $250,000 to $2 million.
The key thing to remember with pre seed funds is that it is meant to be a short-term solution to get the business up and running; it is not meant to be a long-term source of funding.
Once the business has reached some pre-determined milestones, it should then be able to attract additional funding (known as seed funding) to continue its growth.
Pre-Seed Funding vs. Seed Funding: What’s the Difference?
Pre Seed Funding stage and seed funding are both types of investment for early-stage startups. However, there are some key differences between a pre-seed funding round and a seed funding round..
Well, the obvious answer is that a pre-seed round comes before a seed round. Early stage companies raise “pre-seed money”
Pre-seed capital is typically used to help entrepreneurs get their business off the ground. Seed funding, on the other hand, is typically used to help a startup that already has some traction to grow.
Another difference between pre-seed funding and seed funding is the amount of money that is typically invested.
A pre-seed round tends to be smaller than a seed round, with investments usually ranging from $50,000 to $500,000. Seed rounds, on the other hand, can range from $500,000 to $2 million.
So, what’s the bottom line? Pre-seed funding is for early-stage startups that are still in the development phase. Seed funding is for startups that already have some traction and are looking to grow.
Types of Pre-Seed Funding
There are a few different types of pre-seed funding, which include grants, equity financing, and debt financing:
Friends and Family
One type of pre-seed funding is friends and family. This type of funding can be a great way to get your business started, as it’s typically easier to secure than other types of funding.
After all, who is most likely to give you money at the earliest stages of your business than your friends and family who already know and trust you?
Small Business Grants
Another type of pre-seed funding is small business grants. One way to raise pre-seed funding is through grants. Grants are typically offered by government agencies or foundations and don’t need to be repaid.
These types of grants can be a great way to get your business off the ground, as they typically don’t need to be repaid.
Small Business Loans
Another type of pre-seed funding is small business loans. These types of loans can be a great way to get your business off the ground, as they typically are low-interest loans with generous repayment terms, backed by the government.
SBA Loans are small business loans backed by the government. Learn more about SBA Loans, and their pros and cons.
Another type of pre-seed funding is crowdfunding. This type of funding can be a great way to get your business started, as it allows you to raise money from a large number of people.
Crowdfunding comes in two flavors: Equity Crowdfunding and Non-Equity Crowdfunding, so be aware of the type you may be signing-up for before jumping in!
Learn about the best crowdfunding sites for startups.
Another type of pre-seed funding is pre seed angel investors. This type of funding involves investment by wealthy individuals who are investing their own money.
Angel investment usually comes in the form of a SAFE Note or sometimes, a convertible note, and the two can be confused so see our article about SAFE vs Convertible Note to learn more.
Incubators and Accelerators
Another type of pre-seed funding is incubators and accelerators. These types of programs can be a great way to get your business started, as they typically provide mentorship and resources. For some examples of accelerators and incubators, check out our 5 Best Sports Accelerators and Incubators, 10 Best Blockchain Accelerators and Incubators, and 14 Best Fintech Accelerators and Incubators.
Another type of pre-seed funding is venture capital. This type of funding involves investment from a fund set-up to make investments in early-stage companies.
Venture capital is more common in seed funding than pre-seed funding, but there are a few pre-seed venture capital firms around. Learn more about the advantages and disadvantages of venture capital.
How Much is a Good Pre-Seed Funding Usually?
A good pre-seed funding amount is typically between $50,000 and $500,000. This amount can vary depending on the type of business you have, the stage of your business, and the amount of traction you have.
If you’re able to secure pre-seed funding, it can give you the boost you need to get your business off the ground. Pre-seed funding can be used for a variety of purposes, such as developing a prototype, conducting market research, or building out the team.
When Should a Startup Raise a Pre-Seed Funding?
The best time to raise a pre-seed funding is typically when you’re able to show proof of concept. This means that you have an idea for a product or service and you’ve started to validate it with potential customers.
How Does a Startup Raise Pre-Seed Funding?
There are a few different ways to raise pre-seed funding, which include grants, equity financing, and debt financing.
Build a Pitch Deck
One way to raise pre-seed funding is by building a pitch deck. A pitch deck is a presentation that startup founders use to give investors an overview of their business.
A pitch deck typically includes information about the problem the business is solving, the market opportunity, the solution, the team, the business model, and the financials.
If you’re looking to raise pre-seed funding, building a pitch deck is a great way to give investors an overview of your business and what you’re working on.
For examples of pre-seed pitch decks, visit our 19 Best Pre-Seed Pitch Decks from Early Stage Startups.
Research Pre-Seed Investors
Another way to raise pre-seed funding is by researching pre-seed investors. Pre-seed investors are typically angel investors or venture capitalists who invest in early-stage startups.
If you’re looking to raise pre-seed funding, research pre-seed investors who might be a good fit for your business. You can typically find a list of pre-seed investors on websites like AngelList or Crunchbase.
Once you’ve found a few pre-seed investors who might be a good fit for your business, reach out to them and set up a meeting.
Meet with Pre-Seed Investors
After you’ve built a pitch deck and researched pre-seed investors, the next step is to meet with them.
When meeting with pre-seed investors, you’ll want to give them an overview of your business and what you’re working on. (Read our article on how to create a startup pitch) You’ll also want to ask them questions about their investment process and what they’re looking for in a pre-seed investment.
Be Prepared to Negotiate!
Pre-seed investments are typically small, so you might not have a lot of negotiating power. However, it’s still important to be prepared to negotiate.
Some things you might want to negotiate include the amount of equity you’re giving up, the valuation of your company, and the terms of the investment.
If you’re able to successfully negotiate a pre-seed investment, it can give you the boost you need to get your business off the ground.
Read more about How to Raise Venture Capital. For examples of pre-seed startups who received funding, check out our 19 Best EdTech Pitch Deck Examples from Established Startups and 8 Best Biotech Pitch Deck Examples from Established Startups.