What are pre-seed financing rounds?
When it comes to getting startup fundraising and launched into action, the money doesn’t all just come in a one and done deal. Funding comes in chunks as you progress and the value of your company and proof grows.
Your pre-seed may be your most important round. So, how does it fit in? What do you need in order to get money at this stage? What best practices can help set you up for ongoing success?
A Quick Guide To Common Fundraising Rounds
You don’t just ‘get funded’ and then have it made, with plenty of millions to splurge on planes and lavish parties.
Startup funding is broken down into multiple stages. Building a house is a great analogy for this. Contractors and builders don’t just get a loan to build a whole home or condominium building. They may get a little money to buy the land. Then a little more after they lay the foundation and it is inspected. Then more in reimbursements, as they frame it, put on the roof, and add interior finishes. They perform work in stages and as they prove they’ve used the money well and have added value to the property, they may be able to access more.
When you are wondering what are pre-seed financing rounds, keep in mind it’s the same concept when it comes to building a company.
The most common startup funding rounds and stages you will probably hear of are:
- The Seed Round: Provides take off funding to further prove the concept and develop
- Series A: Provides capital for hiring, expansion, and growth
- Series B: Adds more working capital to multiply results
- Series C: Provides capital to scale and even acquire other companies on the way to an exit
- Series D, E and Beyond: Acts as a bridge to an exit and fills gaps when the timing isn’t right for an IPO
What Are Pre-Seed Financing Rounds?
As the name suggests, the pre-seed round comes before all of the above. Often also called the friends and family round.
This is the earliest pre-flight capital.
Depending on your unique startup this may be cash to:
- Cover the most basic expenses, like incorporation, a website, marketing, and travel
- Hire a team, develop an MVP, test the concept and go to market
- Simply explore the idea
Who Funds A Pre-Seed Financing Round?
As previously mentioned, this is also often called the friends and family round.
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