The era of startups and business has dramatically changed in the past decade and especially after the Covid-19 pandemic. Hence, it is very important for all of us to know and understand what the funding landscape looks like today and in the future. Earlier, the only goal for businesses and entrepreneurs was to get Series-A funding. If one did not have enough traction, the only way forward was bootstrapping.
Fortunately today, startup investing has become more competitive and new level funding categories have made their way to the market. One of the increasingly popular funding ways for emerging companies and businesses is Pre-seed funding. This funding requires you specific preparation so as to set yourself and your business up for growth and success.
The Pre-seed investors have been a boon to the startups as they allow them to raise the funds which they require and bring minimal viable products (MVPs) to life. This article is a guide for you to know what Pre-seed funding is and how to get Pre-seed funding for your business or startup.
What is Pre-seed funding?
In order to help a startup to start with its primary and base operations, an investor makes a small investment into the business. These investors or individuals invest in the business when they know the founder personally or hold strong faith in the business idea. This activity of investing is known as pre-seed funding.
There are many platforms that provide pre-seed funding in return for a stake in the startup or the business idea. Pre-seed funding can also be obtained through crowdfunding.
How to acquire Pre-seed funding?
It might sometimes seem nerve cracking for you to meet the Pre-seed investors as in the initial stage one might not see the vision you carry. Like any other funding round, your key is to have your finances organized and have a clear business plan that will be used by you. Here are the tips through which you can acquire Pre-seed funding.
Have financial and profitable clarity
At this stage, it is very important that you set an easy and clear outline of your business's path to profitability. If you have a clear and thoughtful business plan that serves as a long-run road map for your startup then there are chances of you grabbing the investment.
If you keep your financial estimates attainable and concise; put emphasis on the business strategy and transparency; prove your credibility, you can win the investor's trust and funding.
Keep your Business proofs ready
When you pitch in front of the investors, the key to winning the investment is that you show proof of success for your business idea. Test your business idea in the market, communicate your assumptions clearly and transparently sharing your business plan with the investors will help you to grab the funds for your startup.
Vouch for your intellectual property
Even when you do not have any cash-in-hand and hard assets for your business, you can show your credibility to the investors. One of the best ways to do this is to make them believe in your intellectual property.
If you are able to demonstrate your business idea effectively and ensure the investors that you will work towards your brand and will protect them from infringement by other business entities, you show your company’s credibility to them and make your pitch more investable.
Show your credibility
One of the most effective ways to show your worthiness is to be clear and confident about your past records and professional accomplishments. It is important that you present all the sources of funding that you would have acquired in the past (if any), and present all the successes that you have had in the past. Become very sure to explain to the investors how you were successful and support it with tangible and quantifiable evidence.
Where can I find Pre-seed funding investors?
After you have got to know about the steps to acquire Pre-seed funding, you need to now find the investors. This is one of the most challenging parts for many entrepreneurs.
Today's investors do not accept unsolicited pitches and usually, they let them pitch you after an introduction from someone within their network. Here you will find a few ways to get your business to those who will invest in it and can fund it.
Family & Friends
Using your personal connections and network to invest in your business in the initial stage is a very flexible and safe option for pre-seed funding. People who have seen your journey, dedication and passion will be willing to put funds into your ideas. If your friends and family see potential in you and your startup idea, then they would be definitely investing their money in your business.
Pre-seed funding platforms
In the industry, there are many pre-seed funding platforms that encourage businesses and startups at their base-development stage by providing them with small amounts of funds to initiate their business activities. Through Pre-seed funding platforms, your business will get an opportunity to start your operations and get access to the market.
A few common Pre-seed funding platforms include:
Crowdfunding is an excellent way to generate pre-seed funds for your business or startup. Though equity-based crowdfunding is illegal in India, donor-based and reward-based crowdfunding options are entirely legal. Raising a small amount of money from large masses through crowdfunding platforms can be a good way of acquiring pre-seed funds for your venture.
There are various incubators in the industry who are willing to make small scale investments into startups and businesses in the form of pre-seed investments. Their aim and motive are to support and assist early age entrepreneurs in pursuing substantial market opportunities. In India, a few great incubators are:
- Incubate Fund India
- Better Capital Labs
One of the best ways to get in front of investors is to participate in pitch competitions. All you need to do is practice your pitch, mark a good impression, prove yourself and strike a pre-seed funding deal. Such startup pitch competitions have become very common today and it is a very good way of winning funds for your business idea.
Although anyone can bootstrap, some unique and revolutionary ideas need Pre-funding to be invested in the idea. Some people give up on their dream because they think getting pre-seed funding is near to impossible and in fact, magical. But not the real entrepreneurs. They hustle, plan and reach the best person who believe in their ideas and invest in them. They find such people by strategizing and expanding their network, at the same time.
Remember, you can reach anyone. There is a difference of only 6 people between you and that person. And if you keep expanding your network, you will reach that perfect investor who actually believes in your idea and invest in it.
What is Pre-seed funding?
In simple words, Pre-seed funding is the capital needed to start any business. It is acquired by investors to develop the business in return for equity in the company.
What are the different stages of startup funding?
There are five different stages of startup funding.
- Seed Capital
- Angel Investor Funding
- Venture Capital Financing
- Mezzanine Financing & Bridge Loans
How many rounds of funding does a startup need?
There is no certain restriction on how many rounds of investment a startup can receive.
How long does it take to get funding for a startup?
A general rule is that you should be prepared for at least 6 months of raising, a long raise may take 9 months.
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