Pre Seed Funding is the first thing that helps Startups to prop up their idea into reality. It supports the founder to set off the initial operations in building a successful company.
Bootstrapping might not be sufficient for some of the entrepreneurs to manage the initial setup cost. Also, it is quite difficult to get money from Angel Investors or Venture capital firms, as the Startup would not have any growth traction at the nascent stage.
Even though there are different stages of funding available to the startup company like seed funding and series funding, it cannot directly approach the investors at the early stages.
To get better out of this choke, pre-seed capital plays a crucial role in developing the business further.
Let’s explore in this detailed article, what is all about pre-seed funding? And how to raise it from the investors?
What Is A Pre Seed Funding? – Definition
Pre-seed funding is the early-stage funding that helps startups to meet capital needs. It is also known as pre-seed capital or pre-seed money and it is acquired before seed fund.
The pre-seed fund will be used to validate the startup idea, research, and develop a prototype. The amount of seed money would be in the range from $50 thousand to $2.5 million.
Pre Seed Vs Seed Funding: Key Difference
Necessity: Pre-seed fund is needed to validate the startup idea by testing and creating a prototype according to the market needs. The seed fund will be used to start the operations and develop the minimum viable product.
Amount: Pre-seed fund amount will be in ranges of $50k – 250k, but seed fund requires more than that, which would be in the range of $2.5M – 7.5M.
Source Of Fund: Pre-seed fund is a pre-institutional fund that is obtained from friends, family, and even from an Startup incubator . The seed fund is acquired through several investors like Venture Capitalists, Angel Funding, and Startup Accelerator.
Revenue Report: No revenue report is needed to get pre-seed capital, but seed funding requires some growth traction to be shown at the time of pitching the investors.
Timeline Target: The timeline target to utilize pre-seed fund is 3-9 months, where seed fund will be used in between the timeline of 12-18 months until reaching the next round of funding.
Goal: The important goal to be achieved through the pre-seed fund stage is the completion of the prototype model, recruiting staff, and developing the MVP. But in the seed stage fund, the company must have developed the MVP, marketed it, and earn some return on investment.
Why Pre Seed Fund Is Needed For Startups
A startup gets a pre-seed fund to meet several needs at the starting stage. Building a disruptive startup brand requires some foundational work before creating product-market-fit. They are
Develop A Minimum Viable Product
Developing a minimum viable product is one of the stages in the product development cycle. Minimum Viable Product is a product with certain minimum features that are delivered to the customers and gets feedback from them. This validates the startup idea and helpful in the further development process through customization.
Market Research
The pre-seed fund is used to conduct market research which could be done by the company itself or by a Third Party Company. It determines the behavior of the market and tests the product viability. This pre-seed money has its significant use in conducting market research as it involves survey tools and software.
Build A Startup Team
A pre-seed fund will be used to build a strong team. Hiring employees with nominal costs and with more experience is difficult for any founder of the company. The founder uses this fund to hire professionals like a sales person, marketer, CTO, CFO, and COO.
Licensing And Intellectual Property Rights
Even though you have registered your company, you might need to get a license to legitimately run a startup company. It purely depends on the industry of business. The documentation process will cost you some money and it will take some time. Also, it may be useful to get intellectual property rights like patents, copyrights, and trademarks.
How To Raise Pre Seed Funding
After knowing the purpose and pre-requisite to get pre-seed, it is time to know how to raise a pre-seed fund through the following steps. It is essential for you to note some key points that you should include in your pitch deck.
Business Plan For Pre Seed Funding
The business plan is a document that gives a brief description of your Vision for the future of your company and how will you achieve it through business innovation. It includes the roadmap of your startup that outlines the market opportunities, competition, solution to the threats, team, and financial management.
It is vital to write this business plan in the sense that the investors shouldn’t think of other ways to reject your application.
Legal Documents
Legal documents are necessary to be checked before approaching the investors. Ensure that you meet the eligibility criteria to apply, and get to know the investor policies, and strictly adhere to it, as it varies from investor to investor.
