How to Raise Pre-Seed Funding for Your Start-Up
Most start-up businesses raise money to accelerate and support their growth through a series of funding rounds. If you are a first-time founder and your business is still in the proof-of-concept stage or not yet generating enough revenue to support your growth or expansion, you may be able to raise pre-seed funding from interested investors to get your business off the ground.
What is Pre-Seed Funding?
Pre-seed funding is early-stage funding that investors provide to start-up businesses to develop their product, in return for equity in the company.
When is Your Start-Up Ready for Pre-Seed Funding?
There is no rule as to when your business is ready to raise a pre-seed round. However, there are a few indicators that may indicate this is the right decision.
- You have an MVP (Minimum Viable Product), that shows early signs of demand.
- You can demonstrate potential for product-market fit.
- You have a strong founding team with relevant background and experience.
- You have begun onboarding customers to use your product or services.
- Your business has begun generating revenue.
- You need cash to develop your prototype.
- You are ready to make critical hires.
In any case, your business should only raise money if you require capital to continue product development and accelerate the growth of your idea or business.
How to Get Pre-Seed Funding?
At the pre-seed funding stage, most start-ups do not have much (if any) sales data to prove their business concept, so investors are taking a leap of faith on the founding team when they put money into businesses at this stage. You will need to target investors and funds that are primarily interested in pre-seed funding for start-ups: They will be prepared to take this risk and base their decisions on conviction and future potential rather than sales figures and revenue.
Types of Pre-Seed Funding
These individuals make relatively small investments. However, you can usually secure pre-seed money quickly from angel investors because they are the sole decision makers. If they have also been involved as part of your business’s angel round, they will already be invested in the success of your venture.
Accelerator or Incubator Programs
Early-stage companies not only raise initial pre-seed capital in exchange for equity but are granted access to an entrepreneurial community which is full of training, networking opportunities, and resources. Founders must go through the application process and when accepted, follow guidelines to complete the course.
Pre-Seed and & Seed Investment Venture Capital Funds
These funds represent multiple limited partner investors. Venture Capital funds can offer larger investments during pre-seed rounds but also have a longer decision-making process.
It is advised that start-up businesses contact a number of possible investors and research their funding backgrounds. Contacting investors that have worked with similar start-up businesses is recommended. By targeting your fundraising efforts, you will earn a much higher response rate.
How to Attract Attention from Pre-Seed Investors
- Introduction: The best way to connect with an investor is using an introduction from someone they know and trust, such as other founders they have worked with or advisers in their network etc.
- Entrepreneurial Personality: Having a start-up personality is important at the early stage of your business. Investors will look for people who are passionate, enthusiastic, know and understand the industry sector they are targeting and eager to grow their business.
- A Relevant Background: Having a relevant background in your field will encourage investors to take you seriously. Promoting previous roles that you have had which show you have a track record in the sector will give you an advantage.
Having accurate financials when you are pitching to investors shows that your business financial processes are in order. Gallagher Keane provide professional accounting, tax, and financial advice to many start-up businesses. This helps them make informed business decisions to reach their business goals. Gallagher Keane provides cloud accounting services to clients, giving start-ups a modern accounting solution.
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