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Traditionally speaking about investments, a startup goes typically through 5 stages of rasing startup funding- seed funding (1), angel funding (2), venture capital funding (3), bridge loans (4) & mezzanine financing (5), and Initial Public Offering (5).
However, the rising competition among the investor market has given rise to a pre seed fund that aims to fill in the growing gap between the development of a startup and its product prototype before launching its presence in the market.
What is Pre Seed Funding?
Pre seed funding is a small investment made by the investor to help a startup start with its primary operations. A pre sending funding is usually initiated by individuals that know the founder personally or holds strong faith in their business idea.
Nevertheless, several pre seed funding platforms invest capital in a startup in return for a stake in your company. You can also attain a pre seed fund through crowdfunding.
Note: Currently, equity-based crowdfunding is illegal in India, whereas donor-based & reward-based crowdfunding is entirely legal. (6)
How to Raise a Pre Seed Fund for Your Startup?
By the time you get ready to raise a pre seed funding, your startup needs to prepare all the finalized concepts or prototypes in order to compel investors for raising pre seed fund.
Before you can raise pre seed funding in India, ensure all the points given below have been checked from your checklist:
1. Financial Clarity
A startup looking for a pre seed fund needs to be clear about their finances and business model that includes ensuring the approximate figure required has been calculated strategically
2. Completed Paperwork
You must ensure that all your paperwork and documentation for the startup has been done correctly, well-in-advance before any investors approach you for pre seed fund purposes so that there’s no delay in the investment process. This includes ensuring the firm has completed all the legal formalities.
3. Thorough Research
Make sure that you have studied and researched all the concepts of the pre seed investor before approaching any investor with your pitch. Read about all their present and past startup investment cases.
4. Stay Alert
Ensure that you have prepared the perfect pitch and blueprint for your business in case any last-minute investment plans show up and impromptu meetings come up.
You can raise pre seed funding in India via:
1. Pre Seed Funding Platforms
Multiple pre seed fund platforms encourage startups in their nascent stage by providing them with small funding amounts required to initiate their business operations. Early-stage pre seed fund help startups gain market access and move onto the next phase of their startup operations.
You can accumulate pre seed funding for starting your business by crowdfunding. However, presently, equity-based crowdfunding is illegal in India, whereas donor-based & reward-based crowdfunding is entirely legal. Present your idea or concept to any crowdfunding platform or all your contacts and receive financial backing for your startup.
Various incubators are willing to make small investments in the form of pre-seed funds to assist founders in pursuing substantial market opportunities with the help of the pre seed funding. Pre seed fundings are done during the product development stage of the minimum viable product.
4. Early-Stage Accelerators
Various early-stage accelerators programs provide you with pre seed funds along with giving mentorship, guidance, training, and networking required to expand your initial stage startup[ into a success.
5. Family, friends & Investors
Use your personal contacts and convince your friends and family to invest in your startup in the initial startup stage. The ones who have seen your journey will be willing to put in their money in your business if they see potential in you.
Moreover, several investors are willing to invest their money as a pre seed fund into scalable and potentially successful startups. Some of the investors on a lookout to provide pre seed funding are Lead Angels (19), Indian Angels Network (20), Mumbai Angels (21), etc.
Pre seed funding has gained prominence in the past few years because of which ideas have now earned wings to fly with no limitation, financial or mental. Pre seed fundas enable the acceleration of the early-stage development of the product and services of the startup, thus, making it a critical element of the funding process.