Pre-Seed Funding Vs Seed Rounds
Fundraising activities can be daunting for any new startup or entrepreneur with minimal experience. However, seed funding is vital to obtain the capital needed to get your business up and running. There are two main types of seed funding: pre-seed funding and seed rounds. Some of the characteristics of these types do overlap, making it vital to comprehend the main differences and which one is right for your business.
What is Pre-Seed Funding?
Pre-seed funding is exactly what it sounds like, the funding before the seed rounds. This stage of funding is often one of the first steps in the capital raising process. During this stage, startups will seek investors to fund the beginning operations of their business idea. Pre-seed investors could be family, friends, venture capitalists, members of crowdfunding, angel investors, incubators, or accelerators.
For example, tech startups are generally capital-intensive. The founders might not have an extra $100,000 lying around to purchase the first prototype or sample of their product. This is where pre-seed investors come in and infuse the needed capital in exchange for equity ownership. Keep in mind that pre-seed funding doesn’t always take a monetary form. Instead, incubators and accelerators exchange their industry insight for equity ownership.
What are Seed Rounds?
Seed rounds are the next step in launching a startup. Seed rounds are capital infusions after important milestones are achieved and are labeled Series A, Series B, and so on. Like pre-seed funding, seed rounds generally exchange capital for equity ownership. Surviving off the capital from pre-seed funding isn’t ideal for businesses looking to take the market by storm or have significant startup expenses.
Seed round investors require different milestones to be achieved. For example, some investors might require a finalized prototype or a certain revenue goal to move on to the next round of funding. After all, investors will very rarely pour their money into a company that isn’t making strides in the right direction.
Which One is Right for Your Business?
Both pre-seed funding and seed rounds are vital for startups with capital-intensive ideas. If you’ve never fundraised before, you will most likely find yourself in the pre-seed funding phase, asking for money from families and friends. Once you’ve outgrown that stage and have developed an idea that has promising growth, it’s time to move on to seed rounds.
It’s not uncommon for startups to bypass the pre-seed funding phase if they have the necessary money to get the business started. This is usually only common for businesses with a low amount of startup costs.
IN SUMMARY:
Take a look at your current capital needs. Do you need additional cash or expertise to get your business off the ground? If so, seed funding might be the right move for your business. To determine which phase you should pursue or the cash amount you need, reach out to an expert. Divocate Consulting works with startups on a regular basis to uncover the specifics surrounding seed funding. Reach out today to learn more.
