Introduction

While pre-seed and seed funding are considered very early investments for startups, they can come with serious cash to turn brand-new businesses into booming, buzzy companies. Not only that, but there is increasing interest from investors to back pre-seed and seed stage startups because, despite the higher risk, these investments come with the potential for higher rewards.

As such, the median deal value in the seed stage increased by 63.2% in 2024 compared to 2019 levels, according to PitchBook.

But what is the difference between pre-seed vs. seed funding, and how does a startup know when and how to pursue each round? Explore this guide to learn the key differences between each stage and the processes to follow to fund successfully at the pre-seed or seed level.

 

What is pre-seed funding?

Pre-seed funding is the very initial funding for a startup. It is often referred to as a “friends and family” round because pre-seed funding is designed for brand-new startups raising their first money. Founders at this stage often bootstrap by investing in the company themselves or asking friends and family for money to get the idea off the ground.

At the pre-seed stage, a company has never raised funds before and is typically pre-revenue, meaning it is not yet making money from selling its products or services.

 

What is seed funding?

Startup seed funding is when the startup seeks out its first funding outside of the company or the founder’s circle. At this stage, startups have an established company, not just an idea, and are selling a product or service to a small but growing customer base. This stage helps a startup develop a usable product and start hiring a team as the company grows. 

With seed funding, founders begin seeking external investments in exchange for equity, or ownership, in the startup.

 

Key differences between pre-seed vs. seed funding

The difference between pre-seed vs. seed funding can quickly become muddled. Still, some general factors can determine whether your startup is ready for pre-seed or seed, including:

 

Amount of funding

The amount of money you are seeking to grow your business can help determine whether you should seek pre-seed or seed funding. Suppose you need about $50K to $250K to officially start the company, purchase production materials to create a prototype or early product, secure vendor deals, or otherwise get the company off the ground. In that case, it’s best to seek pre-seed funds.

Once you require more than $200K, or more in the realm of $500K to $2M, to scale operations and meet growing client demand, you’ll be ready to seek out seed funding.

This isn’t cut-and-dry, as startups may seek a wide range of funding at different stages, but this is a general rule to consider when seeking pre-seed or seed funding.

 

MVP

MVP, or minimum viable product, is an early-stage product that includes the core features of the eventual late- or final-stage product and is developed enough to be usable by customers. Whether you seek pre-seed or seed funding, you need an MVP to show investors that your product is viable and that you can use it for customer feedback.

“I think, for the most part, most pre-seed investors would expect to see some kind of bootstrap traction, and that traction doesn't need to be revenue. That traction can be MVP. It can be some kind of product traction,” Oliver Hammond, VC and partner at London-based Fuel Ventures, told HubSpot for Startups. “For most pre-seed founders, I would say don't rely on money to start your company; rely on money to grow your company. I would expect you to be able to approach us with some kind of working product or prototype to show what you are doing.”

However, for seed funding, startups need to have both an MVP and some product sales or traction as proof that this isn’t just a concept but a real product with tangible results that will continue to earn sales, especially with additional funding into business development.

“That bar ramps up when it comes to seed,” Hammond said. “With seed funding, I would expect the company to have a live product in market that people are willing to pay for.”

 

Product-market fit

Product-market fit, or PMF, allows investors to see that a startup’s product or service makes sense within its target market. At the pre-seed funding stage, a startup should have a well-defined target market and a prototype that makes sense for that market, but there’s no need to prove PMF just yet. 

However, PMF is expected for seed funding and the various stages of series funding, as investors want to know that the product will have market demand before they invest in the startup’s growth.

 

Startup valuation

Startup valuation can better define whether your company is ready to seek pre-seed or seed funding. Startups don’t need to have revenue, and likely won’t, to reach a valuation suitable for funding. While there isn’t a set way to calculate startup valuation for new companies without revenue, startups may earn a valuation based on estimated future profits, founding team, PMF, market trends, competitors, customer feedback, traction, and more.

Generally, startups with a valuation of $1M to $3M are better positioned for pre-seed funding, while startups valued at $5M to $15M are typically ready to seek seed funding.

