Business Plan for Raising a Pre-Seed Round
Raise your first $100K-$500K from angel investors, accelerators, and micro-VCs. Learn what metrics matter when you're pre-revenue, how much to raise, and how to structure your cap table.
What Pre-Seed Funding Means in 2024
Typical Pre-Seed Round
What Stage You're At
Product Stage
Idea, wireframes, MVP, or early beta
Traction
Pre-revenue OK, but early users/waitlist helpful
Goal
Build product, find product-market fit, validate demand
Use of Funds
Product development, initial hires, customer discovery
Pre-Seed vs. Seed: What's the Difference?
PRE-SEED (You are here)
- • Raising $100K-$500K
- • Idea to MVP stage
- • Angels, accelerators, micro-VCs
- • Pre-revenue is acceptable
- • Proving concept viability
SEED (Next round)
- • Raising $500K-$2M
- • Working product, early users
- • Seed VCs, larger angels
- • Need revenue or strong traction
- • Proving product-market fit
Who Invests in Pre-Seed Rounds?
Angel Investors
High-net-worth individuals investing personal funds. Typically write checks of $10K-$50K each.
Check size: $10K-$50K
Typical valuation: $1M-$3M
Decision speed: 2-6 weeks
Find them: AngelList, local angel groups
Accelerators
3-6 month programs providing funding, mentorship, and network. Take 5-10% equity for $25K-$150K.
Investment: $25K-$150K + resources
Equity taken: 5-10%
Value add: Mentorship, connections, demo day
Examples: Y Combinator, Techstars, 500 Global
Micro-VCs
Small venture funds ($10M-$50M) specializing in pre-seed/seed. Lead rounds with $100K-$500K checks.
Check size: $100K-$500K
Typical valuation: $2M-$5M
Decision speed: 4-8 weeks
Examples: Pre-Seed Ventures, Hustle Fund, Liquid 2
What Metrics Matter at Pre-Seed Stage
You don't need revenue, but you DO need proof of progress. Here's what pre-seed investors look for:
1. Problem Validation
Show you've talked to potential customers and validated the pain point is real, urgent, and expensive to solve.
What to show:
- • "Conducted 50+ customer interviews, 78% said this is a daily frustration"
- • "Market research shows companies spend average of $15K/year on workarounds"
- • "Survey of 200 target users: 65% would pay $49/month for this solution"
2. Early Traction Signals
Any proof that people want what you're building. Pre-revenue is OK, but show demand signals.
Strong signals (pick 2-3):
- • Waitlist: "500 signups in 3 weeks with no paid marketing"
- • Beta users: "30 companies testing MVP, 90% weekly active"
- • Pre-orders: "$5K in pre-sales before product launch"
- • LOIs: "3 letters of intent from Fortune 500 companies"
- • Organic growth: "1,000 downloads, 40% invited friends"
- • Press: "Featured in TechCrunch, 10K site visits in 48 hours"
3. Team & Execution Ability
At this stage, investors bet on people more than product. Show you can ship fast and learn.
What strengthens your team story:
- • Domain expertise: "Spent 5 years at [BigCo] in this exact industry"
- • Technical credibility: "CTO built similar systems at Google"
- • Speed: "Built MVP in 6 weeks, launched beta in 3 months"
- • Complementary skills: CEO (sales/vision) + CTO (technical) + Designer
- • Previous success: "Founder's last startup acquired by [Company]"
4. Market Size & Opportunity
Show the market is big enough to build a $100M+ company. Pre-seed investors need to see 100x return potential.
Example market sizing:
TAM: $50B (total market)
SAM: $8B (serviceable market you can realistically address)
SOM: $200M (what you could capture in 5 years with 2.5% share)
"At $200M revenue and 5x revenue multiple, that's a $1B exit opportunity—100x return for pre-seed investors."
Cap Table Example & Dilution Calculator
Understanding dilution helps you negotiate better terms. Here's a realistic pre-seed cap table:
Scenario: Raising $300K on $3M Post-Money Valuation
Step 1: Calculate investor ownership
Investor % = Investment / Post-Money Valuation
Investor % = $300K / $3M = 10%
Step 2: Calculate pre-money valuation
Pre-Money = Post-Money - Investment
Pre-Money = $3M - $300K = $2.7M
Step 3: Build cap table with option pool
Investors typically ask for 10-15% option pool for future hires. Let's set aside 12%:
| Shareholder | Shares | Ownership % | Value |
|---|---|---|---|
| Founders | 7,800,000 | 78% | $2,340,000 |
| Pre-Seed Investors | 1,000,000 | 10% | $300,000 |
| Option Pool (unallocated) | 1,200,000 | 12% | $360,000 |
| Total | 10,000,000 | 100% | $3,000,000 |
Founders' perspective: You keep 78% ownership after raising $300K. If company grows to $30M valuation at seed round (10x), your 78% is worth $23.4M on paper.
