How to Secure Pre-Seed Funding for Your Business

Building a business will require access to capital much sooner than founders often plan. It's important to understand the startup fundraising environment to better identify how to obtain funding when you need it, as well as the best sources.

In this article, we’ll specifically explore the pre-seed funding phase and how to secure the capital you need for your startup. We’ll also discuss how Wise Business is a great way to receive your startup funds, as well as transfer them across currencies.

When your startup gets funding, you could lose out on fees. This is where Wise Business could help you save.

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Table of contents

What is pre-seed funding? Examples of successful companies that raised pre-seed rounds Startup Funding Stages What should I prepare in order to get pre-seed funding? When to start raising pre-seed funding How to get started with pre-seed funding Types of pre-seed investors 1. Friends and family 2. Accelerators and incubators 3. Venture capital 4. Angel investors 5. Angel syndicates 6. Crowdfunding What common mistakes do I need to avoid when raising money? Consider Wise Business for your business needs.

What is pre-seed funding?

Pre-seed funding is for early-stage startups that need money to validate their idea further through research or developing a minimum viable product (MVP). A pre-seed financing round

is commonly the first time a startup seeks funding. It’s usually provided by personal savings or credit, family and friends, angel investors, or potentially business accelerators.

With pre-seed funding in hand, startups can start building the foundation of their proposed product or service. This initial funding will allow them to validate whether there is a product-market fit and a reasonable path to success. This foundation may include forming a team, building product prototypes, market research, and initial marketing efforts.

Once a startup has validated its product or service and sees its potential to gain traction in the market, it can start to prepare for seed funding. This could include preparing financial projections, pitch decks, attending conferences, and meeting with potential investors.

Before we go into more detail about pre-seed funding, let's first review the most common start-up funding stages.

The difference between pre-seed and seed funding

When it comes to pre-seed vs. seed funding, the primary difference is the funding received and the level at which its MVP or business has been defined and developed.

Pre-seed stage funding typically falls in the range of $50k - $500k¹ and occurs after a startup has created an MVP and identified a target market. Funding usually comes from personal funds or investors such as friends, family, angel investors, and accelerators.

Pre-seed companies often lack a formal valuation, making investments more risky yet with the potential for greater returns.

In contrast, seed funding can be as high as $2 million¹. It is pursued when a company has demonstrated product-market fit with evidence of actual orders and other data to back its business model. At this stage, the startup often has a clear sense of direction and a strong team, which are crucial for attracting further investment.

Examples of successful companies that raised pre-seed rounds

Pre-seed funding is essential for companies to validate their business concept, build an initial product, and gather early traction. Many companies have used pre-seed financing to develop their platforms and are highly successful today.

Airbnb

Airbnb came about from an idea to provide an alternative solution for travelers who would typically book a hotel room or motel accommodation.

In 2008, the founders floated the idea of renting spare rooms or entire homes to guests. They received pre-seed funding of just $20,000, which allowed them to launch their platform and validate their idea of becoming a successful online lodging marketplace and a global hospitality leader.

Robinhood

In 2012, Robinhood emerged as a groundbreaking startup in the financial technology sector. Founded by Vladimir Tenev and Baiju Bhatt, the team set out to make trading more accessible to the public and secured its initial funding during the pre-seed stage through Y Combinator. Their innovative trading model quickly captured the public’s attention, leading to subsequent investment rounds.

Startup Funding Stages

There are four additional start-up funding rounds after pre-seed funding; let’s look at these below.

Funding Stages	Description
Seed	Seed funding is considered the first formal round of external fundraising. Startups use these funds to scale their operations and continue to develop their product or services, launch marketing campaigns, and attempt to acquire new customers. Ultimately, seed round funding is used to further validate the product-market fit and viability of the business in preparation for later funding rounds. Seed funds typically come from angel investors, venture capital (VC) firms, accelerators and incubators, crowdfunding platforms, and corporate investors.
Series A	When a startup has a clear product-market fit, and its product or service has a runway for further growth, it will pursue Series A funding. Funding during this phase is used to further scale the business through marketing, advertising, and customer acquisition activities. It can also be used for product or service refinement. The funding raised during this phase will vary greatly depending on the valuation of the start-up, its industry, and the health of the venture capital industry. However, funding will typically fall between $2 million and $15 million1 and is intended to last between 12 and 18 months. Investors will commonly include venture capital firms, accelerators, and angel investors. In exchange for their investments, these investors often receive equity in the form of preferred shares, providing added returns and flexibility when and if the startup succeeds.
Series B	Series B funding is intended to support the material scaling of the startup, where revenue growth is consistent and achieved through validated methods. At this stage, the company is well-established in the market and continues to improve its operations' effectiveness and efficiency. The median Series B fundraising amount was $35 million in 2022 1, which hasn’t materially changed. Funding during this stage typically lasts 18-24 months and is intended to prepare the startup for Series C funding or going public. Investors in this stage are primarily venture capital firms and private equity. These two groups often invest in exchange for equity within the startup, commonly in preferred shares. Investors at this stage are interested in growth metrics such as monthly recurring revenue (MRR), customer lifetime value (CLTV), and churn rate.
Series C	Series C funding is for startups with strong growth, consistent customer acquisition, revenue generation, and a proven business model. At this stage, the focus shifts from scaling operations to supporting merger and acquisition (M&A) activities and preparing for a potential IPO or liquidity event. The Series C investor pool widens to include large late-stage venture capital firms such as Sequoia Capital or institutional investors focusing on lower risk and higher reward. While it’s uncommon, startups can pursue Series D or beyond if they are not quite ready for an IPO or liquidation event.

