Introduction
Pre-seed investor funding is an important investment that startups receive in their early stages. It helps to provide the capital needed to get the business off the ground and can come from a variety of sources, including within a founder’s own network or from angel investors.
Additionally, incubator and accelerator programs provide startup founders with capital, hands-on training, and other resources.
Pre-seed investor funding is important for startups because it can attract other investors, speed up growth processes, target a broader group of investors through equity crowdfunding platforms like SeedInvest, allow for large numbers of small investors to invest in a startup through equity crowdfunding, and generally help to get started with a startup.
What is pre-seed investor funding?
Pre-seed investor funding is an important stage of initial investment for startups. It involves the exchange of equity or debt for funds, and the investors providing these funds are usually angel investors or friends and family of the founding members.
Pre-seed investor funding enables a startup to get their business off the ground by allowing them to cover necessary expenses such as marketing, product development, legal fees, and employee salaries.
It also helps a startup gain traction in its market while they work towards more significant funding rounds. This guide will provide a step-by-step breakdown of how to gain pre-seed investor funding for one’s startup.
What steps can you take to increase your chances of obtaining pre-seed investment funds?
Step 1: Create a Pitch Deck
It is important to have a pitch deck when seeking pre-seed investment funds in order to demonstrate traction and customer interest.
A successful pitch deck should be short, sweet, and simple, with a focus on key concepts.
It also gives investors an opportunity to learn more about the product and the market potential, see long-term projections, and understand how serious the founders are about their venture. As such, having a well-crafted pitch deck can make or break an investor’s decision to invest in your startup.
Step 2: Make an Investor List
It is important to make an investor list when trying to obtain pre-seed investment funds in order to maximize the chances of success.
An investor list allows you to target multiple investors and demonstrate that there is interest in your venture, which can help you secure better terms for your investment.
Furthermore, it also helps you answer questions about your product or business more effectively, giving potential investors more confidence in investing their funds.
Step 3: Present to Investors
It is important to present a business idea to investors in a clear and concise way because this will demonstrate the ambition and realism of the venture.
Pre-seed investors are particularly discerning, and may not invest in businesses that lack clarity or come across as arrogant or conceited.
A well-crafted presentation can help convince investors that a business has potential, which is why it is essential to ensure that all relevant information is presented clearly and succinctly.
Step 4: Showcase to Investors
One of the best ways to increase their chances of obtaining pre-seed investment funds is to showcase their business to investors.
To do this, they need a solid introduction that will engage their target audience.
It’s important for them to be beyond the ideation stage, have recruited co-founders, and have a clear business model with revenue expectations and plans for customer engagement. They should also create a standout presentation using a pitch deck template that is concise and easy to understand.
This should include detailed product descriptions as well as milestones that are realistic about timeframes and goals.
Finally, when meeting with investors in person, it’s important for entrepreneurs to show humility, and confidence in their company, and be genuine in interactions.
By doing all these things together they can increase their chances of obtaining pre-seed investment funds from the right investors.
Step 5: Negotiate for Success
It is important to negotiate for success when obtaining pre-seed investment funds in order to ensure that the terms and conditions of the deal are beneficial both to the investor and the startup.
Negotiating for success can include asking for additional resources, such as mentorship or advisory support, or negotiating an equity stake that is more favorable than what was initially offered.
By successfully negotiating a pre-seed deal, a startup can secure better long-term funding options and more favorable terms from their investors.
Step 6: Use Your Own Money
It is important for founders to use their own money when seeking pre-seed investment funds because it demonstrates a commitment to their business. Investing your own money shows potential investors that you have skin in the game and are prepared to take risks with your idea.
Additionally, having enough money saved up to sustain yourself during development is essential for remaining productive and ensuring your company has the resources necessary for success.
Finally, taking time off work or working part-time on your startup can provide a safety net while also allowing progress toward the completion of a product or service.
Step 7: Look for Equity Crowdfunding Platforms
Equity crowdfunding is a fundraising strategy designed to help early-stage startups raise up to $5M per year from the crowd.
Equity crowdfunding allows entrepreneurs to access a large investor base, assess product flaws before going public, and potentially receive larger checks compared with rewards-based crowdfunding.
A CrowdRise guide can assist entrepreneurs in finding the best equity crowdfunding platform for their pre-seed round by highlighting platforms with many active investors, an average check size of $500 or more, and low fees.
Step 8: Try Angel Investors
Angel investors are a good option for pre-seed investment funds because they offer personalized and specialized advice, which can be beneficial when starting a company.
They also have a product-led growth mindset and are willing to invest capital now, giving founders more time to get the product right. Furthermore, angel investors have a large network of connections and experience that can be extremely useful in negotiating deals.
Additionally, these investors typically invest smaller amounts of money – usually ranging from $25-100k – giving founders access to both funding and expertise without committing too much capital upfront.
