How can a startup secure funding in a pre-seed round?

A pre-seed round is an initial funding stage for startups, focusing on developing an idea or prototype. It aims to validate the problem-solution fit, gauge market demand, and create a minimum viable product (MVP).

I ve raised pre-seed 3 times while being founder in different startup and currently working on raising on more in web3. Actually it’s ur first step where you share equity to an early adopters mostly FFF or Angel to build your first POC and try make some sales and run till seed round

Pre-seed rounds have different definitions, but typically, these financings are the 1st "formal" rounds of financing that a startup will undergo in order to develop an MVP and/or take an MVP to the first stages of revenue generation. Pre-Seed rounds are typically done with SAFES or convertible notes (as opposed to priced rounds).

A pre-seed round is an early funding stage for startups, typically before they have a fully developed product or established customer base. It's often the first external capital a startup raises. This round is usually less than $1 million and is aimed at helping the startup develop its idea, conduct market research, build a prototype, and achieve initial traction. Investors in pre-seed rounds are often angel investors, early-stage venture capitalists, or the founders' personal networks. The funding is used to reach milestones that make the startup attractive for larger seed or Series A rounds.

A pre-seed funding round is an initial investment stage designed to support early-stage startups. It provides capital for market research, product development, and team formation, laying the groundwork for future scalability. This phase is critical for entrepreneurs to refine their business model and prepare for subsequent, more substantial funding rounds.

There is high quality advice here about the technical aspects founders should prepare and those things are important for founders to have & do! However, at the pre-seed stage an investment won’t be because of how good the technical aspects you prepare are, it will be an investment in the founder(s). This early in a companies lifecycle it’s about the founders storytelling ability and how well they’re able to articulate two things: 1) why this is a problem that needs solving. 2) why they’re the person(s) to solve it.

It depends on the industry, but as I'm involved in a tech startup, the first thing to prepare is for your idea to grow from your vision to the cash flow. The second step is to develop a one-pager (project chart) that illustrates the incomes and outcomes of the project. Additionally, create a pitch deck in both document and presentation versions After that, complete all necessary paperwork, such as a whitepaper or business documents, an MVP (Minimum Viable Product), a financial model, and market sizing. Prepare your project's social media presence and focus on growing it because many investors are interested in the community surrounding the project.

Effectively preparing for the pre-seed round demands meticulous attention to detail and a strategic approach. Assess your startup's current progress and calculate the capital you need first, then decide the percentage of equity you are willing to offer. Recognizing that precise valuation might be challenging at this early stage, raising funds through a SAFE is a viable option instead of going for a pricing round straightway. Before approaching investors, ensure your fundraising strategy is well-defined, aligning with your startup's goals and growth trajectory. This strategic preparation will enable you to engage confidently in conversations with investors, presenting a clear and compelling case for your startup's vision and potential.

Entrepreneurs should take into account the size of the investor's current fund. Investors typically have a "sweet spot" or a preferred investment range, which is often reflective of their current fund's size. Entrepreneurs should identify and engage with investors whose sweet spot is in line with their funding needs. Entrepreneurs looking to raise a pre-seed round might not find an ideal match with an investor whose fund size and investment focus are geared towards much larger investments - the startup might risk becoming a minor investment for the investor and may not receive adequate attention and support. It's advisable for entrepreneurs to specifically inquire about the size of an investor's current fund.

More often than not, at pre-seed stage, the investors would put more emphasis on the founding team. Be prepared to tell them why you? What have you done before that would increase the likelihood of success? What relevant industry experience have you had? Have you started a company before?

"Find investors"?? It's not a treasure hunt! Rather consider it an exercise in patient strategic alliance-building. Ditch those cold emails and blanket pitches. It's all about leveraging (and building) your network – mentors, advisors, customers – for introductions. They're your credibility passport. Your outreach to investors? Make it more than a pitch; make it a compelling narrative that aligns with their goals (and personal thesis!). Give them a story they can't resist, one that makes them eager to be part of your journey. If you're starting fresh with limited network than focus on thought leadership through platforms like Linkedin, as a founder you should always be a thought leader in your field. The ideal network will come with time.

The Pre-Seed stage is where angel investors shine. Not only because of smaller tickets sizes but also expertise. Especially in the early pre traction days expertise and guidance is gold. Because product market fit (PMF) is not something you can buy, but it needs to be discovered. When selecting business angels you should look for a mix of industry experts who know your market and operational experts who have built a business before. Operational meaning experts in a specific field of business such as product, marketing or sales. When reaching out to business angels, I recommend to engage early and often not only when you urgently need money. This way you have time to get to know each other and increase the likelihood of an investment.

When considering potential investors for the pre-seed round ask: 1. What stage and/or industry do they typically invest in? Do they have a special interest for my focus area? (The answer here could increase chances of that cold email being opened without a soft introduction.) 2. What is the investor's average deal size? Does it align close enough with my ask? 3. What value can they bring beyond capital? Do they have expertise or a network to leverage? 4. What is their track record? Have they been successful? 5. Are they already investing in a competitor of mine? If so, seek investments elsewhere. Remember, prioritizing potential investors with a little upfront work may save time down the line. Leverage connections then build criteria.

