Pre-seed rounds are the initial funding stages for startups to get their foundational elements in place. This precedes a proper seed round or Series A, where more developed products and market fit are expected.
What this video covers
First, let’s start with a quick guide into financing rounds. Everything is going to start with putting that house together. Everything is going to happen with the pre-seed or the seed round. That’s the money that you’re raising for getting the first things in place. Then you’re going to go 18 to 24 months into the Series A or perhaps a proper seed round.
The proper seed round, basically, they’re going to be expecting that you have the team, that you have the minimum viable product, essentially, something that is already working in the market. Then you go into a Series A 18 to 24 months later where you’re already pitching to sophisticated institutional investors like venture capital firms, where you already have what they call product/market fit, which is validation that there’s a clear need for your product or your service in the market.
Then, 18 to 24 months after the Series A, you’re going to go into a Series B round of financing. The Series B is grabbing what you are doing that already has that validation of product/market fit, and replicating it on a different geographic location where those investors that you’re bringing in have a good network in order to replicate and scale and grow.
Then, 18 to 24 months after that, you’re going to go into the Series C and beyond. What that means is just doing more rounds of financing in order to get to a liquidity event, which is that moment in time where your investors are going to receive their returns for the investment that they made, and their money back, and that is going to come in the form of an acquisition, a secondary sale of shares, or an initial public offering, aka IPO. That’s very much the way that rounds of financing rounds work from financing cycle to financing cycle.
What are pre-seed financing rounds? In essence, pre-seed financing rounds are just like the name suggests. They are the pre-round to the actual seed round. Here, what you’re doing is you’re raising money in order to cover the essential costs. That could be incorporating the business, hiring certain team members that are critical, or certain things that you would need to actually spend on the actual product or service that you need to develop.
What do you need in order to raise a pre-seed financing round? In essence, a pre-seed financing round, as we mentioned earlier, is people that are going to come in and invest because they love you. Now, there are other instances where you have some exciting things that you have put together in order for them to fall in love with the opportunity with the initiative and to actually give you the money. Again, you’re just at the idea stage. Some of the things that you could do to create that excitement, to make them fall in love with what you’re doing, some of these could be the following.
Some of the things that you can do in order to prepare for a pre-seed financing round or to tackle that pre-seed financing round in the best way that you can are a couple of them. The first one is that you want to make sure that you can raise all the money that you can. There are some people that say that you should raise all the money that you need.
Then the other thing that you want to do is that you want to really nail it on understanding the right investors for your business. It’s not about the money; it’s about what’s behind that money, who is giving you that money, and how can you leverage their knowledge, perhaps their expertise or networks, in order to get to the next level much faster? Here, you want to understand that that investor is in it for the right reasons, that they are clearly aligned with the mission, with the vision of the business, and that you are equally excited with them to embark in this journey together.
