We all have witnessed the number of startups increasing daily wherever we look. While this is a good thing for the economy, employment opportunities, and many other things, one thing that comes out of this as a head-scratcher is the complex startup terminologies.
So, in this article, we will be talking about and clearing the difference between two such complex terminologies, which are not very complicated once you get to know them. We hear them every time there is a conversation about a startup, and they are: ‘pre-seed’ and ‘seed’.
If you are just starting your business, you will connect to this on a different level. There are tons of things that you need to check off your list before your first batch of products or first service reaches your customers. There are advertising and marketing costs apart from the cost incurred to develop the product or service you are offering. You would agree with us that all of this requires money.
So, like many startups, you would also turn towards fundraising. However, at this stage, you are presented with a big decision: whether you want to be a pre-seed startup or seed company?
Let us help you with making this decision.
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What is pre-seed funding?
Pre-seed startup funding, also known as the ‘friends and family’ round, is funding done before the actual business has been incorporated. Mostly, in such rounds, you are selling nothing but an idea. If you turn towards your friends or family or reach out to venture capitalists, you ask them to take a huge bet on something that is still just in your head or still in its initial stage.
In other words, pre-seed funding is a type of funding that helps businesses in their initial or formation stage to secure some capital against a percentage of their company so that the idea can turn into reality.
This round is called a ‘friends and family’ round because most of the time, the people who invest at this stage in a business are the business owners themselves, or their close family or friends, that have faith in their idea.
So, if you have a business idea and have confidence that it can be turned into a reality, the funds you can obtain with pre-seed startup funding will be the foundation of your business.
What is seed funding?
Seed funding is nothing but the first official round of funding that a startup goes through. Once you can set up your business and establish the base of your pre-seed startup, you can invite venture capitalists and investors to invest in your startup against some percentage of the ownership.
So, suppose your startup is in the stage where you need to start developing a product, conduct intensive market research, or invest in marketing or advertising. In that case, seed funding is the right way in which you should raise capital to achieve all these goals.
However, before you approach investors, you should have thorough knowledge about your product/service, the market you are about to enter, your target audience, your estimated required funds, and many other things.