Should You Raise Your Pre-Seed Round from Angels or VCs?
Founders often ask us:
“Should we raise our pre-seed round from angels or VCs?”
Our answer is: “It depends.”
A few years ago, you (a founder) would raise a small angel round to build an MVP. Later, you’d raise a $1 million seed round to work towards finding Product/Market Fit.
Today, the average seed round has grown to $2.2 million, and seed VCs expect you to have found Product/Market Fit with early adopters already. Seed funds have grown alongside seed rounds and now write bigger cheques later.
These changes — in round sizes and VC expectations — created a huge gap in startup funding. The pre-seed round has emerged to bridge the gap between starting up and raising your seed round.
Today, the average pre-seed round is around $500,000. Your goal is to use that money to build your MVP and find Product/Market Fit with early users, thereby qualifying for seed funding.
There are countless ways to raise your pre-seed round. As a founder, it’s important to understand the tradeoffs between each option, and what the implications are now and in the future.
We’ve put together a Google Sheet with some example pre-seed “compositions” below.
We started with the question:
“Should we raise our pre-seed round from angels or VCs?”
Our answer is:
Raise your pre-seed from investors that best fit your unique needs.
Investors can offer you much more than just money. Great ones can help with domain expertise, networks, product development, company building, and personal growth (to name just a few areas).
But each investor also has their own unique set of “weaknesses.” Angel investors have jobs or run companies. Funds have new investments to make and portfolios full of other founders to help. VCs have their own investors to manage and new funds to raise, too.
Our advice to you is this: identify the unique mix of help your team needs to maximize your chances of success. Then, find the best investors that will give you that help while being mindful of the implications.
If you’re thinking of raising a pre-seed round and have questions about the process, reach out. We’re always happy to help.
- The figures in the table represent averages and past experience. Every investor, startup, and funding round is different.
Thanks to Joshua Tessier, Ali Zahid, Jaclyn Ling, Fahd Ananta, and Alexander Norman for reading drafts of this post.
