How to Raise Pre-Seed Funding

How to Raise Pre-Seed Funding: A Guide for Founders

August 26, 2022 16:31 PM

Pre-Seed Funding

Accumulating the capital to fund early-stage processes is one of the most common limitations founders face in the planning phases of making a business.

Some entrepreneurs address this problem by increasing the Pre-Seed Funding round to cover initial operational expenses, creating an MVP, and hiring a talented team to fuel development. Here we’ll discuss:

What is Pre-Seed Funding to begin with?

Pre-seed investment often arises at the start of the funding cycle, before the seed- stage start-up budget and further steps. Pre-seed investors deliver companies money at this stage in exchange for an equity stake so they may begin making products or services.

This step could follow even before funding steps like bootstrapping with a business owner’s capital or the first round of angel investments.

Since most things haven’t yet been produced and companies could only have a prototype, pre-seed investment primarily entails investing in a thought. Pre-seed fundraising typically isn’t large enough to prepare as an official round of funding.

However, to deliver the groundwork for anything important that can upend the enterprise, some entrepreneurs must receive this infusion of funding.

Pre-seed fundraising is required to provide the groundwork for the beginning of company operations and to ensure the viability of the founders’ venture. This foundation is laid by:

  • Through conducting research, surveys, and analysis, it is possible to verify or refute hypotheses about the market, demand, and intended product.
  • Enlisting the support of important stakeholders, such as the chief technical officer and chief financial officer, to turn the idea into a functioning company.
  • Future-proofing the company by registering important trademarks, patents, and intellectual property.

Difference between pre-seed funding and seed funding

Similar to all fundraising competitions, there is some overlapping in the parameters. Although there are some measures about development, product/market fit, etc., the preliminary distinctions between each round boil down to things like company valuations and investment level.

  • The first ‘official’ game of fundraising is frequently referred to as seed funding. This fund is primarily used to make a minimum viable product.
  • Pre-seed investments generally do not deliver founders with as much money as seed investments do.
  • Pre-seed funding can happen before any product evolution, but seed investors generally demand that the company show some sort of traction.
  • Pre-seed funding commonly raises between $50,000 and $250,000. In contrast, seed funding can grow as much as $2.5 million to $7.5 million. Founders often acquire more contributions through seed funding than pre-seed funding.
  • Pre-seed funds are generally funded by family, friends, or startup incubators, whereas seed funding is sourced from venture tycoons and startup accelerators.
  • To source the pre-seed funding, only the concept works, however, for seed funding, investors are keen to consider the reports indicating boost tractions.
  • As pre-seed funding is utilized for MVP development, it is increased for a targeted timeline of 3-9 months. In distinction, the seed funds are utilized between 12-18 months before pursuing the next round of funding.
  • The seed funding phase needs the company to offer the developed MVP, whereas the pre-seed funded firm desires funds to finish the prototype of the product, make the team, and more.

To put it another way, pre-seed capital is raised to indicate whether a product can fulfil the demands of the intentional market. However, seed capital is utilized to launch complete operations for a company plan that has already been approved.

When a company has already shared some product traction, it is time for the first official financing round. As a consequence, institutional investors are more inclined to support a start-up during its source round than they would have been in a pre-seed phase.

How Do Great Start-ups Use Pre-Seed Funding?

Every start-up is different, so their requirements for Pre-Seed Funding can vary as well. Pre-Seed Funding can be used in several methods. The money increased in a pre- seed round is usually put toward:

Setting up Infrastructure

Even if you do not have a minimum possible product yet, you may require more funds for daily procedures. Early operating costs can have to develop a workspace and tools. Pre-Seed Funding can assist you to set up infrastructures such as a communications system, a tech stack, marketing technology, and cloud technology.

Creating the Legal Entity

In the earliest phases of a start-up, you must choose the right legal format for your business and see to the proper legal documentation, hammer out any partnership deals, and manage any needed registrations–all of which require capital to accomplish.

Beginning Initial Operations

Pre-Seed Funding can also be used to create a website, make a brand design, and design sales materials. You can also utilize pre-seed funds to ramp up your market analysis.

Developing a Minimum Viable Product (MVP)

An MVP is how you achieve initial insights on how to link with clients. If you see early positive views, it’s time to find investors – many of whom are more possible to fund an enterprise that’s offering security than earlier adopters. To be clear, you don’t necessarily require to have an MVP yet, but if you do, you will be more likely to achieve traction. If you grow Pre-Seed Funding without an MVP, you should use that funding to create your MVP as soon as possible.

Achieving Milestones to Assist You Engage in Full Seed Rounds

To create it for full seed contests, you will require to hit particular milestones. These landmarks may contain objectives regarding revenue, customer development, or the number and strength of associations. Pre-Seed Funding can assist you to reach those milestones faster.

Developing Your Team

You might have had several possible applicants hint that they’d like to work for you, or maybe you’ve already hired a few workers. Your firm will require to get bigger to succeed, and an established team of loyal employees—even a little team—needs capital. Pre-Seed Funding can deliver that capital and let you hire talented people to assist you to develop your company.

PerfectionGeeks Technologies has garnered startups for its applicants from investors. With the right help, your startup could be next. If you find any software development services for a startup you can reach us.

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