What is Pre-Seed Funding?

Launching a startup requires one thing: capital. Without capital, the chances are a startup will fail before it ever gets a product to market. There are several funding stages, and much of the terminology can confuse first-time founders.

Chances are you’ve heard of seed funding, but what is pre-seed funding? Entrepreneurs consider pre-seed funding to be the earliest form of funding. It’s a gamble on a big idea, and in many cases, pre-seed capital is funding only an idea and nothing more.

So, if you’re starting a business and you need capital, here’s everything you need to know about securing a pre-seed investment.

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What is pre-seed funding?

Pre-seed, or “family and friends” funding, is the initial step toward getting enough capital to develop a product. Since pre-seed money is the earliest part of the fundraising journey, few startups manage to secure capital at this stage.

Most entrepreneurs in this situation have yet to get a product to market and may not have anything more than a prototype, which makes it difficult to convince pre-seed investors to bet their hard-earned money on an idea that hasn’t been fully completed yet.

In most cases, pre-seed capital  comes in the form of convertible security. It begins as a loan, and when certain growth conditions are met, the loan turns into a certain amount of equity.

Naturally, every deal is different and will (Read more...)