Die Investorensuche sollte von den Gründern betrachtet werden wie ein Vertriebsprozess. Die Basis ist sich vorzubereiten und alle notwendigen Unterlagen zusammen zu haben: Pitchdeck, Due Diligence Unterlagen und Finanzplanung. Sind diese vorhanden kann ich anfangen potenzielle Investoren zu identifizieren die in den relevanten Bereich investieren um eine long list zu erstellen. Idealerweise suche ich dann nach Möglichkeiten für die identifizierten Personen ein warmes Intro zu bekommen. Von dort aus ist es dann eine iterativer Prozess - schauen was funktioniert und was nicht um es im nächsten Gespräch/ der nächsten Ansprache besser zu machen.

1. Identify: Target angel investors and early-stage VCs specializing in your industry. Use platforms like LinkedIn, AngelList, and Crunchbase to find them. 2. Network: Attend startup events, webinars, and industry meetups. Join entrepreneur forums and communities. 3. Referrals: Leverage your network for introductions. Contacts in your industry, mentors, or fellow entrepreneurs can provide valuable referrals. 4. Pitch Preparation: Craft a concise, compelling pitch highlighting your unique value proposition, market potential, and team strengths. 5. Outreach: Reach out via email or LinkedIn with a personalized message. Attach your pitch deck. 6. Follow-Up: Persistently but politely follow up if you don’t hear back within a week or two.

In negotiating a pre-seed round, focus on valuation, equity, and future rights. Start by agreeing on a valuation that reflects the startup's potential and early stage, often using convertible notes or SAFE (Simple Agreement for Future Equity) to defer exact valuation. Offer a percentage of equity that aligns with the investment amount, keeping in mind future funding rounds. Negotiate terms like anti-dilution provisions to protect investors against future equity devaluation. Discuss key rights like board representation, voting rights, and information rights. Finally, agree on milestones for fund release to ensure progress. Clear communication and understanding each party's expectations are crucial for a successful negotiation.

Be wary of investors who try to negotiate in non-standard terms for pre-seed rounds, such as multiple liquidation preference. This sets a bad precedent for future financings, and could "break" your cap table down the road as future investors will likely ask for similar protections.

The best way to negotiate the terms of a deal is to make your product as close to what people really want as possible. Nothing speaks louder than traction and if you have testimonials from happy clients your main argument is to make terms as friendly to the founding team as possible.

To manage relationships with backers in a pre-seed round, maintain regular, transparent communication. Share monthly updates on progress, challenges, and milestones. Be responsive to their inquiries and feedback. Involve them in key decisions, especially those impacting the company's direction or financial health. Acknowledge their expertise; seek advice on strategic matters. Host periodic meetings or calls to discuss progress and future plans. Finally, express gratitude for their support and show how their contribution is driving growth. This approach fosters trust and keeps backers engaged and supportive.

Treat their money as if it were your own. Henceforth, all of your decisions & actions will align with your backer's mindset, which will eventually foster a good relationship in the long run.

At this stage make sure to emphasize details around Total Addressable Market (TAM), path to scale, and unfair competitive advantages. It's also a good time to consider applying to pre-seed accelerator programs like Y-Combinator to gain funding and mentor access.

In addition to equity investments, I highly recommend also look for non-dilutive fundings such as SBIR, STTR, DOE, Innovate UK, etc if you are running a deep tech startup to de-risk your company as a potential investment.

Startups aiming for pre-seed funding can follow these strategies: 1)Create a Strong Pitch 2)Build a Prototype or MVP, Develop a minimum viable product (MVP) to demonstrate your concept's feasibility and attract investor interest. 3)Angel Investors, seek investment from angel investors who typically invest smaller amounts in exchange for equity. 4) Venture Capital Firms (Early-stage), Apqproach venture capital firms that specialize in early-stage funding. 5) Online Platforms and Crowdfunding:** Explore crowdfunding platforms or online syndicates. 6)Accelerators and Incubators, Apply to startup accelerators or incubators that offer funding, mentorship, and access to a network of investors.

I always advise my clients not to raise pre-seed if they don't have traction. Traction gives an edge in negotiating. It gives a sense of security to investors. PS. You could be pre-seed with good traction; in this case, fly away!

Funding, Investment, Investors! Few words that bring adrenaline rush to a budding entrepreneur! The uncontrollable rush right from the onsight to have someone belive in your dream is unparallel. What founders missout: - Negotiate the deal well and not dilute too much - Investor DD is important. See if the investor you are talking to is aligned with your vision and will value add. Talk to portfolio founders for their feedback. - Look for alternate options of funding like grants, competition participation, CSR money (social ventures nay get them) etc. - Securing a termsheet is not equal to getting funds, money in the bank is. Fundraising is not a synonym for success, preserving equity is the key!