Pre-Seed Angel Investors and the Funding Process Explained

Pre-seed angel investors play a vital role in funding early-stage startups. They provide the necessary capital to help entrepreneurs turn their ideas into reality.

These investors typically invest between $10,000 and $50,000 in exchange for equity, allowing them to share in the company's future success. Their investment is usually a small fraction of the total funding required for a startup.

Angel investors are often successful entrepreneurs or business leaders who have experience in the industry or sector of the startup. They use their expertise to guide the startup and provide valuable connections to help it grow.

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Pre-seed angel investing is a high-risk, high-reward situation for both the investor and the startup. Angel investors are individuals with high net worth who provide capital for a startup to grow.

Angel investors usually target pre-seed funding for startups. They expose themselves to high-risk ventures without spending a lot of cash by investing during the pre-seed stage.

Almost any angel investor's track record will show more failed pre-seed investments than successful ones.

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Understanding valuations and rounds is crucial for pre-seed angel investors. Valuations can vary greatly, but it's common for pre-seed rounds to have a valuation cap.

The average amount of capital raised in a pre-seed round is typically $100,000 to $1,000,000. CrunchBase reports pre-seed capital raises of up to $7.3 million in the first three months of 2021.

Pre-seed rounds often involve SAFEs, which are a type of convertible security that allows investors to convert their shares at a later date. Most pre-seed SAFEs have a valuation cap, with 95% of them having one according to Carta.

Here's a breakdown of the most common discount rates for pre-seed SAFEs:

Founders should aim to give up no more than 15-25% of their company at the pre-seed stage, in order to preserve enough equity for future rounds of follow-on funding.

Valuations are on the rise, especially in the seed stage. The average pre-money valuation for seed rounds in Q1 2024 reached $7.0 million, with a median of $10.2 million.

This trend is driven by an imbalance between supply and demand for promising early-stage startups, making it a favorable environment for entrepreneurs with compelling ideas and strong execution capabilities.

The most common discount rate in pre-seed SAFE rounds is 20%, used in about half of all pre-seed SAFE rounds. This is what we consider the standard discount.

Pre-seed funding can be dilutive, especially considering the low startup valuation. You may be selling 10-20% of your startup in exchange for $500,000 to $1 million.

Here's a quick summary of the most common pre-seed SAFE terms:

It's normal to offer investors a discount on the conversion price, but the discount rate varies widely. The most common discount rate is 20%, used in about half of all pre-seed SAFE rounds.

Pre-seed SAFEs often come with a valuation cap, which is a common practice. According to Carta, 95% of pre-seed SAFEs have a valuation cap.

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Some pre-seed SAFEs offer no discount and no cap, but this is relatively rare. Only 1% of pre-seed SAFEs fall into this category.

Discounts can be a way to make pre-seed funding more attractive to investors, but they can also be a sign of a lower valuation. It's essential to strike a balance between retaining ownership and making the investment attractive to investors.

Here's a breakdown of the types of pre-seed SAFEs:

Keep in mind that the valuation cap can be a significant factor in determining the valuation of your startup. It's crucial to understand the implications of a valuation cap and how it may impact your startup's future funding rounds.

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Pre-seed angel investors are individuals who make relatively small investments, typically $25,000 to $100,000. They are often the sole decision makers, so you can usually secure pre-seed money quickly from angel investors.

Angel investors are often friends and family of the founder, but be careful taking money from people close to you, as they may not be aware of the high risks of the pre-seed stage. If they have already invested in your business in a previous round, they will already be invested in the success of your venture.

The best angel investors can make introductions in your industry, which can be super valuable. Many founders reach out to CEOs and founders in their space to raise this round and find angel investors.

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Angel investors are the primary target for pre-seed funding, offering relatively small investments, typically $25,000 to $100,000. They're often the sole decision-makers, allowing founders to secure pre-seed money quickly.

Angel investors are high-net-worth individuals who want to invest in high-risk ventures, exposing themselves to potential high rewards without breaking the bank. Almost any angel investor's track record will show more failed pre-seed investments than successful ones, but they diversify their holdings, relying on a few ventures to succeed and be profitable.

Some notable characteristics of angel investors include being the sole decision-makers, allowing for quick pre-seed funding, and often having already invested in the startup in a previous round, making them invested in the success of the venture. They can also make valuable introductions in the industry, which can be beneficial for founders.

Accelerator or incubator programs can also provide pre-seed funding, typically around $125,000, along with access to an entrepreneurial community, training, networking opportunities, and exposure to top-notch VCs for future funding rounds.

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Pre-seed and seed investment venture capital funds represent multiple limited partner investors, offering larger investments but often with a longer decision-making process. The amount of traction they like to see varies, so it's essential to research before reaching out.

