Start-up funding provides your business with access to funds necessary for its initial development costs, from creating and marketing your product to paying employee salaries and purchasing inventory.
Startup funding comes in various forms, with business loans and venture capital investments being two popular choices. Both options provide you with the chance to receive significant investments for your startup business.
Solo startup founders have long relied on a good idea and PowerPoint presentation as sufficient collateral for raising pre-seed funding, also known as a minimally viable product prototype (MVPP). But things are evolving, so founders should understand what investors expect before opening their checkbooks.
Angel Investors Early-stage startups often rely on angel investors for pre-seed funding. These high-net-worth accredited individuals typically come equipped with experience as entrepreneurs themselves, offering advice and guidance in exchange for equity in a new company in return for investing their own capital in exchange for equity ownership in it.
Even during a time of global economic turmoil and pandemic, estimates indicate that angel investments were slightly up from last year; however, their funding amounts remain flat when compared with last quarter.
This flat trend could be the result of global economic turmoil and pandemic’s effect on investor trust; combined with increasing awareness of risks related to startup investing, these events likely influenced by investor hesitating over such risky ventures resulting in more cautious investments with valuations decreasing significantly over time.
With risk averse investors limiting startup business funding sources, startup business funding has become more challenging to obtain. As a result, startups need to change their approach from focussing on rapid expansion at all costs toward creating sustainable economic value for their customers and creating sustained economic value through product/service innovation that addresses customer pain points or solves real problems to secure funding from more conservative investors. It is crucial for startup founders to demonstrate how their products or services address customer pain points or solve real issues as this can attract more cautious investors.
Pre-seed funding provides an ideal opportunity to test your product-market fit and validate key hypotheses about customers, proposition, and demand. In order to do this effectively, research must be performed, market analysis conducted, interviews conducted with potential users conducted, a minimum viable product prototype developed that can be tested by actual customers used, as well as use any collected feedback data to make informed business decisions moving forward.
Investors at the pre-seed stage will want to see evidence that validates your hypothesis about how you intend to monetize your product or service, as well as evidence that your team can execute on its vision and goals set out in your pitch deck. Pre-seed investors typically invest between $25k and $100k into startups at this stage and may require you to present a high level roadmap of how your plan to grow over 18 months.
Based on your industry, crowdfunding platforms may also be an option to secure pre-seed funding. These websites allow investors to make small investments from multiple individual sources – making crowdfunding an appealing option for tech-based startups as it exposes your product or service to thousands of customers and investors who could provide invaluable feedback on it. It can be done either equity-, rewards- or donation-based models; just remember it could come at the cost of diluting some equity.