Pre-Seed Vs. Seed Funding: What’s The Difference And Why It Matters

Pre-seed vs. seed funding: what’s the difference? As a first-time entrepreneur working on getting your new company off the ground, that’s a crucial question you’ll ask. Understanding the complexities and terminologies of the startup ecosystem is, undoubtedly, challenging.

However, the underlying factor is that transforming your innovative idea into a marketable product requires more than your time. It needs more capital than the bootstrapped personal funding you have available. You’ll need help building that first product and investing in advertising it to early adopters.

And that’s just the starting point. You’ll also need to hire talent and skills, and set up a manufacturing facility and distribution networks. Building this infrastructure requires capital. At this time, you’ll need help, and the first step is figuring out pre-seed vs. seed funding.

Clearly understanding this basic concept will help you devise a compelling approach to convincing investors and securing financing. Let’s dive into what pre-seed and seed funding are.

You’ll also learn the differences between the two and how to determine which growth stage your new company is at. Investors have several criteria for assessing a company’s stage and whether it is ready to be supported with funding. These criteria are specific to the investors themselves or the industry.

However, more investors are now interested in backing startups. They are aware of the high risk propensity but also understand the potential for earning rich returns. All you need is a compelling pitch deck and conviction in the idea you’re trying to sell.

Understanding Pre-Seed Funding

The pre-seed funding stage is for startups that have yet to raise funding or make money selling their products. Your startup is thus at its pre-revenue stage and likely bootstrapped, which means you’re using personal savings to build it.

The pre-seed funding round is often called the “friends and family” round since you’ll run informal fundraising campaigns. You’ll approach friends, family, colleagues, and others who believe in you and your vision. Chances are that you’ll find an angel investor within your close circle of contacts.

At this stage, founders may also approach incubators and accelerators or consider advertising on crowdfunding platforms.

Understanding Seed Funding

The seed funding stage is for startups seeking funding from sources beyond their immediate circle of contacts. Your startup is established at this stage, and you’ve started selling products to the initial customer base. Sales are picking up, and the customer base is growing,

You’ll run a formal fundraising campaign to approach external investors to support the company. In exchange, you’ll offer equity or an ownership stake in the company. Typically, seed-stage founders list angel investors and venture capitalists as sources of capital.

The capital raise helps produce a usable product, hire a bigger team, conduct in-depth market research, and kickstart operations. You’ll also use the money to set up a manufacturing unit and start scaling distribution.

Since this is a formal funding round, you’ll need impressive financials to demonstrate performance and the initial milestones you’ve reached. Investors will want an overview of the potential for returns and the founder’s business acumen.

Differentiating Factors: Pre-Seed vs. Seed Funding

When figuring out which stage your company is at—pre-seed vs. seed funding—it’s crucial that you make the distinction correctly. Next, you’ll design your fundraising campaign accordingly and create a target list of investors.

You’re now ready to create a pitch deck that will include all the relevant information the particular investor class wants to see. Start by asking these questions.

How much funding do I need?

How much money do you need to perform specific tasks and grow the company? Estimating the amount you absolutely need will help you determine the funding stage. The typical pre-seed funding amount ranges between $50K and $1M in 2025, though some companies may raise above $1M.

Statistics indicate that more startups raise smaller pre-seed rounds. In Q1 2025, 3400 rounds were under $1M, and 1700 rounds were above $1M. However, if you estimate you need funding ranging from $500K to $5M, the company qualifies for a seed funding round.

Keep in mind that these figures are a general estimate. Specific sectors, such as pharmaceuticals, real estate, and transportation, are capital-intensive. They require higher amounts of seed funding to get off the ground. You can use industry benchmarks to determine the amount you should raise.

Is the Minimum Viable Product (MVP) Ready?

The minimum viable product, or MVP, is the core or early-stage product with basic features. Consider it a usable product prototype that you’ll test on initial customers to get their feedback and reviews. You’ll also use this version to demonstrate to investors that the product is viable and has traction.

You’ll present this version as part of your pitch so investors can get a feel for the concept. Including customer reviews in the pitch deck is a positive step, even if you haven’t generated revenues. At this round, your company is in its pre-seed growth stage, and that’s the funding you’ll raise.

Some startups have a strong concept and framework for building the prototype, but need funding to create the MVP. For instance, the industrial machinery, automotives, aerospace, and electronics sectors. Fields like pharmaceuticals also require capital investment for research and development.

If this is your startup, you can approach investors once you’re ready with the concepts. Although these sectors are capital-intensive, they also have the potential to generate rich returns for investors. Accordingly, you’ll target venture capitalists and private equity firms that operate in your sector.

However, let’s say, your product is not only ready for the market, but is already generating sales and revenues. That demonstrates to investors that you have a real product that customers appreciate and will continue to purchase. Tangible results and traction in the form of revenues indicate a seed round.

Investors can see that you have visible traction and initial performance that is worth backing. Capital injection will spur business development and promote sales. Traction also indicates that the business model is validated.

Do I have a financial slide in my pitch deck?

