Disclosures

  1. SeedInvest’s due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  2. SeedInvest’s selection criteria does not suggest higher quality investment opportunities nor does it imply that investors will generate positive returns in investment opportunities on SeedInvest. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  3. Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets.

  4. Testimonials may not be representative of the experience of others and are no guarantee of future performance or success. No individuals were compensated in exchange for their testimonials.

How to Raise Pre-Seed Funding

overhead image of table with notepad and phone with overlay text "how to raise pre-seed funding" and seedinvest logo

Accumulating the capital to fund early-stage operations is one of the most common hurdles founders face in the planning stages of building a business.

Some entrepreneurs address this issue by raising a pre-seed funding round to cover initial operating expenses, build an MVP, and hire a talented team to fuel growth. Here we’ll discuss:

  • Definitions and benchmarks for pre-seed funding
  • How companies generally deploy pre-seed funds
  • What kinds of investors participate in pre-seed rounds
  • How much you can expect to raise in a pre-seed round

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What Is Pre-Seed Funding?

Pre-seed funding is secured during a company’s earliest stages, when operations are just getting off the ground. Investors provide a business with capital that typically ranges from less than $150,000 to $2 million. Pre-seed funding precedes both Seed and Series A rounds, which can occur once a startup reaches certain milestones and often require more in-depth financial data and due diligence for prospective investors.

Millions of startups come to life every year, although not all receive pre-seed funding. Investors may look at many (up to thousands!) new companies and only invest in a few. Not all pre-seed investors look for the same things, but startups with a clear strategy, addressable market and growth expectations based on data, and founders focused on execution are more likely to receive funding at this stage.

Learn more in our guide: Pre-Seed Funding: What it Is & How it Works

How Do Great Startups Use Pre-Seed Funding?

Every startup is different, so their needs for pre-seed funding can vary as well. Pre-seed funding can be used in several ways. The money raised in a pre-seed round is usually put toward:

Setting Up Infrastructure

Even if you do not have a minimum viable product yet, you may need additional funds for daily operations. Early operating costs can include acquiring a workspace and equipment. Pre-seed funding can help you set up infrastructure such as a communications system, a tech stack, marketing technology, and cloud technology. 

Creating the Legal Entity

In the earliest stages of a startup, you must determine the correct legal structure for your company and see to the appropriate legal documentation, hammer out any partner agreements, and handle any required registrations–all of which require capital to accomplish.

Beginning Initial Operations

Pre-seed funding can also be used to build a website, create a brand design, and prepare sales materials. You can also use pre-seed funds to ramp up your market research.

Developing a Minimum Viable Product (MVP)

An MVP is how you gain initial insights on how to connect with customers. If you see early positive sights, it’s time to find investors – many of whom are more likely to fund an enterprise that’s showing promise with early adopters. To be clear, you don’t necessarily need to have an MVP yet, but if you do, you will be more likely to gain traction. If you raise pre-seed funding without an MVP, you should use that funding to develop your MVP as soon as possible.

Achieving Milestones to Help You Engage in Full Seed Rounds

To make it to full seed rounds, you will need to hit certain milestones. These milestones may include goals regarding revenue, customer growth, or number and strength of partnerships. Pre-seed funding can help you reach those milestones more quickly. 

Growing Your Team

You might have had several potential applicants hint that they’d like to work for you, or maybe you’ve already hired a few employees. Your company will need to get bigger to thrive, and an established team of dedicated employees—even a small team—requires capital. Pre-seed funding can provide that capital and allow you to hire talented people to help you grow your business.

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Who Can Provide Pre-Seed Funding?

Pre-seed funding can come from a variety of sources, including within a founder’s own network of personal connections. Targeting outside investors and working to expand the network to other founders, subject matter experts, and equity crowdfunding platforms like SeedInvest can help provide your startup with added stability and a wider range of resources to help you succeed. 

Here are four types of pre-seed Investors:

Angel Investors

Individual angel investors usually make smaller investments in startups, and are often investing with personal funds. Contributions typically range between $25,000 and $100,000, though some angels invest much more. Angel investors can be a good financial resource because they’re spending their own money and don’t need authorization from a business or partners to invest. Angel investors can also have deep or unique knowledge about the industry you plan to operate in, and can be an excellent networking resource. 

 Accelerator and Incubator Programs

Accelerator programs are organizations designed specifically to aid startups while generating a return on their investment. Companies get access to capital, and may also receive hands-on training and educational resources from experts associated with the program. Receiving an investment from an accelerator generally requires passing a substantial vetting process, and may require successfully achieving specific milestones to remain in the program. 

Pre-Seed VC Funds

Venture capital funds represent multiple limited partner investors and can often offer larger investments than angel investors. Some VC funds specialize in investment in startups at the pre-seed stage, while others specialize in later funding rounds. Investment from a VC fund can sometimes help you attract other investors, greasing the wheels for your growth. It should be noted, however, that it may take longer to obtain funding from VC firms due to their thorough due diligence processes.

