Are you a first-time founder who needs funding to get your business off the ground? Pre-seed funding may be the answer. Pre-seed funding is an early stage of funding that can help you develop your product and attract investors. However, the competition for pre-seed funding is intense, and only a few startups receive it. So how can you increase your chances of securing pre-seed funding? Here’s what you need to know.
What is pre-seed funding?
Pre-seed funding is an early funding round in which investors provide a startup business with capital (sometimes up to $2 million) to develop its product in return for equity in the company. Pre-seed startup investment rounds precede Seed and Series A rounds and may follow funding from an angel round or a period of bootstrapping with your own financial resources.
Pre-Seed Funding Vs. Other Stages Of Funding
There are several stages of funding that startups typically go through. Seed funding enables essential tasks like market research, prototyping, and hiring. As with pre-seed funding, seed funding is usually provided by angel investors. Series A funding is provided by venture capital firms or angel investors, and Series B funding helps startups meet consumer demand. Series C funding is the final stage of venture capital financing, and it prepares a startup for public listing.
When is your startup ready for pre-seed funding?
There is no single rule for when a business is ready to raise a pre-seed round, but there are a few indicators that may indicate this is the right decision. For example, you have an MVP that shows early signs of traction, you can demonstrate potential for product-market fit, you have a strong founding team with relevant background and experience, you’ve begun onboarding customers to use your product or service, your business has begun generating revenue, you need cash to develop your prototype, or you’re ready to make critical hires.
Choose the right investors to approach
At the pre-seed funding stage, most startups don’t have much (if any) sales data to prove their business concept. Therefore, you’ll need to target investors and funds that are primarily interested in pre-seed funding for startups. There are three key types of pre-seed funding investors: angel investors, accelerator or incubator programs, and pre-seed and seed investment venture capital funds.
Know how to attract attention from pre-seed investors
If your startup is already generating sales and gaining traction, you’ll greatly increase your chances of securing pre-seed funding. However, four key attributes can help convince investors even if you don’t yet have a working product or service: an introduction, an entrepreneurial personality, a qualified co-founder, and a relevant background.
Learn what to include in your pre-seed funding pitch
If you catch the interest of investors and they invite you to pitch, this is an opportunity to tell the story of your business and give a high-level vision of your company’s goals and opportunities to scale. You should be presenting the problem you’re solving, your unique solution to this problem, the estimated market size, your differentiated product offering and/or competitive advantage, your business model, how your revenue will grow over the next 5 years, how your customer base or engagement will grow over the next 5 years, the key milestones you’re planning to achieve, if you’re selling a product, the number of units you’re planning to sell, and the amount of money you need to build your team and achieve these goals.
Use a pitch deck template
Don’t be afraid to use a pitch deck template to get you started. There are a number of free and well-regarded startup investor decks available for free online.
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