What is Pre-Seed Funding?
This is the earliest stage of financing for any startup. It typically takes place shortly after the founders have clarified the company’s premise and before the startup has developed a minimum viable product (MVP) or generated any revenue.
Ordinarily, any funding raised at this stage is used to help build and hire a team, develop prototypes, carry out market research, and validate its business model.
Pre-seed funding is often sourced by the founders, from their friends and family, angel investors, or incubators/accelerators.
This funding can be critical for startups’ initial setup and helps build towards future funding rounds, such as Seed funding, Series A, B etc and beyond.
Because of the source of funding, Pre-Seed rounds can sometimes be informal and companies do not always record them in their funding round histories. Some companies ‘bootstrap’ this stage of rounding and self-fund, skipping this stage entirely and going right to their seed round.
How Mature Should Your Company Be for Pre-Seed Funding?
Pre-Seed Companies are very early in their development. While some may have already produced an MVP, most companies at this stage just have initial business plans or renders of the products and services they hope to eventually offer. Many will not yet have hired any personnel, so their teams will likely only include founders.
Whether you start at Seed or Pre-Seed, or even if you have made it through your first few Series-level rounds, you can upload all of your funding round info, your valuation and requisite share price to the Floww platform, to share with investors.
Companies seeking pre-seed funding have usually produced:
- A definition of the problem(s) they are setting out to solve;
- A proposal for a product or service that will serve as that solution;
- An understanding of the market they are trying to enter and its size;
- Fundraising plan (how will you fund the business over time?)
- A roadmap setting out how they will find early adopters, users and/or customers
How do Pre-Seed Companies attract investors?
Pre-Seed businesses often have not made any sales, concrete products or significant market traction. As such, during this round, investors tend to be more focussed on the quality of the founders/founding team, the problem the business is trying to solve and the size of the potential market opportunity.
Floww’s Content Writers can help ensure that you showcase the best attributes of your business and communicate it in such a way that puts you in the best position to grab the attention of potential investors.
How much can a company raise during their Pre-Seed round?
There is no set amount that a company can or should raise at Pre-Seed. Companies vary greatly in their makeup, scalability and addressable market. As a corollary the amount of pre-seed money companies raise can vary greatly.
Many online sources cite the average amount as being less than $1Million. However, that is quite unusual for companies at this stage. Floww’s independent market research places the usual amount of pre-seed funding at closer to $500,000, but this can be significantly larger depending on the quality of the founding team
Seed Stage Funding
What is Seed Funding?
This is the first formal round of financing for any startup. In contrast to ‘Pre-Seed’ funding, companies at this stage have often already created their minimum viable product, have concretised their growth plans and may have already generated some Traction (link out here), that they can evidence to potential investors.
This round is usually intended to fund further product development, to further build out the company’s team, and conduct market research.
Unlike Pre-Seed rounds, Seed stage funding is more often provided by certain types of professional early-stage investors like angel investors (‘angels’) and Venture Capital firms (‘VCs’). Top up funding can also be supplied by individuals like those in our Floww Pool group.
Seed stage funding allows startups to scale and work towards attracting further investments in later funding rounds.
What’s the Average Investment Amount for Seed Funding?
Funding at seed stage varies based on a company’s traction, the capital the company needs to deploy before its next stage of funding, and its growth plans.
The amount of funding a company can expect to gather at this stage can range from a few hundred thousand to millions of dollars, depending on the startup’s valuation.
When Should Your Company Be Seed Funding?
Simply put, when you’re seeking seed funding, your company should be more developed than it was in the pre-seed stage.
In tech and other high-growth sectors, it can sometimes be hard to distinguish between companies that are at Pre-Seed and Seed stages. However, as a rule of thumb, companies will often reach the following milestones before raising a seed round:
- A functional product – perhaps requiring refinement but capable of demonstrating its intended application.
- Have conducted extensive market research.
- Have demonstrated product-market fit.
- Established a founding team and/or have made their first hires.
Companies at this stage, may have already earned revenue but it is not a pre-requisite. What is more important is evidence that users are using and enjoy the company’s products and services.
Revenue is not the only metric companies can use to demonstrate this to prospective investors. User feedback, social media interactions, and articles in publications amongst others, can also demonstrate traction.
The key is often demonstrating to investors that the products and/or services a company is building are something that customers are willing to pay for.
How much can a company raise during their Seed round?
Amounts raised in Seed rounds have skyrocketed in the past 5 to 10 years. Crunchbase and other outlets indicate that the average amount raised in a successful Seed Round is usually between $4-5M.
Series A Funding
What is Series A Funding?
Series A funding is the second round of financing for a startup, typically occurring once the company has proven its business model and has demonstrated early revenue growth.
This funding round is typically used to scale the business, develop new products or services, and expand into new markets. Series A funding is typically led by venture capitalists and institutional investors and can range from several hundred thousand to several million dollars.
How Mature Should Your Company Be for Series A Funding?
Companies approaching Series A Funding will be able to: produce concrete evidence of traction, demonstrate product-market fit and genuine outside interest in the product. These companies are no longer looking to prototype or test the market, they are often generating significant revenues and have built their core teams.
At this point companies are now looking to scale, to meet and anticipate growing demand for their products and services. For this they may require outside investment and can approach investors for it. At this stage, companies usually look to seasoned professional investors Venture Capital firms (‘VCs’) but may also consider investment from Angels and HNWIs. This sort of funding can be self-sourced, but qualifying applicants can also approach our Floww Pool group. Click here to learn more.
Series B and Onwards
What is Series B Funding?
Series B is typically the third formal stage of financing that a startup will undertake. Usually this will occur once companies can demonstrate significant growth, proven their product-market fit, and can evidence both their growth plans and a roadmap towards generating profit.
Again, this funding round serves to scale the business. It allows companies to hire additional headcount, research other potential markets and execute international expansion strategies.
Funding cycles are often incremental, and a Series B can be larger than Series A round. This and future rounds are often led by funds, venture capitalists and institutional investors, but can also involve major investments from strategically selected individual investors. Series B rounds can range from a few million to tens of millions of dollars, depending on the company’s needs, aspirations, and growth potential.
The same is true of future funding rounds and startup growth plans often delineate how and when a company anticipates it will need to raise.
So, what do companies use Series B, or later, funding for?
Companies’ seeking funding at these stages are usually focussed on specific growth goals. These can include:
- Hiring in New Teams or Specific Division/Department Leads with extensive experience:
Often companies will hire in a CFO, CTO or COO at this stage to manage the technical aspects of their growth.
- Strategic Acquisitions:
It’s in these stages that companies often consider acquiring businesses, major pieces of equipment or technologies to expand their offering or increase their output and reach.
Companies may also implement new technological solutions, data-management systems or acquire resources needed to imbed processes that will create further growth.
- Sales and Marketing:
The sales cycle can be a major expense when growing a company. Both attracting the right personnel and the right clients can prove costly in the short term. By investing in these areas to increase customer acquisition companies can stimulate significant growth, so they may choose to raise to finance this.