The pre-seed funding stage, or pre-seed capital or pre-seed money, is the first fundraising a company typically endures.
It’s normally used for product development or just to get the business off the ground.
Pre-seed money comes from a variety of sources including friends and family, angel investors, grants, or VCs.
Regardless of the direction, you choose to gain funding, the following tips will help ensure your fundraising efforts are successful.
We will cover the following:
- Why you need a wide network already established
- What your pitch deck needs and why it’s important
- The personalities you need to master for your pitch
- Setting your terms ahead of time and close fast
- And how to know when to stop your fundraising efforts
BONUS: A downloadable list of 100+ questions investors will ask.
You need to have a wide network already established.
Fundraising in of its self is hard enough, but not having an already established network is going to put you and your startup at a far larger disadvantage. At best, only one in ten startups will succeed.
Cold-calling or -emailing investors rarely ever works.
Take time to evaluate your network to see if you can realistically book enough meetings and get in front of enough of the right investors. It will take longer and be more difficult than you hope.
Between meetings, due diligence, negotiations, and more, raising capital is a very long process. However, if you can strategically book a few wins (whether small or large) at the beginning, it can give you momentum and cause other investors to gain interest more easily.
Have your deck ready and make sure it doesn’t suck.
Before reaching out to anyone, you should have a good, short deck prepared. Most investors in this early stage will not sign a non-disclosure, so make sure the content you provide is something you are comfortable with.
Long decks won’t get read.
Decks should be 15–20 pages but aim for 15. This is enough to give a general overview via email or an in-person meeting. This length also allows for enough Q&A time at the end of the meeting. (This is generally when the magic happens.)
Your deck should focus on only key points – problems, solutions, business model, traction, competition, team, funding needs, etc.
Be sure to practice your pitch before a meeting. If your practice run doesn’t leave the individual with excitement about your company—fix it. If they are confused—redo it.
You need to be a charismatic salesman, business-centric founder, and ruthless fundraiser.
This is probably one of the hardest lessons to learn as a start-up. Wearing the hats of so many personalities and mastering them all.
Meeting with investors and convincing them that your startup is worth investing in is a lot like juggling balls in the air while smiling and performing for your audience.
They are investing money in you. In your idea. In your dream. And if they don’t believe that you know what you’re talking about or aren’t convinced that your predictions are accurate, you won’t get the deal.
It’s your company. You should know it inside out and backward. Know where you plan to be in 2–5 years, the market opportunity, know what you think the appropriate pre-money valuation of your company is, understand your competition and their strengths and weaknesses. Know your financial projections and be able to justify them with certainty and clarity.
Set your terms and close fast.
Quickness is the name of this game.
Having general terms that are already established but are reasonable and favorable is a much better situation than negotiating terms in multiple rounds. This is not only messy but can also cause an investor to lose interest. Some negotiating will be necessary, but know your boundaries before you get to this point.
Once you have terms closed with a few investors, you can be firm on both valuation and structure moving forward.
A verbal commitment is not a done deal. Investors can change their minds in a matter of days and then you are out.
As soon as you have a verbal commitment, get a term sheet in their hands as soon as possible, and have the money wired to your account.
Once you have the money, it’s a done deal. Congratulations!
Know your fundraising goals.
Just because you can gain more investing, doesn’t necessarily mean you should. More stakeholders mean more dilution and investor overhead.
Or, if you’re not gaining the traction you thought you would. Reevaluate. Take the investor’s feedback and apply it to your startup.
Most fundraising will take 1–3 months. Anything over that can send the wrong message, or your fundraising strategy just isn’t working. Regardless, reevaluation is needed.