Some basic legal documents you would be submitting are the registration certificate of your company, license, and partnership agreement, etc…
Pre-Seed Pitch Deck For Startup
A Pitch deck is a document used to raise money by delivering presentations to the investors. The presentation should include several slides, through which the investors would understand and interpret the problem and solution that creates a market value.
By this, the investors would get a clear idea of the money-making potential of your business model and shows interest in investing and also guiding you.
The noteworthy slides that should be included in the pitch deck are
Brief Overview Of A Company
Primarily, just before showing the problem, the first slide should be a brief introduction of your company. This should be shown in bulletin points by revealing your brand name and logo.
It tells about which industry your company is associated with and what technology it uses. Keep in mind that it should grab the investor’s attention when they first look at it. This creates a good impression, especially if it speaks about the trending niche.
Problem
Go straight with the problem that the contemporary market faces. Illustrate it with the pictures, how it impacts the industry. It should be visible to the person to whom the slide is presented, should address the problem easily, and demands a perfect solution.
Unique solution
After mentioning the problem, define a compelling solution, by no other way it could be solved. Of course, you can depict the prevailing alternatives or solutions in the market. But it is crucial to say that how your service or product is better and overcome that.
Business Model
Since you will be pitching for a pre-seed fund at the early stages, after defining the problem and solution, the next question that arises in everyone’s mind is that how it could be operated in reality.
The answer is simple, i.e. it can be explained with the Business model.
The business model tells all about how the company makes money, acquires market, customer value, and cost to create a product. It is also known as a financial model that explains pricing plans and strategies.
Value Proposition
A Value proposition is most probably the important slide that you must include in your pitch deck. Value proposition – what does it really mean here? A value proposition is understood from a customer’s point of view.
The value proposition is the unique value of a company that promises to deliver to its customer through the product or service. It tells a reason, why a customer should buy a product from your company. That’s why it should be included in the presentation so that it gets the investor’s nod.
Founders And Cofounder Or Team members
The founders and team members are the pillars of any business. In this slide, you will be introducing yourself and your team with the pictures.
Tell an impressive story behind you and your team. What makes you to choose this business domain? Also, the slide must include your sound knowledge, expertise, and your past experiences in the industry. This shows the strength of your team and investors believe that you can cope up with the problems with courage.
Goals And Objectives
As this would be a pre-seed pitch, you should state the vision and mission of your company. List the objectives and goals that you could achieve in a short time. Since this would be the first money you get from the investors, it should be precisely stated with short-term goals and the relevant amount of funding needs.
Product
The next thing you must include in your slide is your product. What are the features of your product? Since you seek funds for developing the MVP, you need not provide more details, but just show an outlook of your product plan.
Customers
This slide tells about your customer or end-user who will get benefitted from your service. What types of customers you are targeting initially should be shown here with demographic data. This represents your market size, customer behavior, and recent trends. This slide is much important because it reveals the potential of your business.
Competition
Here, you will be defining your competitors in the marketplace. Knowing their strength and weakness is essential for you to outperform them by showing off the differentiating factors. This figure out how you will gain a competitive advantage. It is good to present these details and factors with charts and graphs.
Marketing Plan
Marketing plan tells, through which medium you will communicate to the customer i.e. marketing channels.
Forecasting is quite necessary to effectively use marketing technologies to promote or advertise your product. Listing the innovative ideas that you plan for the segmented customers is vital for you to attract investors and also it gives clarity to them.
Revenue model
Before asking for money, show your revenue model which is a framework for generating income for your company. It is a part of the business model that includes the value, price of the product, revenue streams, and payment methods.
All these factors help to prioritize the resources for generating maximum return on investment.
Fund Raising
The final step in the pitch deck is a call to fundraising. Here in this last slide, you will need to vividly elaborate the financial estimation appropriate to the anticipated expenses. And it should include
- The amount of funds you seek.
- Timeline target to use the fund (10-15 months approx)
- The key purpose of the pre-seed fund and how will you structure and utilize it.
Reader’s Insight
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