There are the early phases of funding that help a startup grow, in which pre-seed funding is considered the most crucial one. It helps a startup in getting off the base and generally comes from the startup founder and family members, close friends, and supporters.
While seed funding is made to assist the startup with its primary development via product growth and marketing study, the funds of which come from family members, incubators, angel investors, and venture capital or VC firms.
This post provides a more detailed look at both funding rounds, which may be essential to know for your startup.
Pre-Seed & Seed Funding- What’s the Difference?
When you are considering getting funds for your startup, it is important that you find out the differences between these two fundings.
Pre-Seed Funding
This type of funding is made to assist a startup with its primary structure and initiation of operations. As this funding is created to be used to pick up a startup from the base, it is not usually regarded as a genuine funding round.
If you follow a business concept that you think can finally convert into a bestselling product or service, the funds that you get with this funding would assist you in paying for the primary setup costs of the company. This funding can extend for as long as it hauls to set up the company and start operations, which can differ essentially based on the kind of company that you are making. You should anticipate this funding round to keep up your business for anywhere from 1 to 12 months.
Seed Funding
This is fundamentally the primary authorized funding round that a startup undergoes. Once you have developed your startup base with pre-seed, the seed funding that you grow must be used to support you increase your business. If you wish to start growing a product that can be put on the market and is peeking to do ample market research, this funding is made to help you attain these targets. All through this funding round, you must be able to check who is your target audience and find out what your end products will be.
Alt Text:- Infographic image for pre-seed and seed funding
Getting started with pre-seed funding
Once you have finished the steps required to fulfill this funding, you can start with the real funding procedure.
- Know when the funding is appropriate for you
As the pre-seed type is not the best alternative for each startup, it is generally optimal for businesses in their early phases. Think even if this kind of funding is perfect for your business before initiating. It can be the key to a fruitful launch if you have a winsome concept and a functional prototype. As your business expands, you can get more funds via seed funding, Series A, B, and C funding. With the correct tools, the pre-seed type will offer your business what it requires to thrive.
- Bring together an irresistible pitch deck
You need a powerful pitch, as you possibly will not have a real product at this point. This pitch will allow investors to understand exactly what they are investing in and include information regarding your business, product, target market, and financial forecasts for the fate of your business.
You can develop one or more pitch decks based on what you wish to attain. For example, you can make one for showing your idea to investors individually and another for mailing pitches.
- Select the right investors
Once you have your pitch deck all set, it is time to choose the finest investors who will probably be responsive to your pitch. You can start searching for investors by exploring those who have invested in the same businesses previously. In some conditions, you may be capable of finding interested potential investors within your network, making it significant to find out prospective networking possibilities, for example, explications where you can convey your ideas.
Investors must have a past record of investments, the same as your business and industry. With a suitable investor, you will benefit from pre-seed together with some advice as you increase your business.
- Work out a contract
The last step to consider is to work out a contract with investors. Once you crack a deal with investors, you should make sure the contract is in writing before accepting it. Or else, your business may agonize at some point if investors suddenly select to back out or do not proclaim their promises. If you do not like the deal, you should be able to refuse it because it could benefit you in the long duration as you ensure more profitable deals.
Conclusion
When it is about raising pre-seed funding, who your investors are matters a lot. Do your due diligence and only bring the best people on board. If you need funds for working capital needs, it is better to opt for other financing alternatives like revenue-based financing where you don’t have to part ways with equity. The repayment happens as a part of your revenues every month making it a fairer way of financing modern businesses.