140. Pre-Seed or Seed? Which Are You?

VC Minute
When founders ask me whether they should be targeting pre-seed or seed, I have three clarifying questions.

VC Minute – quick advice to help startup founders fundraise better.

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This is Rich Maloy with SpringTime Ventures, bringing you the VC Minute, quick advice to help startup founders fundraise better.

Hey everybody. Thanks for your patience, as I needed to get ramped back up for season three here on the VC Minute. And feel free to insert your favorite joke about VCs ghosting for the entire month of August only to return after Labor Day like nothing ever happened.

This week, I’m going to cover things that have come up with founders recently. Then next week we’re going to kick back into the guests, listening to founders and other folks talk about fundraising.

But for today, a question I get a lot is, am I pre-seed or seed?

I think Neha had a great point about this. At pre-seed, you’re pitching the vision more than the business. And that’s because you might not have a product, or it might be in the very earliest stages of development. 

When founders ask me whether they should be targeting pre-seed or seed, I have three clarifying questions.

First, do you have any institutional investments, meaning a venture fund? For many pre-seed venture funds, they will only invest in your very first venture round. And if you already have a VC investor, not including an accelerator, then some funds will not invest in you. Not all, but for some. 

Second, do you have any revenue? Revenue is a big differentiator between pre-seed and seed. Are you just trickling in revenue, or do you have significant revenue that you can bank on? To me, seed investments have no revenue.

Third, how much are you raising? This is a very important one. Any round that’s $1 million or less is better off targeting pre-seed funds.

Now, all this discussion between pre-seed and seed may seem like splitting hairs. But there’s an important distinction, and that is what types of funds you target for investment.

In episode 21, “Finding Investors”, I shared four places to find venture funds. What’s helpful is that you can filter by the stage that funds invest in. What’s unhelpful is when late-stage corporate venture funds list pre-seed as one of their stages. Insert eye roll.

If you’re raising a pre-seed round where you’ve never raised venture capital, your revenue is zero or near zero, and you’re raising less than $1 million, you are much better off targeting true pre-seed funds.

A true pre-seed fund is one that only, or almost entirely, invests in pre-seed.

It’s going to be difficult to get a seed fund, like SpringTime, to come into your pre-seed round. They’re going to need a lot more proof points than a true pre-seed investor.

Likewise, a seed investor is more likely to invest in a startup raising over a million dollars with non-zero revenue. Whether or not you’ve raised venture capital before is not as important to a seed fund as revenue, but sure as heck is.

Whatever you call it, it’s less important than the amount that you’re raising and the stage of revenue that you’re at. Find the right investors for you based on this.

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