Step 9: Investigate Accelerators and Incubators
Accelerators and incubators are important in obtaining pre-seed investment funds because they provide startup companies with access to a wider range of investors.
These accelerators and incubators offer mentorship, resources, and business support that can help startups get the necessary funding.
Additionally, these accelerators have acceptance rates similar to top-tier universities; by partnering with them, startups may be able to reduce the amount of equity used for investment funds. With access to more investors through accelerators and incubators, startup companies can increase their chances of obtaining pre-seed funding for their businesses.
Step 10: Look for Rolling Funds
Rolling Funds are a type of pre-seed investment that can help entrepreneurs quickly and easily obtain funds.
Rolling Funds are mini-VC funds used by angel investors and aspiring VC fund managers to collect smaller checks, typically on a quarterly basis, from accredited investors.
This makes it more accessible for lower-net-worth accredited investors to invest in early-stage startups. Rolling Funds also provide founders with the opportunity to pitch their ideas to angel investors or aspiring VC fund managers who may be interested in investing in their startups.
Additionally, resources such as Early Steps Funds can provide useful information about stages and industries that most VCs invest in. Finally, for $50 you can get the sheet “1,000 VC Firms” which lists contact details for 1000 different venture capital firms that may be interested in investing in your idea if it has potential success.
Step 11: Seek Pre-Seed Angel Investors
Startup founders can connect with pre-seed angel investors by networking and meeting potential investors through trusted contacts.
Founders can also reach out to friends and family who may have money to invest or seek the help of lawyers, accountants, and bankers.
It is recommended to look up angel groups and VCs that invest at the pre-seed stage as well as research incubators or accelerators that could be a good strategic move.
Before pitching to investors, it is important for founders to evaluate their company, decide how much equity they wish to give away, make a pitch deck, practice their oral pitch and create an outline for the term sheet. Having your terms outlined in advance can help speed up the process of securing funding.
Step 12: Research Crowdfunding Platforms
Research crowdfunding platforms are important for obtaining pre-seed investment funds because they provide access to a wide base of potential investors and allow companies to receive regular updates on the progress of their projects.
Additionally, crowdfunding has the benefit of allowing firms to introduce their ideas and products to a large audience before they have been implemented, thus reducing the risk that someone else will copy them.
Step 13: Make the Most of Your Connections
Connections are important in obtaining pre-seed investment funds because they can help startups identify the right companies and make contact with the decision-makers who have the funds to invest.
Connecting with decision-makers is essential for startups to get access to pre-seed funding.
Step 14: Leverage Non-traditional Ways of Selling and Acquiring Customers
It is important to leverage non-traditional ways of selling and acquiring customers when seeking pre-seed investment funds because it helps to differentiate a business from the competition.
Non-traditional methods can also prove the product’s feasibility, which in turn will help secure larger funding rounds as well as appeal to potential investors. Utilizing these methods allows entrepreneurs to stand out from other businesses and increase their chances of getting pre-seed investment funds.
Step 15: Research Pre-Seed Funding Sources, such as 2048 Capital and 1517 Fund
It is important to research pre-seed funding sources before approaching them for investment in order to ensure that the startup has a good chance of success.
By researching potential investors, startups can learn more about their specific requirements and find the best fit for their needs.
This can also help startups understand what type of capital would be required for a successful pre-seed round as well as any other risks involved in taking on outside investment. Having an informed understanding of available options prior to seeking out investors will increase a startup’s chances of securing suitable funding and successfully launching its product or service.
What is the list of advantages to getting pre-seed investor funding?
1. Increased business exposure to potential customers and other investors
Getting pre-seed funding increases business exposure, giving the startup more visibility and credibility. This can open up new opportunities for the company, such as partnerships or media coverage which may lead to increased sales and customer engagement.
Additionally, having investors on board provides a network of contacts who can potentially provide guidance and resources to help grow the business.
2. Opportunities to network and form strategic partnerships
Networking and forming strategic partnerships offer a number of advantages to businesses. These include increased visibility, improved customer understanding, access to new markets and opportunities, collaboration with other businesses, and the ability to create a stronger competitive edge.
By networking and forming partnerships with other companies, businesses can benefit from the increased reach and quality of their products or services.
3. Increased credibility and legitimacy for the business
Increased credibility and legitimacy are important for businesses seeking pre-seed investor funding because investors want to be sure that the company is operating in a professional manner and has the potential to become a successful venture.
They will also want assurance that their investment is being put into something viable, which can be achieved by showing evidence of hypotheses validation and securing the support of key stakeholders.
4. Ability to access the latest technology and other resources
Getting pre-seed investor funding gives startups access to the latest technology and other resources, which can be an advantage. With these resources, startups are able to test their products and services with real customers before going public.
This helps them identify any potential issues or problems with the product that they may not have been aware of otherwise. In addition, having access to the latest technology allows startups to stay competitive in their industry by being on top of any new developments or trends.
