If there’s anything that Silicon Valley loves more than complex startup terminology, it’s making that terminology even more cryptic to understand. And while certain startup funding stages have some technicalities to them, it might be a little challenging to define, the exact difference between “pre-seed and “seed” funding rounds.
Fundamentally, pre-seed and seed funding rounds are the earliest stages of funding that helps a startup get up on its feet. When you’re building a startup from the ground up, one of the most important aspects is to obtain funding that will help your startup to grow. There are various funding stages that are available for startups to get funding, which include pre-seed and seed funding rounds, sometimes succeeded by Series A, Series B, and Series C funding.
Where pre-seed and seed funding rounds, are the earliest stages of funding that can be used to help a startup thrive. We’ll dive deeper into the different stages of funding a startup goes through during its life cycle.
Difference Between Seed & Pre-Seed Funding
Pre-Seed Funding
Pre-seed funding is the kind of funding that helps a startup during its initial formation and functioning. Since this funding is meant to be used to get a startup off the ground, it’s not typically considered to be an actual round of funding. The investors who typically provide startups with pre-seed funding include the founder of the startup, close friends, family members, and supporters of the respective starters. Pre-seed funding can amount from $10,000 to $250,000.
A pre-seed startup funding round precedes Seed and Series A rounds and may follow funding from an angel round or a period of bootstrapping with your own financial resources.
Additionally, due to so many early-stage startups looking for financial support, the number of companies that actually receive pre-seed funding is quite low, investors usually consider thousands of startups before investing in only a handful of them.
Seed Funding
Now, coming to the Seed funding round. Seed funding is the first official equity funding stage for any startup. It represents the first official capital that a business venture or enterprise raises.
You can think of the “seed” funding as part of an analogy for planting a tree. This early financial support is ideally the “seed” that will help to grow the business. When given enough revenue and a successful business strategy, the company will eventually grow into a “tree.” Seed funding helps a company subsidise its first steps, including things like market research and product development. Seed funding assists a company in determining what its final products will be and who its target demographic is.
Investors who usually provide startups with seed funding include founders, friends, family, incubators and venture capital companies. One of the most common types of investors participating in seed funding is called an “angel investor.” Angel investors tend to appreciate riskier ventures, such as startups with very little proven track record so far, and expect an equity stake in the company in exchange for their investment.
Some companies never extend beyond seed funding into Series A rounds or beyond.
Additional Funding Stages
While Series A funding is typically designed to be used for the optimization of a startup that is currently in its initial stages, Series B funding is directed towards helping startups expand their market reach.
As for the Series C funding, these funding sessions are designed for the rapid growth of the company. Additionally, this funding could help your startup acquire another company. While it’s possible to obtain this funding from family, friends, or even your own bank account, the two most imminent forms of funding occur from angel investors and venture capitalist firms. In many cases, this funding is provided in exchange for a small share of the company, technically referred to as equity.
Each stage of capital raising can be extended. For example, a business might engage in additional rounds of Series B funding before moving to Series C. However, if a startup conducts dozens of rounds of financing, investors may become sceptical of the company’s financial health.
