A Guide to Pre-Seed Funding
One of the most difficult parts of starting a business is getting adequate backing. Here’s an in-depth guide to help you understand pre-seed funding.
Do you have a great startup idea, but not the money to back it?
You are likely searching for investors to fund your product and hit the market. You want the big league contract – the capital to grow rapidly, the marketing to have a huge launch, and so on.
There is one major problem, though. Many investment companies are shifting their gaze to companies with proven traction.
They need to know a product has been tested and tweaked multiple times. Your idea should stand on its own two feet before trying to walk into a million dollar deal.
Where do you get started? Pre-seed investment rounds.
A pre-seed investment round is meant to be the starting point for your bright idea to reach the big bucks.
It establishes what really works and what doesn’t to help your small company achieve important goals early on. Keep in mind, there are many types of pre-seed funding such as traditional venture funds specific to the idea stage, angel investments and syndicates, friends and family investment, and the ol’ bootstrap method.
If you have an idea good enough to get traction but need guidance as well as money then you can always turn to a hybrid solution such as an incubator w/ fund such as Mantle & Pearlbend Ventures (Shameless plug!). Our goal is to assist budding entrepreneurs with defining their market fit, rounding out their team, proper business formation, and capital to help cover all areas of a young startup company.
Here Are 5 Steps to Successful Pre-Seed Funding
1. Build Your Audience
The first step to reaching your consumer is introducing yourself and what you offer. This can be in the form of social media, blogs, videos, and even email sign-ups.
Choose a strategy and go for it. Tell potential customers all about who you are and what your product can do. Share stories from the building stages or what inspired you to bring this great idea to them.
Get people excited!
Remember, the more consistent and approachable you are, the more your audience will grow.
2. Test the Product
Your immediate audience is your best source of feedback.
In pre-seed stages, many companies only reach out to friends and family for their first rounds of prototype testing.
Yet, if you have built a strong following from step one, you can include real potential customers. This will give you a more specific and honest look at who is really in your market, not just an approval from a loved one.
Interact with everyone who touches the product. Find out what they love about your product and what can improve.
3. Go Back to the Drawing Board
Pre-seed funding is your time to go from prototype to MVP, or minimum viable product.
Once you’ve gotten feedback from your first couple tests, you are ready to make the right changes. Focus on what makes your product stand out and get rid of the glitches (they will happen).
This can look like new buttons and UI in your app to changing the color or packaging style of your product. Anything to get the most functionality and value of your product matters, the rest has to go.
Remember what problem in the market you are trying to solve.
Ask if this is something a consumer who is not familiar with your brand would use.
Most importantly, do not get attached to what isn’t working. This is a crucial step in the development process – go where your consumer feedback is guiding you.
4. Define Market Specifics
Your product is not the only thing getting a makeover in the pre-seed stage.
As feedback builds up, you may start to realize the customer you thought you were targeting is not the same customer you are reaching.
Take a look at your initial market definitions and compare those goals to the people engaging with your prototype.
What is their lifestyle? Can you take the facts and build a buyer persona?
Give your consumer a name with age and gender. Identify the type of car they drive, house they live in, and the type of work they do. Specify if they have a partner, children, or even pets.
It is also important to understand their buying habits and how they make decisions in the purchase cycle.
Some consumers in niche markets will know exactly what they are looking for. Others will take the time to make comparisons and look for the best value between competitors.
The better you know who your customer is, the better you can reach them.
Position your brand where they are and back your product with the right messaging to get them interested.
5. Focus on Credibility
One of the biggest overall goals of pre-seed funding is to build credibility.
Steps 1-4 focus on your brand in relation to consumers, but they all are working towards a greater goal. The time you spend in the pre-seed stage is to prepare your product for bigger investments.
To get more than pre-seed dollars, you need to have the data to talk numbers for future contracts.
This data comes from being able to prove who your audience is through past interactions and current following. It should show the steps you took to get from the original prototype to what your product is now.
By the time you are talking to seed or even series A investors, you should have recognition, research, and revenue.
Brand recognition proves you have made a name for yourself in the market.
It is the success of building an audience and turning them into customers, even if you only have small numbers to start. This shows investors your potential to grow.
Market research tells investors everything they need to know about who your product is for.
It should essentially introduce them to your consumer and tell the story of your company. Share the struggles and successes you had to get to where you are. Include consumer feedback in surveys or data from different test markets.
Lastly, have some revenue in your pocket.
Pre-seed funding is the kick-start to get going. By the time you reach seed and series A conversations, you need to have your own money to cover the basics.
Seed investors usually look for around $5,000 in revenue per month while series A start around $100,000.
In addition to money in your pocket, you should have gained a few more team members and looked over your ultimate startup checklist.
Investors at higher levels than pre-seed funding will want to know who your executive team is. You should have a board of directors and advisors to further demonstrate your company’s credibility.
Start Growing Your Business
If you have a great idea in your head, stop waiting to put it out in the world.
Pre-seed funding can be the resource you need to build your audience and begin engaging in the market.
Do you have further advising inquiries? Do you want professional coaching on your funding pitch?
If so, reach out today for the startup solutions you need.