 

Type of investor

Different funding stages are often better suited for different types of investors. Some angel investors are willing to take greater risks on early-stage startups in the pre-seed funding stages, while venture capital firms are looking for more established, proven startups for seed funding and beyond.

At the pre-seed stage, startup founders will need to do some bootstrapping, such as investing their own money or tapping friends and family, to help fund the business. Founders with a disruptive idea or a small but mighty early customer base interested in the prototype or MVP may also be able to crowdfund at the pre-seed stage, secure funding through angel investors, or apply and further develop their product in an incubator or accelerator program. 

One major trend in pre-seed funding right now is a simple agreement for future equity (SAFE), which allows an investor to fund an early-stage company, even without a valuation. In exchange, the startup will need to meet predetermined terms or events before the equity for the investor goes into effect. This arrangement typically comes with lower investments but no debt accrual while offering investors a chance at a high ROI if the startup succeeds in meeting the predetermined terms. According to Carta, 88% of all pre-seed deals on Carta for Q2 in 2024 and 89% of all pre-seed deals for Q3 were SAFEs.

At the seed stage, startups are established with customer traction and are ready to pitch to angel investors and venture capitalists. As Hammond explained, this funding stage is not for starting a company but for growing the startup. As such, the startup should be able to prove PMF and have growing sales and an increasing client base, for which they are requesting money to help the business continue to grow and meet demand.

 

Runway

Runway refers to the amount of time a startup can continue operating until it runs out of available cash. Startups need money to operate and scale, and investment money helps startups do just that. With pre-seed funding, startups are very young and typically have enough bootstrapped money to run the business for less than a year, about 3 to 9 months. 

Businesses seeking money at the seed stage should have more runway, at least 1 to 1.5 years. A longer runway is important because fundraising can be time-consuming. Startups need to prove to investors that they have enough money to sustain themselves through the funding timeframe so they don’t go out of business before finalizing the investment deal.

 

How to determine when to pursue pre-seed vs. seed funding

Using factors such as valuation, MVP, PMF, and runway can help a startup determine when it’s time to pursue pre-seed or seed funding. 

Pre-seed

When a company is ready to pursue pre-seed funding, it should have a strong startup founding team and at least a prototype, but ideally, an MVP, to entice customers to try the product and prove to investors that the idea fills a need in the market. At this stage, the startup may even seek funding to hire the first one or two employees outside of the founding group.

“With pre-seed funding, generally people are happy to work or to offer pre-seed tickets based on founding team and early traction,” Hammond explained. “I think maybe one of the worst mistakes that people make with pre-seed funding is that they think they can sort of approach with, ‘Here's who I am, and here's a pitch deck.’ There are very few people on the market that can do that. The people on the market that can do that generally are people who have previously been successful entrepreneurs, had previous exits, or worked previously at some very far scale businesses in senior roles.”

To secure pre-seed funding, founders must show that the product is of interest to the target market, even if it isn’t fully developed and ready for sale yet.

Seed

At the seed stage, investors expect startups to meet more milestones since startups should use this stage of funding to ramp up company growth. At this stage, there should not just be an MVP but an actually usable product that customers are buying from the company. 

The company should seek seed funding when it needs to expand operating expenses to keep up with increasing demand. At this stage, the startup may need to hire more employees and even define teams and departments within the organization to scale successfully.

 

Steps for raising pre-seed and seed funding

Once you’ve determined whether it’s best to approach pre-seed or seed funding for your startup, it’s time to go through the steps of each fundraising process. From establishing a business plan and creating a pitch deck to manufacturing and selling a product, here’s how to raise pre-seed and seed funding.

Pre-seed funding process

While the pre-seed funding process will differ for every startup, these general steps will help prepare a company for successful fundraising, whether through bootstrapping or angel investments.

Develop a business plan

Whether a startup is bootstrapping its pre-seed stage or pitching to VCs for series funding, it needs a strong, forward-thinking business plan. Investors want to see that the founding team has considered the business operations and how they will expand, how the startup will meet market demand, and how the company will use investment money to scale successfully.