5. Increased access to capital for future funding rounds
Increased access to capital is essential for startups in order to facilitate their growth and development. Through increased access to capital, startups can secure Series C rounds of funding, which will increase the value of their business and make greater opportunities available.
This can be achieved by limiting the number of shares sold at the Pre-Seed stage to no more than 10-15% and up to 20-25% at the Seed stage. With this strategy, a startup will be better positioned for success when approaching potential investors for Series C rounds of funding.
6. Increased potential for an exit strategy with a positive return on investment
An exit strategy is important for pre-seed investor funding because it provides investors with reassurance that the company has a plan in place for when it is ready to exit and sell its technology or products.
It also helps investors decide if investing in the company is worth their time, by allowing them to calculate the expected return of their investment. Lastly, having an exit strategy allows companies to avoid wasting time talking to investors who are not a good fit and may delay their judgment.
What factors should you consider when looking for an investor?
When looking for an investor for a pre-seed startup, it is important to consider a variety of factors. Investors should have a good understanding of the market opportunity and how the startup plans to pursue it.
Additionally, they should be excited about the company and able to tell its story in detail. It’s also important to identify investors who specialize in pre-seed startups and make sure their investment amounts align with the startup’s funding goals.
An investor’s industry knowledge and experience should also be investigated, as well as their track record when it comes to other pre-seed firms. Finally, investors should possess extensive knowledge about pre-seed companies in order to make informed investments.
Conclusion
The conclusion of pre-seed investor funding is to enlist the support of important stakeholders, such as the chief technical officer and chief financial officer, to turn the concept into a functioning company. Future-proofing the business involves registering important patents, trademarks, and intellectual property.
Various specialized pre-seed investor startups can benefit from Free Cash Flow’s professional accounting and startup professionals. A company that respects you, your business, and your hustle, and wants to work with you.
We would be happy to answer any questions you may have, or to assist you if you think you may need help, so feel free to contact Free Cash Flow.
FAQs
What are the different types of startup funding?
Startup funding can come from a variety of sources, such as angel investors, venture capitalists, and growth investors. Pre-seed funding helps early-stage companies develop their business model and product. Seed funding helps startups grow their team and further develop their product.
Angel investors have a lower investment amount than seed or venture capitalists. Series A Funding provides startup founders with capital to start the business, while Series B Funding is used to fund growth and meet consumer demand. Finally, Series C Funding is used to prepare a startup for an eventual public listing.
How do you get pre-seed investor funding for your startup?
Founders can increase their chances of getting pre-seed investor funding for their startup by networking and asking CEOs for introductions to pre-seed investors. Cold emailing potential investors is also a successful method, provided the emails are personalized.
Additionally, lawyers, accountants, and banks that are in the startup ecosystem can help connect entrepreneurs with potential investors. To receive funding, founders must develop an early version of their product, start marketing it and demonstrate that they have talented engineers/customers on board.
Focusing on solving a real problem people care about and being innovative and stylish will also increase the chances of securing pre-seed investor funding.
What are the benefits of equity crowdfunding?
Equity crowdfunding has become a popular method for funding businesses because it allows investors to purchase shares in the company rather than cash.
This makes them feel more involved and part of the team, while also providing a way for businesses to raise money quickly and easily without having to go through traditional banks or venture capital firms. Equity crowdfunding also offers investors a high number of potential sources, small average check sizes, and no platform fees.
What are the risks of crowdfunding?
Crowdfunding can be risky for startups because anyone can view the project before it is completed. There may be a risk of not meeting the goals of the project or running into issues during development.
Backers expect regular updates on progress and potential problems that arise to ensure their investment is put to good use. Additionally, there is no guarantee that crowdfunding campaigns will meet their stated goals, so startups should set realistic expectations when planning a campaign.
What are the different types of startup businesses?
Startup businesses come in a variety of types, including those that involve registering with the government and paying licensing fees to protect intellectual property, as well as those that rely on incubators for office space, mentorship, and networking opportunities.
Those with unique ideas and the capacity to execute them effectively can last for several years without taking much equity. To get pre-seed investor funding for your startup, there are steps you can take to increase your chances of success.
What are the characteristics of a successful startup?
A successful startup is one that has a qualified co-founder and is already generating sales. It should also have an impressive background in the industry, with founders who demonstrate go-getting and risk-taking qualities.
Financial statements should be prepared to show potential investors, as well as a product or MVP to demonstrate the potential of the business. Additionally, startups should have obtained early interest from potential customers and have a revenue model that is reasonable.
What are the stages of a startup business?
The stages of a startup business are typically categorized as ideation, development, testing, launch, and growth. Ideation involves generating new ideas and concepts for the startup. Development involves turning those ideas into a working product.
Testing is the process of verifying that the product works as intended. The launch is when the product is made available to customers or investors. Finally, growth refers to adding employees and expanding into different markets in order to increase revenue or gain more users.