Here are some common types of investors that founders use to raise pre-seed funding:

Pre-seed investors can be a valuable asset to your startup, providing guidance and expertise to help you navigate the early stages of your business.

Having pre-seed investors invest in your startup can be beneficial because they can offer valuable insights and connections to help you grow.

Pre-seed investors can provide access to networks and connections that can be difficult to establish on your own.

They can also help you refine your business plan and make informed decisions about your startup's direction.

In return for their investment, pre-seed investors typically receive a small equity stake in your company.

This equity stake can give them a say in major business decisions, but it's usually a small enough percentage that it doesn't interfere with your ability to run your business.

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Pre-seed angel investors can provide a crucial boost to early-stage startups, offering guidance and expertise in addition to funding.

Their involvement can help founders refine their business plans and navigate the challenges of launching a new venture.

One of the main benefits of working with pre-seed angel investors is that they often have a network of connections that can help startups gain traction.

Their guidance can also help founders avoid costly mistakes and make informed decisions about their business.

However, working with pre-seed angel investors can also be challenging, as they often have high expectations and may require a significant amount of equity in exchange for their investment.

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Pre-seed funding is for really early stage startup founders, often young and with a novel idea. Founders with an established track record, like those who've done an IPO, usually go straight to seed, possibly even series A, and immediately raise a big chunk of capital.

First-time founders can struggle to raise money because they lack experience and don't know how to talk to investors. They may not have learned how to run board meetings or build a successful business.

Pre-seed money is often given to entrepreneurs who are giving the truest form of entrepreneurs their first start. Venture capital firms and angel investors love to back founders that have done it before, but they also appreciate and respect funds that support first-time founders.

Founders who have been successful before can sometimes have an easier time raising money because they can talk about what they've learned and how they've overcome challenges.

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Raising money for a startup can be a daunting task, and it's especially challenging at the pre-seed stage. Pre-seed fundraising is a lot more complicated because there's nothing for the investor to bank on except the prototype and the pitch deck.

Investors take on a lot more risk at the pre-seed stage compared to the seed stage. Raising a seed funding round is no picnic, but it's a piece of cake compared to the difficulties faced at the earliest stages of the startup.

Pre-seed startups have no interest from their target market, which makes it tough to gauge demand and potential revenue.

To raise pre-seed funding, you need to know what you're doing, and that's why preparation is everything. You should make a list of all the investors you can reach out to, including angel investors, startup accelerators, and VC funds.

Before reaching out, you need to know how to value your business, as this will help you determine how much equity to give up. You can find a guide on how to value pre-revenue startups, which will give you a rough estimate of your startup's worth.

Here are some key milestones to aim for before raising pre-seed funding:

Preparation is key when it comes to meeting pre-seed investors. You should make a list of all the investors that you can reach out to, including angel investors, startup accelerators, and VC funds.

Getting into a startup accelerator is extremely tough at such an early stage, so it's best to consider other options first. However, a few startup accelerators focus on companies in the pre-seed stage.

The first step in getting pre-seed funding is to get in contact with possible investors. You can use various methods to meet pre-seed investors, such as:

You should only consider startup accelerators once you have considered all the options. It's also worth noting that pre-seed investors usually have a different idea of how much a company is worth compared to the business owners, so you may have to negotiate a little bit.

Preparation is everything when it comes to securing pre-seed capital. You need to make a list of all the investors that you can reach out to, including angel investors, startup accelerators, and VC funds.

Pre-seed investors rarely invest in startups that don't know what they're doing, so it's essential to have a solid understanding of your business and what you're looking for in terms of funding.

To determine how much equity you're willing to give up, you need to know how to value your business. A guide on how to value pre-revenue startups can help you get a rough estimate of your startup's worth.

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Pre-seed investors usually have a different idea of how much a company is worth compared to the business owners, so be prepared to negotiate.

To increase your chances of raising pre-seed funding, it's essential to have a clear and concise pitch deck that showcases your startup's unique value proposition, market size, and go-to-market strategy. A well-crafted pitch deck can make all the difference in securing pre-seed capital.

Here are some key elements to include in your pitch deck:

By having a solid understanding of your business and a well-crafted pitch deck, you'll be well-prepared to secure pre-seed capital and take your startup to the next level.

Timing is everything in startup funding. Pre-seed funding typically occurs early on, often with just a pitch deck to show potential investors.

Investors at this stage focus on market research, the team, and the business model to decide if they want to invest. They're looking for potential, not just a proven product.

The seed round happens once the startup has a minimum viable product (MVP). This is a crucial milestone, as it allows the startup to test if there's a product-market fit.