At the pre-seed stage, you won’t have financials to include in the pitch deck, but you’ll add projections. You’ll include numbers based on industry benchmarks and a comparative analysis of competing startups. The pitch will also include a roadmap detailing your steps toward building on the MVP.

On the other hand, seed-stage startups can demonstrate financial traction by proving revenues and that they have a niche market. Since the product is fully developed and generating sales, a cash infusion can aid business development and ramp up production. Customer adoption is the key here.

Do I have a proven product-market fit (PMF)?

Startups at the pre-seed stage are ready with a product prototype. They have also done the necessary research to define the market they intend to target. However, the product has not been launched, so the product-market fit is unclear.

If the product is already in the market and generating demand and sales, it has a proven PMF. This is the seed stage, and investors are confident that the startup can deliver returns with the right amount of capital.

Keep in mind that storytelling is everything in fundraising. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that founders worldwide are using to raise millions below.

What is the investor class I can target?

Traditionally, founders target specific investor classes when estimating pre-seed vs. seed funding. Angel investors and informal capital sources back pre-seed startups, while venture capitalists (VC) target better-established companies. But these lines are blurred in the contemporary landscape.

If you have a disruptive, high-potential idea, a working prototype, or a small but proven customer base, you’ll progress to the next level. Even if the company is at the pre-seed stage, you’ll approach angels and VCs to secure funding.

Some founders also run campaigns on crowdfunding platforms to gain support. Another option is to apply to incubator or accelerator programs.

Increasingly, investors are funding pre-seed stage startups using instruments like a simple agreement for future equity (SAFE). Valuation is no longer a criterion; you can secure capital without liability.

The best advantage is that the capital is interest-free, and investors don’t expect you to give up equity or control over the company. However, once the startup attains certain milestones, the SAFEs confer the right to purchase equity to investors.

SAFEs allow you to target any investor class interested in backing the company.

How much runway does the company have?

The runway is the time interval during which a company can continue operating before it runs out of cash reserves. Companies need money to operate, and bootstrapping typically provides enough funds for three to nine months. They absolutely must raise funding within this time or go out of business.

Considering that 10% of startups fail within the first year, you’ll ensure that lack of funding isn’t the cause. However, if your startup is at the seed stage, it should have a runway of at least a year or a year and a half. Investors expect the initial revenues to sustain the company.

Raising funding is time-consuming, but if the startup sustains through the funding delays, that’s a good indication. It reassures investors that the company is resilient.

What is the company’s valuation?

A startup’s valuation can determine the amount it can raise. You can choose from different methods for valuing the company, even if it hasn’t generated revenues. Your fundraising consultant will use methods like the Berkus, Comparable Transactions, or Cost to Duplicate Approach.

The objective here is to present a valuation that most accurately represents the company. Typical metrics used include revenues and profits projections, MVP, founding team, traction, and the costs to build a similar company.

A startup with a valuation between $1M and $3M typically qualifies as a pre-seed company. On the other hand, a company with a valuation between $5M and $15M is a seed-stage company.

Does my company have a strong team with the required skill sets?

Pre-seed vs. seed funding–regardless of the round you’re raising, having a strong team with top-notch skill sets is crucial. Investors need assurance that your team is capable of accomplishing the startup’s milestones. They will analyze the team’s skills and track records with successful companies.

Even if your company is in its pre-seed stage and can’t pay them the salaries they expect, explore alternative compensation. Think–option pools and deferred salary structures with incentives for career advancement, flexible working arrangements, public recognition, and higher autonomy.

If the startup needs a bigger team with specialized skills to handle different departments, it’s ready for external capital. You now have a seed-stage company that is poised to grow quickly. The capital you raise will fund sales, marketing, customer service, and other departments.

Knowing how to raise a seed round is a crucial next step for your company. If you need more information on how to do that, check out this video I have created.

Does the company need more money to grow operations?

This question is relevant to seed-stage companies ready to ramp up growth quickly. Now that their customers consistently make purchases, they need to expand operations to keep up with demand. To make that happen, you’ll hire more employees, rent bigger premises, and increase production.

You’ll also purchase more inventory and invest in advertising, marketing, and distribution. Your pitch deck will demonstrate numbers like 3X year-over-year growth, low churn rates, and higher customer retention.

Other stats that investors focus on include net revenue retention (NRR) or gross revenue retention (GRR). An annual recurring revenue (ARR) of $1M and above will convince them that your company is worth backing. They will be ready to offer capital as lead investors and participate in further funding rounds.

Before We Sign Out!

Pre-seed vs. seed funding–understanding the distinction between the two is crucial when securing capital. You’ll know which investors to target for support, their criteria for evaluating pitches, and how much funding to ask for.

At the same time, a company’s growth stages and funding rounds rely on the specific industry in which you work. The capital raise for an apparel brand will be different from, say, a tech startup. Then again, the business landscape is also undergoing radical changes.

Investors are open to backing disruptive ideas even though they aren’t sure they will pan out. The bottom line is that if you’ve developed an exciting idea, go ahead and develop it. Pitch for funding with the assistance of a great consultant, and watch your company take off.

You may also find our free library of business templates interesting. There, you will find every single template you need to build and scale your business completely, all for free. See it here.