Pre-seed financing is an early-stage financing round in which an investor provides up to $2 million in capital to a startup company to develop its product in exchange for equity. Many early-stage startups are looking for financial support, but the number of companies receiving pre-seed financing is small, as investors consider thousands of startups worthy of investment, not just a few.
Your start-up is ready for a pre-seed funding round. In this case, your business is raising money because you need capital to continue product development and accelerate the growth of your idea or business.
In the pre-launch financing phase, most startups do not have much sales data to prove their business concept, so investors trust the start-up team before putting money into the company. you must appeal to investors and they are willing to take risks because of their decision and belief in future potential sales and revenues. Angel investors can make small investments of $25,000 to $100,000 and it is easier to get funding from them because they are the only decision makers in the process. For early-stage companies that have not raised seed capital, $125,000 (give or take) is in exchange for equity grants and access to an entrepreneurial community of helpful training, networking opportunities, free and discounted resources and high-profile VCs for future funding rounds. Accelerator and Incubator Programs: The Accelerator and Incubator Program is a great opportunity you should consider for acceleration.
Follow this five steps to lend a seed round:
1. Search for mentorship.
Their first step is to connect with like-minded start-up founders. The venture capitalists you target (e.g. How much money you have already raised)
As an entrepreneur, I have done my best to answer some of the most common questions to help manage the fundraising process in the initial phase. A mentor in your industry can serve as a reference for VCs considering investing in your business. Knowing that people will call for references (your former boss is obvious) and that people in the ecosystem have a strong influence on you and your idea.
2. Build credibility and connections.
Investors have learned that there are two reasons to invest in startups,the first is the proven traction in terms of revenue growth that exceeds what everyone else is looking for. The second reason is to know and trust the founder for a long time, because he has a position as a talented mind.
Try to establish an authentic relationship with VCs before you need their support. Start with a target list of potential investors and look for ways to help them.
It is valuable what you contribute to your company. They have access to valuable information that they need immediately.
The best way to get in touch with an investor is a warm introduction.
3. Choose a lead investor
Prioritize and align with your core tasks, values and goals. You can build a network of top VCs to evaluate potential investors and select leading investors.
Do not show such interest and do not set priorities. The best leads will show you their progress as they work through a few weeks. This part may take longer than you think, but I would say go all in. Lead with real due diligence, reference calls, leadsres, and go with the lead.
Know the type of person you would prefer as a lead investor. Generally, there are two types of investors: those who keep their hands off it and are very interested in your business. Not all investors are available to fix financing problems, answer phone calls or answer emails.
4. Create a success metrics
One of the most important aspects of a seed round to prepare for future success is knowing how much money you need to invest in. By raising too much money, you are bracing yourself for failure in the next round. Another important consideration when selecting a lead investor is the average financing amount. If you charge less than your average investment margin, you will not receive financing.
Generally, you have to stay in your own lane when building a business, but in some cases it is beneficial to ask and try out founders and friends who have recently been financed for their traction metrics and the rounds they have collected. You should assess the company you are in terms of product / marketability, scalability and traction. When you raise the amount needed, you don't expect to be able to raise debt. But you should be aware that if you raised $3.5 million in a pre-seed or $10 million in a seed round you can assess the milestones for your next round, says Parul Singh, an early-stage media worker.
5. Consider crowdfunding
Crowdfunding isn't as simple as it looks. In recent years, many entrepreneurs have turned their ideas from conception into reality and asked their customers for financing. Some, however, still have difficulties growing seeds.
Successful campaigns on Kickstarter, Indiegogo and GoFundMe require extensive planning and expert execution. Entrepreneurs must spend a lot of time creating compelling marketing messages, high-quality videos, exciting rewards and incentives and traffic-generating plans.
The most successful crowdfunding campaign ever was Pebble, an e-paper smartwatch. In 2012, the company raised more than $10 million in 37 days, exceeding its original goal of $100,000. Pebble founder Eric Migicovsky then launched a Kickstarter campaign that garnered a lot of media attention. In 2015, his crowdfunding success led to a $740 million offer by the 86-year-old Japanese watchmaker Citizen.
Before turning to venture capital firms, turn to partners with direct experience in the vertical startup industry. Contact hundreds of investors and consider these tactics: research the financial backgrounds of potential investors and contact at least 20 companies that have worked with similar start-ups.
As your start-up generates revenue and gains traction, you increase your chances of securing pre-launch financing. Align your donation efforts like a spray and pray, and you will get a higher response rate from investors. Introduction is the best way to get in touch with potential investors, and thus they trust the entrepreneur in whom they have invested.
If you can't prove that you are a start-up entrepreneur, an impressive background in your field (for example, as a product manager in a large technology company or with a computer science degree) can encourage investors to take you seriously. A founder's personality is important at this early stage, as investors want to see if you are a go-getter and point out that you have left a well-paid job to take a risk and follow your dreams. The founder's first responsibility is to build a team and if you are a sole entrepreneur and attract investors, your chances of receiving funding are drastically reduced. This is particularly problematic if you plan to develop a product outside your business background, as you may not have a technical co-founder to implement your idea. Finding a co-founder is not easy, so first look for someone who is possible.
Once you get the interest of investors, they invite you to pitch. This is an opportunity to tell your company story and to give a high-level vision of its goals and opportunities on a scale. You don't need to put detailed financial statements or your P & L balance sheet on the table, but you do need to create financial forecasts and scenario models. In this way, you can make predictions about your income, costs, and customers based on the degree of accuracy you share with potential investors. Don't be afraid to use a pitch deck template to start, there are a number of free and highly respected online start-up investors decks available for free, including decks from Y Combinator, First Round Capital, Beautiful.ai, Next View Ventures etc.
In the pre-launch financing phase, most startups do not have much sales data to prove their business concept, so investors trust the start-up team before putting money into the company. They must appeal to investors who are well-financed and interested in start-ups with pre-seed financing, because they are willing to take risks because of their decision and belief in future potential sales and revenues.
Always keep your eye on the prize to land a seed investment
Securing an investment requires carefully planned planning, relationship building, thorough research and an understanding of the success factors of your start-ups. With a keen eye on these and other factors, your start-up can face challenges in raising seed capital.