What Is Pre-Seed Funding And How Does It Work?
Do you want to take the next step in growing your startup? Outside financing can help your business grow.
What is Pre-Seed Funding?
Pre-seed funding is the small amount of capital that you need to start your business. This fund usually comes from family members, relatives, or investors. They are the first investors or stakeholders of your business.
How Does Pre-Seed Funding Work?
When you acquire pre-seed funding for your business, it’s best to follow these tips:
Selecting The Proper Investors
You need to find the best and right investors that suit the goals of your company. There are many investors interested in start-up companies and ready to invest their resources and time. These investors are willing to accompany you every step of the way. And support you and your company and your decisions.
There are many kinds of Investors. Angel Investors are usually small investors who have the authority to decide on which investment they will make. Accelerator Programs are investors that need your business to be granted by the entrepreneurial community before investing. And Venture Capital Funds can invest a lot of money and effort in startups. But they have a much longer processing time.
Attracting The Investors
Now that you know which type of investor you seek, you should know what to do to attract them into investing in your venture.
- First impressions are very important.
Show potential investors that you are confident and knowledgeable of all the things related to your company. Show them your vision and the possibilities and potential of your company.
- Rely on teamwork.
You must have an inner circle of team members who share your visions and company goals. Trained and professional people can form a solid company strength.
- Have a clean track record.
Investors always do an extended background check. When this track record shows your credentials and your achievements, investors will be even more encouraged to trust your future company and invest in your business.
How Much Is Pre-Seed Funding?
Pre-seed funding usually amounts from $50,000 to $250,000. These funds are usually invested by family, relatives, or small investors. These parties become the first stockholders of your company.
Differences Between Pre-Seed And Seed Funding
There are several differences between pre-seed and seed funding:
Pre-seed funding usually starts from $50,000 to $250,000, while seed funding amounts to $500,000 to $2 million dollars.
- Runway duration
Pre-seed duration is about 3 to 9 months while the seed funding period is 12 to 18 months.
- Type of investors
Seed funding investors are typically bigger companies while pre-seed investors are usually family members, relatives, and small-time investors.
Pre-seed investors are usually familiar with you or a team member since they are family members or friends. Therefore, it’s easier to attract pre-seed funding. Seed fund investors are harder to attract since they will want more guarantees. They’ll also want to know more details about your strategy and tactics. are interested in your skills and those of your team members.
Related article: How To Spend Pre-seed Funding
How Long Should Pre-Seed Funding Last?
Usually, the runway of pre-seed funding lasts 12 to 18 months from the day you start your venture. However, some startups stretch their pre-seed funding phase for a longer period of time.
Knowing how pre-seed funding can help establish your company and knowing which type of investors you need, helps you to grow your company. Also, knowing how long your pre-seed funding should last, will help you determine when you need seed funding.
Related article: Startup Funding Stages