Startups and new businesses need external investment to grow and sustain their operations. With hundreds of new companies emerging, the competition is acute, and lack of cash is a leading cause of failure. To stay afloat, entrepreneurs need to raise funds by presenting their business ideas and plans. However, if they are still in the product development stage, where would they get the money to go ahead?
This is where pre-seed startup funding comes up. It is usually the initial external investment a startup raises for product development or to start their business. It is riskier than other funding rounds because there isn’t any solid revenue or a business. The investors are betting their money on the idea or skills of the entrepreneur. Pre-seed funding for startups can be from friends and family or investing firms too.
How to know if your startup is ready for pre-seed funding?
While there’s no set timeline for every company, the following are some signs of opting for a pre-seed funding amount:
- You can show the investors a solid product-market fit based on your idea or a prototype. If your product fulfills a demand efficiently, the idea will be valuable.
- You have a minimum viable product, which already has some traction in the market. You can achieve this by releasing a prototype and onboarding potential customers.
- Your founding team has relevant experience and background with startups.
- You have already generated some goodwill in the market and signed up customers.
- You are generating revenue, which shows that your product has demand.
- You have a solid idea but not enough cash to develop the product fully. Pre-seed funding for startups helps build their prototypes.
- Your startup is ready to build a team and make critical hires.
How to raise pre-seed funding?
Both pre-seed and seed funding are crucial for a growing startup. You need to prepare a strong business plan, a viable product, plus a product-market fit to attract investors. It will make your startup a better investment option than a thousand others. Here’s how you can get that pre-seed funding:
Who to approach: You can get pre-seed funding from:
- Angel Investors
- Accelerator or Incubator programs
- Venture Capital firms offering pre-seed investments
How to approach: It is always better to find a connection and let them introduce you. However, if you don’t, cold emailing is your best bet. You should include a co-founder if you don’t have any experience. It would help generate some goodwill in the team and attract investors.
Your pitch: You need to market your business idea and product in the pitch. Tell them how it will solve a demand distinctly than the competition. Prepare a solid business plan highlighting your goals, plans, market size, and other strategies.
By following this guide, you’ll be able to secure that pre-seed startup funding and pave the path to building your business.
I’m the CEO of SPV Hub. Being a founder/ co-founder (of multiple businesses) and investor (in multiple startups) myself, I experienced the challenges that an investor and a founder face while raising capital and handling multiple deals. So, we created SPVHub to simplify everything related to SPV creation and management.
I am also the co-founder of Startup Steroid.