Dilution Through Multiple Rounds
Your ownership will decrease with each round. Here's a typical dilution path:
| Round | Founders % | Valuation | Founders' Value |
|---|---|---|---|
| Starting | 100% | - | - |
| Pre-Seed ($300K) | 78% | $3M | $2.3M |
| Seed ($1.5M @ 20% dilution) | 62% | $10M | $6.2M |
| Series A ($5M @ 25% dilution) | 47% | $30M | $14.1M |
| Series B ($15M @ 25% dilution) | 35% | $100M | $35M |
Notice: Your percentage goes down (100% → 35%), but your VALUE goes up (- → $35M). This is the power of raising smart capital at increasing valuations.
How Much Should You Raise?
The 18-Month Rule
Raise enough to fund 18 months of runway to hit milestones that justify your next round at a higher valuation. Here's the math:
Example Budget for $300K Pre-Seed:
Key principle: Be capital efficient. Pay founders below-market initially, use contractors over full-time hires, and focus spending on product development and customer validation—not fancy offices or perks.
Raise Too Little
You run out of money before achieving milestones needed for your next round. Results: down round, bridge loans, or shutdown.
Don't raise $150K if you need $300K just because it's "easier."
Raise Too Much
Excessive dilution at low valuation hurts long-term. Raising $1M at $3M valuation = 33% dilution vs. $300K = 10%.
Raise what you need + 20% buffer, not more.
Pre-Seed Term Sheet Basics
Pre-seed deals are typically done with SAFE (Simple Agreement for Future Equity) or convertible notes—not priced equity rounds. Here's what to know:
SAFE (Most Common)
Created by Y Combinator. Investor gives you money now, gets shares later when you raise a priced round.
Valuation Cap
Maximum valuation at which SAFE converts. Example: $5M cap means if you raise Series A at $20M, SAFE investors get 4x better price.
Discount
Typically 20%. SAFE holders get 20% discount on next round's price as reward for early risk.
No Interest, No Maturity
Unlike debt, doesn't accrue interest or have repayment date. Converts at next equity round.
Convertible Note (Alternative)
Structured as debt that converts to equity. Less common now but still used.
Interest Rate
Typically 2-8% annually. Accrues and converts with principal.
Maturity Date
Usually 18-24 months. If you haven't raised by then, need to repay or renegotiate.
Valuation Cap + Discount
Similar to SAFE. Both terms can apply simultaneously.
Pro Tips for Term Sheet Negotiation
- Use YC's standard SAFE: Don't reinvent the wheel. Investors know and trust it. Custom terms slow deals and raise red flags.
- Negotiate valuation cap carefully: Too low (e.g., $2M when raising at $3M post) = excessive dilution. Too high = investors won't bite. Aim for 1.5-2.5x post-money valuation.
- Avoid pro-rata rights at pre-seed: Giving investors right to invest in future rounds can complicate later fundraises. Save this for seed+ investors.
- Group all SAFEs together: If raising from multiple angels, use same terms for everyone to avoid cap table messiness.
Milestones to Hit Before Your Seed Round
Use your pre-seed capital to achieve these milestones, which will justify a $10M+ seed round valuation:
Launch Product & Get Users
Target: 1,000-10,000 users (depending on market) with strong engagement metrics. For B2B: 10-30 paying customers. For consumer: daily/weekly active usage >40%.
Achieve Product-Market Fit Signals
Target: 40%+ of users say they'd be "very disappointed" if product disappeared (Sean Ellis test). NPS >50. Organic word-of-mouth growth.
Generate Revenue (If Possible)
Target: $10K-$50K MRR for B2B SaaS. Even small revenue proves people will pay. Pre-revenue is OK for consumer/marketplace, but harder to raise.
Show Growth Momentum
Target: 15-30% MoM growth in key metric (users, revenue, engagement). Seed investors invest in rocketships—show the trajectory is up and to the right.
Build Strong Team
Target: 3-5 person core team covering product, engineering, and go-to-market. Use option pool from pre-seed to hire 1-2 key people.
Build Your Pre-Seed Business Plan
Create a compelling business plan that helps you raise $100K-$500K from angel investors and accelerators.
Start Your Pre-Seed Plan