Questions about Pre-Seed Funding 🚀

by nicetiredperson. Posted on Sep 15, 2020    6    24


Hi All!

I was wondering if I could get some thoughts on my current situation. My 2 other co-founders and I are currently working @ full-time roles across a couple of different companies. We're ready to take the next steps on a side project we've been spit-balling about over the past couple months but it requires a pretty hefty 100K investment in some hardware. Has anyone ever worked with a pre-seed investor at this early of a stage to get things up and running? What do these agreements usually look like? Where do I find pre-seed investors outside my network? Do investors ever give no strings attached money to explore an area they are interested in?

Let me know if this question has already been asked or if there are any relevant resources that I'm just blatantly missing. Thank you for your time!!!


Comments

deepneuralnetwork 1

Investors do not invest in ideas. You will likely not get investment at this stage, and even if you somehow magically defied the extremely poor odds to get an investor, it likely will not be 100k.

  nicetiredperson 2

... Gotchu, this is pretty different from some of the things I’ve heard from other people. It seems like at YC they even take a chance on founders they like with solid ideas.

deepneuralnetwork 2

It’s pretty common knowledge. I’d be pretty curious to see what percentage of companies YC funds on just ideas alone. My suspicion is that it’s very small and likely requires you to have an all-star, eminently qualified team, likely with cofounders who have already raised and exited previously.

The harsh reality is that ideas are effectively worthless. Execution on the idea is what counts, and what investors want to see.

  nicetiredperson 2

Well said. I have a few friends that have gone through YC with mostly ideas and it seems like from them is more about getting the partners excited about the team and the progress they’ve made over time.

[deleted] 1

[deleted]

cochemuacos 2

There are plenty of investors that can invest at idea stage, specially the ones that have interest in a particular field like biotech, robotics, fintech, etc. If you are not a technical founder and want investors money to hire some one that will build the product for you and it is just a SaaS or B2B software then most likely you'll get nowhere.

I feel very confident that you can find "specialized" investors who can give you 100k (although you still need to convince them). It is true that investors don't invest in ideas but that's not the same as not investing at idea stage startups, they invest in people so you gotta convince them that your team is the one to make things big and that you are actually solving a problem. It's usually not advised to seek funding if you still have a job because it is a sign that you are not fully commited.

  nicetiredperson 1

That totally makes sense, I’m caught in a situation where I’m just too much of a wimp to make the total jump just yet. I know that’s pretty bad to admit, but I also feel pretty strongly that I can develop the idea and product without diving into it just yet 100%... ideally my team and I have a sick prototype by the end of the year that gets us really excited and convinces others.

I really appreciate you taking the time to comment back as well. It’s super helpful.

BadDadWhy 2

I pitched something similar. Since we had at most $5k into time and effort, I pitched he buys equipment and starts a company then gives me and another guy 20% to deliver xyz data from the equipment. He had to do marketing.

He passed for outside reasons. Know anyone interested in fabric that can glow for 4+ hours?

GloomyNectarine2 3

Do investors ever give no strings attached money to explore an area they are interested in?

why would they? $100K in this stage would come with so many strings that may make you reject it. Google was almost sold to Excite for $750K, after they had a product.

  nicetiredperson 1

It’s a good point, I was thinking it would maybe give them more exclusive rights to invest in later rounds of funding? Or is there any structure where you can give something other than equity for pre-seed funding?

GloomyNectarine2 2

There is no doubt in my mind that someone can give someone $100K or $100Million but you better convince them. That's the only question, USA is flooded with parked money. However, the investors judge it, not the founders with their trillion dollar dreams (it's a $x trillion market, we'll get 22% in year two and...)

NumberSpace 3

I would check out if you guys are eligible for any grants as well. Just remember that the more of your company you have to sell to investors in the early stages, the harder it will be to get later stage funding if your growth hasn't been extraordinary. I unfortunately work with a lot of founders where we have to find ways of reconstructing their cap table at their Series A or B. For early funding I highly suggest SAFE notes, beware convertibles.

  nicetiredperson 1

Totally, I spent a ton of time yesterday and found a few grants available from NSF. This is really cool because normally I expect those to be reserved for academia, but they have a little section just for startups and small biz.

I’ve heard of SAFE notes a bit and will keep an eye out. Thanks for taking the time to reply😊

apfejes 4

There’s pretty much no such think as free money. They will give you money to pursue your idea, but they will take a percentage of your company in exchange. $100k is pretty normal for a lot of tech companies, so it’s not unreasonable, but if your company has next to nothing to start with, that could be a pretty hefty chunk of your company. That gets into the whole topic of valuation.

Anyhow, you can find investors all over. People who started their own company and have successfully exited, people who have saved well, etc. However, the first rounds are usually called the angel round or the friends and family round. Angels are investors that get into early companies, and usually are fairly involved in getting a company off the ground. Friends and family rounds are just that.

Depending on what the company is, your first round will probably be decided by how good the idea is. If you can sell it to an angel, then that would get you across the line, otherwise, you may need to go the friends and family route, asking people you know for money.

There’s no one path, and mostly it’s going to come down to how well you can pitch your idea.

deepneuralnetwork 3

Except – and this is the core problem here – investors almost never invest in “ideas“. It doesn’t matter how well you pitch your idea, because an idea alone will not get you investment. Even angels want to see a lot more than just an idea.

Pitch an existing, impressive business that can scale? Now you’re talking.

shopdeft 2

Figma pitched entirely on an idea? https://www.youtube.com/watch?v=C1UUVdN3kdQ

apfejes 2

Sorry - you’re right. By “idea” I meant the whole package, which is just the wrong terminology. I’m also in biotech, and the core concept and market really matters here.

  nicetiredperson 2

Totally, we’re doing something pretty exploratory in robotics, but the go to market strategy isn’t that complex. Is there no list of angel investors that you can reach out to? Or how does it normally work? Do they simply have to be in my network?

cochemuacos 2

>Is there no list of angel investors that you can reach out to?

Have you checked angel.co?

  nicetiredperson 1

Ok am I just totally missing the angel investor list on angel.co? It seems like it’s just a list of startup jobs and an investor portal...

Famous-Factor 2

Don't worry, I still can't figure out how to use Angel.co

cochemuacos 2

Hm maybe you are requiered to make an account. I can see the list by going to "More" > "Investors"

apfejes 3

There’s no list that I’m aware of. Mostly it’s making connections with people, and just getting out to local events and talking with everyone you can. Not, of course, asking for money, but trying to find people who would be great advisors. Along that journey, you’ll meet people who are interested in being more than advisors, and being part of the journey.

Anyhow, where I am, there are angel investor clubs and newsletters, as well as things like angellist on the web. Whoever your ceo is, their job is to talk to everyone and make those connections. Edit: and to practice and refine the elevator pitch. They should be practicing it over and over until they can do it in their sleep, and improving both the delivery and message with each iteration. A lot of my current calls are just that - talking to people who might be useful to the company in the future, and trying to build excitement for when we do need to raise funds.

  nicetiredperson 1

Totally, ya I’ve been doing that quite a bit. I think I’m going to try getting some grant money, because I think the project would qualify, but if there are any specific clubs, groups, or news letters that you would recommend I’m all ears🤩 thanks again for your help!!!

apfejes 2

Depends where you are. But happy to talk - it’s not easy getting that first round of investment!