Equity Crowdfunding Platforms

Equity crowdfunding platforms like SeedInvest raise capital for early-stage startups by offering potential investors equity in the startup proportional to their investment. Unlike other methods of capital funding that rely on individuals or very small groups of investors, equity crowdfunding targets a  broader group of investors. Although individual contributions may be much smaller than those offered by other types of angel investors, those individual contributions can add up to significant capital through the sheer volume of investors contributing.

How Much Money Can You Raise with Pre-Seed Funding?

According to Crunchbase, a pre-seed round may be as low as $150K or less, but in recent years, that number has been growing. That matches the general trend for all levels of seed funding, which have grown rapidly in the last five years. 

Other sources list a wide range of amounts for pre-seed funding, from Kruze Consulting’s estimate of $100K to $1M on average to DocSend’s estimate of $500K or less and Brex’s estimate of $50K to $250K.

Average and Median Seed for Selected Large Venture Firms, 2011-2020*

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*Includes 14 multistage firms active at seed from 2011-2020 (Source: Crunchbase)

How to Secure Pre-Seed Funding: A Step-by-Step Guide

There are four main steps you’ll want to take when raising pre-seed funding for your startup. 

1. Choose the right investors to approach.

Research the investors or firms you’re considering, or find investors with a track record of investments in businesses similar to your own. These individuals are likely to have useful knowledge unique to your industry, and may be more interested in helping guide your startup through the early stages of growth and development.

Cold calls and unsolicited emails to investors are practices of the past – both are time-consuming and are often not successful. Instead, work to find warm introductions.

2. Engage your audience.

To begin investor engagement, you’ll often need a solid introduction. If you’re introduced by someone they trust, such as another founder they’ve invested in, they may be more inclined to consider you. Not sure where to begin? Start by mining and expanding your network.

Once you’ve been introduced, it’s time to explain why they should be interested in your startup. You’ll want to display your ambition and give investors confidence you’re planning ahead and prioritizing execution of the plan you’ve made to reach the next stage of growth.

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3. Nail your pitch.

A great pitch is your primary tool in securing pre-seed funding. This is your opportunity to show investors what your company is all about and what you’re trying to solve with your product. Using a pitch deck template can be great for creating a stellar presentation. 

Consider including these components in your pitch, but note that simplicity and brevity is key. If some are missing you can still talk to investors, but expect to be asked thorough questions about each of these topics as you seek additional funding:

  • How your product/service is unique
  • The market demographic(s) you’re trying to reach
  • Plans for customer engagement
  • Your business model
  • How you’re planning to grow revenue
  • The amount of money you’ll need and the use of proceeds
4. Manage your milestones.

Setting sensible milestones shows investors that you’re realistic about timeframes, funding goals, and growth expectations. For a successful fundraising campaign, your company should be beyond the ideation stage. Ideally, you will have already recruited co-founders, hammered out a detailed product description, and done your research for market fit. You will already know who your target audience is and how your product fills their needs.

Some common milestones that may indicate you are ready for pre-seed funding are:

  • Having a minimum viable product (MVP) or prototype
  • Having at least some full-time employees that are not founders (SeedInvest recommends at least two)
  • Demonstrating some level of traction (ie., early adopters, paying users, repeat customers, feedback indicating product demand)
  • Having a compelling business model

Your milestones should be specific to your product and company. For example, SaaS startups may have milestones related to number of paying customers, whereas a consumer app may have milestones related to user growth, and an early-stage B2B or B2C company may use revenue growth as a milestone.

Consider equity crowdfunding for your needs

As an equity crowdfunding platform that helps you raise money online, SeedInvest has helped hundreds of startups navigate the complexities of crowdfunding equity investments to build successful public companies. Every startup applying through SeedInvest goes through a rigorous vetting process to ensure investors can choose from the very best early-stage companies. 

Those accepted receive expert guidance at every stage of the fundraising process and access to more than 500,000 potential investors around the globe, ready to provide their own unique network and expertise. 

SeedInvest has garnered more than $400 million for its applicants from more than half a million investors. With the right resources, your startup could be next. Sign up to see if SeedInvest is right for you.

 


Important Disclaimers

  1. This presentation should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy. Past performance is no guarantee of future results, and there can be no assurance that an investment strategy will be successful or that the historical performance of an investment, portfolio or asset class will have a direct correlation with its future performance.
  2. SeedInvest's due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence on the SeedInvest Blog and our vetting process in our FAQs
  3. Past performance is no guarantee of future results. In addition, SeedInvest's due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence on the SeedInvest Blog and our vetting process in our FAQs
  4. All securities-related activity is conducted by SI Securities, LLC dba SeedInvest, an affiliate of Circle Internet Financial, and a registered broker-dealer, and member FINRA/SIPC.
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