If you’re an entrepreneur or have aspirations to become one, you probably have heard the term “pre-seed funding” at least once or twice.
As an entrepreneur, pre-seed funding is essential for burgeoning startups. But what exactly is pre-seed funding, and how can you acquire it?
Read on to discover what pre-seeding is and how you can get it for your startup.
What Exactly Is Pre-Seed Funding?
In the past few years, the organization of funding for startups has morphed into something entirely new. In the early 2000s, many startups went straight into Series A funding.
However, the funding dynamic has changed from even 2010, where more investors look for startups with proven value in the marketplace. It has led to a change in the funding structure.
That has created a new path for funding called pre-seed funding. Pre-seed funding is for very early-stage startups. Most pre-seed investors are high-net-worth individuals, family businesses, or tech company employees who’ve already made their millions at their startup.
A startup may seek pre-seed capital for several reasons, including:
- You have a great product idea with traction in the market
- You’re able to show how your product can meet a need in the market
- You’ve started to generate revenue from your product or service
- You need cash to create a prototype
- You’re ready to create your dream team
Pre-seed funding tends to be on the lower end, roughly $2 million or less. Nonetheless, it’s essential for the success of startups looking to one day make it to market. As a result, investors often provide funding in return for equity.
How to Get Pre-Seed Funding for Your Startup
Most startups won’t have many sales at the pre-seed stage of funding to prove their product or service is viable for the marketplace. In that case, investors will be buying into the team and the founding members rather than sales projections.
There are three types of pre-seed investors you’ll find at this stage:
The majority of angel investors make small investments, usually under $100,000. The one advantage is that you can usually acquire pre-seed money from angel investors quickly. That’s because they make their own decisions about what they invest in.
Accelerator or Incubator Programs
These can be a great resource for early startups. It can help them raise pre-seed capital and provide them with access to an entrepreneurial community. In exchange for equity in the business, these programs give young entrepreneurs valuable training, free or discounted services, and access to venture capital money for future funding.
Venture Captial Firms
Venture capital firms can be a great resource for early-stage startups, but in exchange for more capital, you’ll have to give up more control.
Using a targeted approach when looking for pre-seed capital is preferable. For example, look for angel investors, programs, or venture capital firms with exclusive experience with young startups. Creating a shortlist of targeted investors will save you time.
Are You Ready for Pre-Seed Funding?
Is your startup ready for pre-seed funding? Use the strategies above to find your first pre-seed investors with confidence. If you’re looking for more great content about entrepreneurism and more, please check out Newchip.
Our blog and podcast are full of great insights to help your budding startup.