Set milestones

Startups should set goals to help outline the path for potential growth. These goals can include certain dates for finishing a prototype, timelines for trialing products with potential customers, and finalizing an MVP based on customer feedback. The milestones will vary by startup and industry, but establishing them can create a roadmap for the startup to follow.

Create a pitch deck

For startups seeking investment money, a pitch deck tells the startup’s story, goals, and potential succinctly. One mistake startups make is creating a long-winded pitch deck without data and research to back up the statements.

“It's very, very common for me to see pre-seed or seed decks that are 40 or 50 pages long. They shouldn't be anywhere near that. They should be 20, max, in my opinion. An ideal is 15,” Hammond advised. “If you can't explain what your business does at pre-seed or seed in 15 slides, there's a problem there. Ultimately, you have to sell this to someone else. I would argue that if you are asking me for money and you can't get me excited about it, how are you going to win a customer, especially in a market that might be a little bit competitive?”

Hammond explained that the pitch deck should include concise but strong documents in an easily digestible format. 

“You are coming to me to ask me for a lot of money. If you can't put the effort in to make it look nice and presentable, what does that tell me about how you approach your products and customers?” Hammond said. “Fuel Ventures sees in the region of 5,000 pitch decks every single year. If your deck does not stand out, I'm not going to spend the time reading it because I've got a lot of other decks I have to go through.”

Plan a budget

One of the biggest reasons startups fail is cash flow problems, which often stem from a poorly planned budget. Establishing a detailed startup budget that plans ahead for pop-up expenses, everyday operating expenses, and incoming funds will help better prepare a startup to manage its money. 

Startups can find free or low-cost budget templates online to track and forecast expenses for tech needs, hiring and training employees, prototype and MVP development, manufacturing, marketing, accounting and bookkeeping, and more. Be as detailed as possible, which can save you the headache of dealing with unexpected costs down the road.

Start bootstrapping

With a detailed business plan and budget in place, startups can start bootstrapping the initial funding by dipping into their savings, taking on loans, applying for grants, and asking friends and family for investments. Startups can approach bootstrapping in various ways, such as agreeing on debt repayment with friends and family or setting up an equity deal that gives early supporters a share of ownership in the company.

Pitch to investors

Once a startup has enough money from bootstrapping to start establishing the company and developing a prototype, founders may consider pitching to angel investors and some VCs. Many VCs focus on startups at seed or series funding, but some firms will take on a number of promising pre-seed startups. The more detailed the business plan and the more efficient the pitch deck, the better suited you’ll be for pitching.

Apply to incubator or accelerator programs

In addition to pitching angel investors, early-stage startups can apply to incubator or accelerator programs to further develop the idea or company and earn access to resources or even investment money at the completion of the program.

For idea-stage startups, founders can apply to incubators to advance the idea and get it ready to turn into a business. At the end of an incubator, there may or may not be a small investment into the startup, and startups will gain network connections and other resources to continue business development.

Startups with an established MVP are ready to apply to accelerator programs. These programs create an environment for founders to scale the startup rapidly. Accelerators often end with an investment in the startup.

 

Seed funding process

Like the pre-seed phase, the seed funding process will look different for every founder. By this point, the startup should have developed beyond an idea and have an actual MVP that customers can buy before the founders pitch to investors.

Establish MVP and product-market fit

MVP and PMF are essential for seed-stage startups. To attract investors, startups need to prove they have a core product and an audience that needs it. Startups may use the money earned through the pre-seed stage to develop MVPs and prove PMFs.

Enhance the pitch deck

Now that the startup is ready to pitch to VCs, the founders will need to fine-tune the pitch deck and add more up-to-date information based on early sales and expenses. While preparing the pitch deck, make sure to include financial forecasts based on current sales and be prepared to answer any potential questions from investors during the presentation.

“For me, when I look at financial forecasting, it is not a measure of accuracy, it's a measure of sanity,” Hammond said. “It's about saying, ‘Cool, do you really appreciate how big your market can be? Do you appreciate where your key revenue streams are going to come from? Do you expect you're going to sit within the general, standard margin that I would expect a business like yours to sit?’”