What should I prepare in order to get pre-seed funding?

When setting up a plan to get pre-seed funding, you must create a clear and compelling business plan to attract potential investors. Start by defining your company’s vision and goals while laying out your strategic and tactical plans for success.

Investors will likely have questions about potential risks and challenges your business may face, so risk mitigation strategies and transparency are essential.

Networking is also essential when preparing for pre-seed funding, so leverage your personal and professional connections, as these relationships can provide significant help when seeking investors or mentorship.

When to start raising pre-seed funding

If you’re thinking about how to get pre-seed funding, it’s essential to first have these key elements in place.

• Evidence of a demand for your product.
• A minimum viable product to showcase functionality and potential.
• A well-defined company vision and clear business goals.
• A strong founding team to drive the vision forward.
• A clearly identified market.

How to get started with pre-seed funding

To get started with pre-seed funding, research potential investors who may be interested in your business idea. You’ll need to create a compelling pitch deck that clearly states the problem your product or service solves and the market size. Introduce your team by highlighting qualifications and experience and successfully articulate your vision to help investors understand your business goals.

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Types of pre-seed investors

When seeking out investors, it’s essential to meet with multiple potential investors before deciding, as finding the right investor is crucial to your success.

1. Friends and family

If you have a strong personal network, you might reach out to friends and family to raise the initial capital for your business. While having a well-designed business plan is crucial, friends and family investors are more likely to be guided by their relationships with the founder than their industry knowledge.

2. Accelerators and incubators

Other potential sources of funding are accelerators and incubators.

Accelerator programs provide guidance and mentorship for your startup in addition to access to funding in exchange for an equity stake in the company. These programs typically run for 3-6 months and can significantly impact getting your business off the ground.

To participate in an accelerator program, you must make a formal application and have a prototype of your product or service with proven traction in your market.

Incubators may also provide funding, but their programs run for a much longer period of time. Incubators also provide office space for founders to build their businesses and mentorship and networking opportunities.

3. Venture capital

While most venture capital firms focus on investments from the seed stage to later stage investments, there are some firms that will offer pre-seed investments in the form of convertible notes. With convertible securities, the money invested in the company can be converted into either ownership or equity in the company at a future date.

4. Angel investors

Angel investors are high-net-worth individuals who provide initial pre-seed money for a business startup in exchange for ownership equity in the company. Because initial startups carry a high risk, angel investors generally make more modest capital investments.

To connect with an angel investor, reach out to people in your personal and professional networks. Lawyers, bankers, and accountants may know of wealthy individuals looking for opportunities to make new business investments.

5. Angel syndicates

Angel syndicates comprise a group of high-net-worth individuals who pool their resources to make a single investment in a company. They do this through special purpose vehicles (SPV), which are legal entities that allow multiple angel investors to invest in a firm.

6. Crowdfunding

In recent years, crowdfunding on platforms such as Kickstarter has attracted hundreds of thousands of investors and is a popular way to raise funds for business startups. These platforms use the power of the online community to raise small amounts of money from many people.

Several crowdfunding platforms cater to specific industries; Kickstarter is ideal for startups looking to get innovative products off the ground, while Patreon is an excellent choice for digital creators such as YouTubers, podcasters, and bloggers. Fundable is best suited to small businesses, while Mightycause is ideal for nonprofits.

What common mistakes do I need to avoid when raising money?

Entrepreneurs must avoid several mistakes when seeking to raise capital for their startups.

1. Inadequate market research

Understand your industry, the target market, and the competition to ensure a good product-market fit.

2. Poorly designed business plans

Your plan should clearly outline the company's vision, goals, and strategy and outline a clear plan on how to achieve them.

3. Lack of clarity and transparency

Ensure investors can easily grasp your business model and its potential for success.

Be open about your business operations and any foreseeable challenges to build trust with your investors.

Save Time and Money On Overseas Payments With Wise Business

Wise Business can help you save big time on international payments. Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to receive, send, hold, and manage business funds in 40+ currencies.

In particular, businesses can pay a one-time fee to get local account details in global currencies, such as Euro, USD, GBP, JPY, and more. This means you'll get paid like a local.

Some key features of Wise Business include:

Mid-market rate: Get the mid-market exchange rate with no hidden fees on transfers

Global Account: Send money to 140+ countries and hold balances in multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local

Access to BatchTransfer: Pay up to 1000 invoices in one click. Save time, money, and stress when you make 1000 payments in one click with with BatchTransfer payments

Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met

Free invoicing tool: Generate and send professional invoices

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Sources:

1. What Is Series Funding A, B, and C? |Investopedia