Pre-seed Funding For Startups – Everything to know about Pre-seed Funding and How Does it Work?

Hello readers, I hope this article finds you in good health. Today we are back with an imperative topic of discussion that every entrepreneur has to think about before starting their own business. Yes, you read it right, it’s about Pre-seed Funding. Does this term make you perplexed too? Don’t worry we have it all. In this article we are going to discuss the insights about Pre-seed Funding For Startups, How does it work and what are the sources for acquiring it. So let’s dive right into it. 

What is Pre-seed Funding For Startups?

Let us begin by understanding what does Pre-seed Funding for Startups means. So basically Pre-seed Funding, also known as Pre-seed Capital is a small amount of investment that any business needs to get it going in its initial stage. Now every startup needs funding, in the beginning, to start operating and pay for the initiatory cost of the company, that is when Pre-seed Funding comes into action. 

One thing to keep in mind is that since these funds are meant to get the business off the ground, it’s not generally considered to be the actual capital investment. This capital comes from all sorts of informal sources. Like you can generate money from your close friends or family members or supporters of the startup. Usually, the people who invest money in your business get a stake in your company as an exchange, and some even become the founding members of the company. The amount of Pre-seed funds can reach up to the limit of $250,000. 

In addition to the source of Pre-seed Funds, one also has to keep in mind the duration for which the business might need these funds. Essentially this round of funding can last for as long as the business takes to set up, but this can differ according to the need and the type of company one is planning to create. A well-informed entrepreneur will prepare for this round of funding to sustain his/her business for anywhere from 2-12 months. Also, it’s recommended that before entering this stage of funding one should have a minimum viable product, though it’s not always mandatory. 

How To Secure Pre-seed Funding For your Startup?

Once you know what  Pre-seed Funding For Startups is, the next task in line is to procure a credible source of funding for your business. It usually starts with friends and family but then you’d want to open up the Pre-seed Funding for Startups to further connections as well. Since many early-stage startups are now looking for financial investors, the number of companies that receive funding is relatively low. Read on to learn how you can increase your chances so that an investor selects your business model for his Pre-seed Funding.

Step 1 – Choosing the Right investors

At the stage of Pre-seed Funding for startups, most businesses don’t have many resources to explain their business plan to the investors, and they are putting their money by taking a leap of faith on the founding members only. So, one should target investors who are primarily looking to provide funding at the initial stage only.

They will be prepared well in advance to take this risk and base their decision on further potential, rather than sales figures and revenue of the company. Instead of contacting hundred of investors, research the funding background of potential investors and contact a few of them that have a history of working in this line. 

There are a few key types of Pre-seed investors like:

• Angel investors,
• Accelerator or incubator programs,
• Pre-seed investment venture capital funds, etc. 

Step 2 – Know how to convince your investors 

A startup that already has great figures in sales and revenue does not have much problem in attracting investors. However, few startups do not grow with the same potential, and here are some ways that can help you attract the right investor. 

The best way to make an investor believe in your business idea is that it comes from someone they trust personally. For instance, an entrepreneur with whom they have done business previously. 

The second thing that might intrigue an investor in funding your startup is the personality of the founder. Usually, investors look at how personally you are invested in the company, and will also note if you left a high-paying job to follow this dream of starting your own business.

 It’s not just the abstract qualities that appeal to the investors, they also want someone well qualified for the position as well as has a similar background with the company. So as a responsibility of a founder you should build a team with technical co-founders who can implement your ideas and pitch them as well.

Step 3 – Create your Pre-seed Funding pitch 

Once you get selected by the investors, they might call you to pitch your business idea to them. This can be a game-changer for your chance to gain funding. This is one of the most imperative ways by which you can tell them your story and give a high-level vision of your company’s future goals. By including the following information on your Pre-seed Funding pitch, you can have an upper hand on your competitors. You can begin by telling them 

• What are the problems faced by your company 
• What is your unique solution to those problems 
• The differentiated product you offer and its competitive advantages 
• The market size of your product 
• What is your business model 
• How do you plan to increase your revenue in the coming 5 years 
• The key milestone you want to achieve and how your customer base and engagement will help you to achieve that 
• The amount of money you need to build your team and achieve the aforementioned goals. 

Not all investors would like to read your detailed financial statements like your P&L or Balance sheet. But what they would like to see is your financial projections and your scenario models. This model helps them to make predictions about the revenue, cost, and customer base of your company and make a well-informed decision, whether they want to invest in your startup or not. 

To Conclude 

There’s no doubt that Pre-seed Funding for Startups has gained eminence in the past few years as more and more startups have emerged in the country. Having said that its importance can be contemplated in the early-stage development of the business, Pre-seed Funding for Startups can act as the make-or-break moment of any startup. That is why it’s vital to keep in mind the factors that will help startups set the right expectations for an investor in future rounds and maintain a long-term relationship, rather than simply securing the funding to begin the company. 

To know more about the insight of the business, read : 

6 Tips on how to start a business with no money you must consider