Reach out to potential investors

Whether through cold or warm introductions, founders will need to start reaching out to potential investors to set up pitch meetings. This process can be time-consuming and discouraging, as startup founders can be rejected for meetings or investments many times before finally receiving a ‘yes.’ As Forbes reported, even some of the biggest companies, including Ring and Google, once faced dozens to hundreds of rejections before securing investments.

Prepare documents for meetings

After getting some investor meetings on your calendar, it’s time to rehearse your pitch deck presentation and prepare important documents to show investors. The more detailed you are in your documents, the better chance you have to wow the investor and secure seed funding.

“Make sure that when you go into these conversations, you already have your pitch deck, your financials, your financial forecasting, and your recent financial history,” Hammond told HubSpot for Startups. “Even if you don't have revenue, make sure that you've said, ‘Okay, in November, we didn't make any revenue. But we spent X amount on staff, and X amount on office. Make sure that you've got that, generally in Excel format.” 

Negotiate and close deals

If investors like what they’ve seen during the pitch, they may make an offer. At this stage, the startup founders and the investor can negotiate the investment terms, adjusting the investment amount, equity, milestones, and other factors until both parties agree and sign a deal.

 

What happens after seed funding

After seed funding, there are a number of different paths companies can consider. Some startups may gain enough traction and start generating enough revenue to sustain operations without additional investments. Startups may continue bootstrapping or crowdfunding if they aren’t interested in sharing company ownership with investors.

According to Crunchbase, about one in three startups will continue the fundraising process by successfully pursuing series funding, where startups pitch to investors to raise money for continued scaling.

As Hammond explained, companies that do well in Series A funding typically have about $1.5M or more in annual recurring revenue (ARR). However, VC funding has become increasingly competitive, and startups must bring their A-game to stand out in series funding, even more so than during seed funding. 

As such, Hammond recommended that startups consider their gross margins and achieve about 3X growth year-over-year. They should also hit important metrics, such as churn and customer retention, if they want to raise series A funding and beyond.

“You as a business are achieving 3X year-over-year growth, good customer retention, good net revenue retention (NRR) or gross revenue retention (GRR), good year-on-year growth,” Hammond said. “From a VC perspective, anything above 3X is very good year-on-year growth, and when you’re hitting that $1M ARR at that point, I think the whole conversation becomes a lot easier. Demand tends to, at that point, significantly increase.”

 

The leading investors for pre-seed and seed funding

Startups that want to raise pre-seed or seed funding have many different options, from incubators and accelerators to VC firms to crowdfunding platforms. It goes without saying that if you're in the UK, Fuel Ventures is a great place to find pre-seed or seed funding.

 

Below are additional leading resources.

Pre-seed

When it comes to the pre-seed stage, founders will have the most success raising money or growing the business by participating in incubators, crowdfunding, or pitching to angel investors. Here are some of the leading programs and platforms for pre-seed startups:

• IdeaLab
• 2048 Ventures
• Quiet Capital
• Operator Partners
• Kickstarter
• Indiegogo
• Wefunder
• Fundable

Seed

At the seed stage, startups can not only access crowdfunding and angel investors, but they can also start pitching to VCs and applying for accelerator programs. Keep in mind that some of the following programs and investors also offer options at the pre-seed stage, although they focus more directly on seed-stage startups.

• Y-Combinator
• Tech Stars
• 500 Global
• Google for Startups Accelerator
• AngelPad
• Sequoia Capital
• Andreessen Horowitz
• Accel Partners

 

Conclusion

For founders who want to go beyond a great idea into a successful business, one of the first steps to take is raising money. Making the business official, developing a product prototype, testing the early product iterations, hiring sales and customer service team members, and expanding operations all require capital, and the early stages of raising money for startups are known as pre-seed and seed funding. 

While these stages are often referred to collectively, there are many differences between the two that startup founders should understand before seeking investments. With this guide, founders can learn the nuances between pre-seed vs. seed funding and use that knowledge to make the best decisions when pitching.

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