Hello, everyone. This is Alejandro Cremades,
and today we’re going to be talking about what are pre-seed rounds of financing?
Pre-seed financing rounds are super important. They are the first early-stage
round that you’re going to be doing for your startup. In essence, in the video today,
we’re going to be covering it, we’re going to be really breaking it down for you so that you
understand how to nail it for your own business. So with that being said, let’s get into it.
First, let’s start with a quick guide into financing rounds.
Everything is going to start with putting that house together. Everything is going to happen with
the pre-seed or the seed round. That’s the money that you’re raising for getting the first things
in place. Then you’re going to go 18 to 24 months into the Series A or perhaps a proper seed round.
The proper seed round, basically, they’re going to be expecting that you have the team, that you have
the minimum viable product, essentially, something that is already working in the market. Then you go
into a Series A 18 to 24 months later where you’re already pitching to sophisticated institutional
investors like venture capital firms, where you already have what they call product/market fit,
which is validation that there’s a clear need for your product or your service in the market.
Then, 18 to 24 months after the Series A, you’re going to go into a Series B
round of financing. The Series B is grabbing what you are doing that already has that validation of
product/market fit, and replicating it on a different geographic location where those
investors that you’re bringing in have a good network in order to replicate and scale and grow.
Then, 18 to 24 months after that, you’re going to go into the Series C and beyond. What that means
is just doing more rounds of financing in order to get to a liquidity event, which is that moment
in time where your investors are going to receive their returns for the investment that they made,
and their money back, and that is going to come in the form of an acquisition,
a secondary sale of shares, or an initial public offering, aka IPO. That’s very much
the way that rounds of financing rounds work from financing cycle to financing cycle.
What are pre-seed financing rounds? In essence, pre-seed financing rounds are
just like the name suggests. They are the pre-round to the actual seed round.
Here, what you’re doing is you’re raising money in order to cover the essential costs. That could
be incorporating the business, hiring certain team members that are critical, or certain things that
you would need to actually spend on the actual product or service that you need to develop.
So, who funds the pre-seed financing round? Obviously, pre-seed financing rounds are very,
very early. At this point, it’s really people that love you. It could be friends,
family; it could be colleagues that you have from work, former bosses that you had
that have the money to perhaps give it to you, and also you need to make sure with them that you’re
setting up the expectations so that in case you lose their money, which is very high-risk, they
are going to not get mad at you, you are going to be able to continue to keep that relationship.
In essence, they need to have those clear expectations, not that this is
going to be the next Google or the next Dropbox because that’s how you destroy
those relationships. These are people that are investing because they love you. That’s why you
really want to make sure that you’re nurturing that relationship and not destroying it.
Now, there are other types of figures or other types of investors that you can bring in
to invest in your business. Some of those investors could be the following:
Individual angel investors A select few of pre-seed startup accelerators
Grants and winnings from business plan competitions
Bootstrapping using personal saving and credit cards
Loans and debt financings Donations or reward-based crowdfunding
Raising money, at the end of the day, especially if you are very, very early stage,
you need to make sure that you’re not just raising to get by or just for the specific
amount of months that you think you’re going to need in order to get up and running because things
are always going to be – or perhaps not going the way that you anticipated. I always suggest,
and I always recommend to startup founders that you prepare for the worst and that you hope for
the best. What I mean with this is that you may have some unexpected calls, like it could either
be legal or it could be marketing. So if you’re, for example, looking at raising 18 to 24 months,
maybe you give yourself a couple of extra months just in case that you have some costs
that you had not foreseen that were coming your way.
What do you need in order to raise a pre-seed financing round? In essence, a pre-seed financing
round, as we mentioned earlier, is people that are going to come in and invest because they love you.
Now, there are other instances where you have some exciting things that you have put together
in order for them to fall in love with the opportunity with the initiative
and to actually give you the money. Again, you’re just at
the idea stage. Some of the things that you could do to create that excitement,
to make them fall in love with what you’re doing, some of these could be the following.
Tackling a significant problem Going into a really big opportunity
A market size that is booming and growing rapidly
To have the right timing To have done your homework and research
Theory of a profitable business model A strong and capable founding team
Above this, it’s really all about the team.
You need to convince the investor that not only are you the right individual
to execute on this but that you have that capability and those skill sets that you can apply
so that you can adapt to whatever the market is asking. This goes not just to you but then
also to your co-founders or to anyone else that could be part of that founding team.
Some of the things that you can do in order to prepare for a pre-seed financing round or to
tackle that pre-seed financing round in the best way that you can are a couple of them.
The first one is that you want to make sure that you can raise all the money that you can.
There are some people that say that you should raise all the money that you need.
My recommendation is that you raise all the money that you can because you’re not able to
time the market. You don’t know where the market is going to turn around on you, when the stock
markets are performing poorly, which is going to dry up those potential investments in startups.
That’s why, whenever you’re offered money, just take it. Even if that means getting
oversubscribed, which is meaning raising more than the money that you anticipated to raise.
Then the other thing that you want to do is that you want to really nail it on understanding the
right investors for your business. It’s not about the money; it’s about
what’s behind that money, who is giving you that money, and how can you leverage their knowledge,
perhaps their expertise or networks, in order to get to the next level much faster? Here,
you want to understand that that investor is in it for the right reasons, that they are clearly
aligned with the mission, with the vision of the business, and that you are equally excited
with them to embark in this journey together. I would love to hear on the comment section
below how you’re planning to raise your pre-seed financing. Also, Like this video and subscribe to
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And also, take a look at the fundraising training, which is the program where we help from A to Z
with everything related to fundraising. There you’ll find templates, agreements, live Q&As,
a community of entrepreneurs helping each other all over the world, and essentially,
you’ll find tremendous value in it. So thank you so much for watching.