As uncertain as the world continues to be, the venture capital ecosystem has been showing promising signs. Over the past 12 months of recording Axios venture data, July 2020 captured…
What is Pre-Seed?
If you’ve been following along at home it may feel like seed rounds are exploding in size. However, this is not just a feeling but a fact. Not long ago, it felt like $500k to…
If you’ve been following along at home it may feel like seed rounds are exploding in size. However, this is not just a feeling but a fact. Not long ago, it felt like $500k to $1M was getting up there in size for a seed deal. Fast forward to today and we are seeing seed deals pop up well in excess of $5M.
As Elizabeth Yin, Founder of Hustle Fund, put it, “I’m seeing massive party rounds here in San Francisco — $3 million – $5 million seed rounds. Sometimes $10 million rounds right out of the gates! My friend, a fantastic serial entrepreneur with an exit, raised $8 million recently at $30 million+ post-money valuation with only a very early version of a product. Investors literally threw money at her and her round was oversubscribed.”
Defining exactly what a seed round is today has become more subjective. You’ll often see companies raise a pre-seed, a seed plus, or seed extension, etc. The explosion of the traditional seed round size has cemented the rise of the pre-seed round. No doubt the pre-seed round has been around for years but is becoming more prevalent.
What is Pre-Seed
Put simply, “a Pre-Seed round is a pre-institutional seed round that either has no institutional investors or is a very low amount, often below $150k.” The pre-seed round gives a startup the opportunity to continue developing a product and create a plan to generate significant revenue.
How to Raise a Pre-Seed Round
If you set out to raise a pre-seed round a few things must be true:
- You have some proof of concept or early product
- The market has desired some form of need for a product/solution
One of the interesting aspects of raising a pre-seed round is the lack of traction and metrics you will likely have. A later stage fundraise will likely revolve around metrics, financials, and data (on top of your product, market, and team) but a pre-seed round will revolve around concepts and vision.
The lack of traction will also add an extra focus on the founding team. If you have no traction but a proven track record it will ease the decision making process for a pre-seed investor. If you have no traction and no track record, raising a pre-seed round will be even more difficult. Your ability to pitch and demonstrate your ability to build a product and model your total addressable market are a must.
Successfully closing a pre-seed round is just the start of your startup journey. Being able to deploy the capital to build a product, sell to customers, and attract top talent will be vital to raising future rounds (seed, series a, etc.).
If you’re just getting started with your pre-seed pitch, be sure to check out our other fundraising content. Good luck!