Fundraising & Equity
Definition
The earliest stage of external funding for a startup, typically raised before a product is fully built or significant traction is established — used to fund initial development, market validation, and team formation.
Pre-seed funding is the capital raised to get a startup from idea to the point where it can attract a seed round. It is the most nascent stage of institutional or semi-institutional investment, often characterized by the smallest check sizes, the highest risk, and the least formal processes. Pre-seed rounds typically range from $100,000 to $2 million, though the market has stretched considerably upward in recent years for strong founding teams.
Pre-seed capital typically comes from a mix of sources: the founders' own savings (bootstrapping), friends and family, angel investors, accelerator programs (Y Combinator's $500K check being the most prominent), and increasingly, dedicated pre-seed funds that specialize in early-stage bets. The investment is almost always structured as a convertible instrument — typically a SAFE (Simple Agreement for Future Equity) or convertible note — rather than a priced equity round, because valuing a pre-revenue company is more art than science and both parties prefer to defer that conversation to the seed or Series A.
At the pre-seed stage, investors are betting almost entirely on the founding team. Traction matters — a working prototype, early users, or a letter of intent from a potential customer signals that the team can execute — but the primary diligence question is whether these founders are the right people to build this company in this market. Investors at this stage accept a high failure rate as the baseline; they are looking for the outliers that return the fund.
The pre-seed round should provide enough runway (typically 12–18 months) to reach the milestones needed to raise a seed round: usually some combination of a working product, early customer validation, initial revenue, or a specific technical proof-of-concept depending on the sector.
Raising pre-seed capital involves legal, financial, and strategic decisions that set the foundation for all future fundraising. Poorly structured SAFEs (incorrect valuation caps, missing MFN clauses, confused pro-rata rights) can create problems that complicate the seed round. Giving away too much equity too early, or to the wrong people, can make the company unfundable at later stages.
A finance advisor or startup attorney can help founders structure the pre-seed round cleanly, negotiate standard terms, and ensure the cap table is investor-friendly going into the seed. Accelerators and business consultants can sharpen the pitch and identify the right pre-seed investors for the specific market.