What is pre-seed funding and how does it work?

How can I use pre-seed funding in my new business?

There are many stages of funding that a business can go through, and each one represents potential growth for your company. Pre-seed funding occurs at the earliest stage of a business when you take your ideas and form them into a practical commercial offering.

It’s a crucial part of the business journey, and one that can see your business dreams come to fruition. You’ll need to develop what is called a Minimum Viable Product, or MVP, so that you have something tangible to take to the market.

So how can pre-seed funding help you do this and where can you go for the early stage finance you need?

How does pre-seed funding work?

When you attract pre-seed funding the investor takes a proportion of the equity in your company – this is often between 10% and 20%. As the business is not yet at the stage where it’s making money, this funding is vital to get your business off the ground.

Pre-seed funding differs from seed funding, in that seed funding is sought at the next stage, once any necessary iterations have been carried out to your product and it’s deemed ready to take to the market.

What can pre-seed funding be used for?

This type of very early funding can be used to develop the Minimum Viable Product that we mentioned earlier. It’s foundational for your business and if the product is well received it can also help you gain some early traction in your market.

You could use the funding for the costs associated with creating your MVP. This might include building a team with the necessary skills to help you develop the product, for example, or perhaps developing future distribution channels.

How to raise pre-seed funding for your business

Angel investors

Angel investors can be individual investors with experience in business, or a syndicate. If a syndicate is involved there will typically be a ‘lead’ person who you have contact with. Angel investors can offer valuable mentorship and practical support, as well as the funding you’re looking for.

Crowdfunding platforms

Crowdfunding involves pitching your business idea online on a crowdfunding platform. You may be able to attract sufficient funding from multiple individuals to get the business moving.

Incubators

Start-up incubators are collaborative groups that help early stage businesses to develop. They provide practical support, such as mentorship and training, finding a suitable premises or workspace, and crucially, sourcing the funding you need.

Pre-seed funding is crucial if you have a great business idea that needs to come to fruition. UK Business Finance is an independent business finance brokerage and can help you source the pre-seed funding you need. Our services are free and we have access to whole-of-market quotes. Please get in touch to arrange your free consultation.