How to Raise Pre-seed Startup Funding

The toughest round of funding an entrepreneur will seek to raise is pre-seed investment. It has the lowest probability of success, the highest amount of ambiguity, is poorly defined, and causes the greatest amount of confusion and missteps out there.

Over 99% of the entrepreneurs who seek financing are rejected.

So, my humble advice to all entrepreneurs: please learn to assess your own probability of getting funded.

For our Seed Capital series of podcasts and blog interviews, I’ve interviewed hundreds of investors, especially micro-VCs and angels who play an important role in the early-stage game.

As I expected, a large number of investors are still chasing Unicorns. They are interested in investing in companies that will go from 0 to $100M in 5-7 years. And they will consume a great deal of capital in the quest of hitting the coveted billion-dollar valuation mark.

However, I am pleased to report that I have spoken with a good number of investors who recognize the niche opportunities.

Yes, they are interested in investing small amounts and harvesting through smaller exits.

With that strategy is the recognition that most acquisitions happen in the sub $50 million price-point.

Therefore, for all stakeholders to make money, a capital efficient strategy is required.

I would like you to start with the basics of how we advise startups:

• Do not go to VCs as beggars. Go as Kings.
• Do not chase Investors before chasing Customers.

Negotiation is a straightforward game. You can only negotiate if you have options. I have mentored entrepreneurs now for well over a decade. I always try to help them create negotiating leverage.

There is nothing that gives entrepreneurs more leverage than customers and revenues.

The further you can get in terms of building traction without external funding, the more negotiating leverage you will have.

Look for every possible avenue through which you can maximize validation and traction. 

You see, Venture Capital is a game where too much money routinely chases too few deals. Those few deals get an inordinate amount of attention. Valuations inevitably get bid up through competition amongst investors. 

The only way an unproven entrepreneur can enter that exclusive club is by having solid proof points that signal a high velocity business with a large market opportunity.

You may be getting confused because all you read in the media are stories of venture funding. Media, unfortunately, doesn’t report on customer wins. And yet, your route to success rests in chasing customers, not investors.

First, please try to understand how pre-seed investors think, how they formulate their investment thesis, and create a strategy on how to align your investment thesis to their investment thesis. This is called Investor-Entrepreneur fit. 

Just like you seek product-market fit, you need to seek investor-entrepreneur fit. For instance, if you’re looking for pre-seed Fintech investors, that would be a highly specialized quest.

I’ve categorized and shared the best of my investor interviews in the following Udemy courses.

1. How Pre-Seed Investors Think About Startups with Sramana Mitra

2. How Seed Investors Think About Startups with Sramana Mitra

Notice, Deep Tech is an area where entrepreneurs seek a pre-seed round more often. I have brought a set of investors on to discuss the issues thereof.

3. How Seed Investors Think About Deep Tech with Sramana Mitra

Finally, there is a class of investors that have emerged who are not seeking Unicorns. Your situation may fit some of them better than going after the Unicorn hunters.

4. Alternatives to Unicorn Chasing Investors with Sramana Mitra

One caveat: Not all investors who advertise themselves as pre-seed VCs really invest in pre-seed ventures. When the rubber meets the road, they are Seed or Post-seed VCs.

Over the past decade and more, I’ve had the privilege of working with a large number of bootstrapped entrepreneurs. These include self-financed companies and also modestly capitalized startups that operate in a capital-efficient manner applying the principles of bootstrapping.

There is a reason why savvy entrepreneurs have been using the Bootstrap First, Raise Money Later strategy.

Generation after generation of entrepreneurs have used bootstrapping to get to a fundable stage, so they can call the shots at the negotiation table with their potential investors.

Your chances of fundraising for a pre-seed startup are vastly higher if you bootstrap first. So please consider starting there.

5. Bootstrap First, Raise Money Later with Sramana Mitra

6. Bootstrapping a Startup with a Paycheck with Sramana Mitra

7. Bootstrapping a Startup with Services with Sramana Mitra

8. How to Bootstrap Startups by Piggybacking with Sramana Mitra

9. How To Succeed as a Solo Entrepreneur with Sramana Mitra

10. How to Bootstrap a Startup to Exit with Sramana Mitra

That’s it. This is a complete collection of Udemy courses that can help any entrepreneur to understand:

• If and how pre-seed investment can be obtained 
• What entrepreneurs need to have before attempting to raise a pre-seed round
• What one could expect in pursuing pre-seed venture capital
• How pre-seed funding for startups has changed in the last decade 
• What work needs to be done to get to the pre-seed stage
• And finally, how pre-seed VCs think and what they really want

If you need more help, please come speak with me at an upcoming 1Mby1M roundtable.

Photo by micheile dot com on Unsplash