How Long Should Pre-Seed Funding Last?

Pre-seed funding is essential to a startup’s life — providing the initial financial support to bring an idea to life. But how long should pre-seed funding last?

Typically, pre-seed funding provides a runway of 6 to 18 months — depending on the business and industry. Therefore, there is no one-size-fits-all answer, as the ideal duration depends on several factors unique to each startup.

In this article, we will explore the various aspects of pre-seed funding — including how it works, its purpose, and factors that influence its longevity. Let’s dive in!

What is pre-seed funding?

Pre-seed funding is the initial round of investment a startup receives to validate its concept and develop a Minimum Viable Product (MVP). Most startups raise between $10,000 and $500,000 during this stage, although the amount can be higher in exceptional cases and typically comes from angel investors, friends and family, or early-stage venture capitalists like Ingressive Capital.

Still, the exact amount of funding can vary, depending on the nature of the startup and the investor’s appetite for risk.

For example, Nigerian fintech startup Mono successfully raised pre-seed funding to develop its financial data API, attracting further funding and enabling it to grow its user base. This highlights the importance of pre-seed funding in helping startups become attractive to investors for subsequent rounds.

How does pre-seed funding work?

For most startups, pre-seed funding helps the company reach a stage where it becomes attractive to investors for subsequent funding rounds (as its name suggests).

However, this type of funding is generally considered riskier than later-stage funding (say Series A and above) as businesses at this stage have not yet demonstrated product-market fit. Therefore, investors may favour strong potential and capable teams to mitigate the risks associated with this early-stage investment.

Therefore, if you’re raising pre-seed, it’s crucial to present a well-structured business plan highlighting the problem your startup aims to solve and the market opportunity it targets.

You must also showcase a deep understanding of your customers, competitors, and revenue generation strategy.

But what exactly is the point of raising pre-seed? What’s the money for?

What do you use pre-seed funding for?

You can use pre-seed funding for various purposes, primarily to validate your business concept, develop an MVP, and conduct initial market research.

However, most founders usually spend their pre-seed on:

• Product development: Building a robust MVP to showcase the startup’s potential.
• Marketing activities: Establishing an online presence to reach a wider audience. PiggyVest, for instance, used content and social media marketing during its early stages to build brand awareness and attract users in Nigeria.
• Hiring key team members: Bringing on board talent with the necessary skills for growth.
• Building initial traction: Gaining initial users and feedback.
• Initial Market research: Understanding market dynamics in the regions to refine business models.
• Covering the costs associated with fundraising itself: These include legal fees and travel costs.

Remember, strategic allocation of pre-seed funding is key. Focus on activities that drive tangible progress and demonstrate your startup’s potential to investors.

How to determine your startup’s pre-seed funding needs

It’s crucial for startups to accurately determine their funding needs during the pre-seed stage. Insufficient funding can hamper progress, while excessive funding can dilute early-stage ownership and place unnecessary pressure on the founders to deliver unrealistic milestones.

Here’s how to determine your startup’s funding needs at pre-seed:

1. Create a robust financial forecast. Factor in development milestones, projected expenses, and potential revenue streams. This is particularly important in high-cost markets like Kenya and Nigeria.
2. Seek advice from experienced entrepreneurs, mentors, or industry experts. Consult with experienced entrepreneurs or industry experts. Engaging with advisors can help ensure a realistic funding plan aligned with your growth trajectory.
3. Understand the different stages of funding available in the market. These stages include pre-seed, seed, series A, B, C, and beyond. Each stage represents a different level of maturity for your startup and requires a corresponding amount of funding. By familiarising yourself with these stages, you can better navigate the fundraising landscape and tailor your funding needs accordingly.
4. Conduct a thorough market analysis. This can provide valuable insights into the competitive landscape, target market size, and potential growth opportunities. Understanding the market dynamics can also help you make informed decisions about your funding requirements and develop a sustainable financial strategy.

Now which factors affect how long a pre-seed fund will last?

Which factors affect pre-seed funding longevity?

The duration of pre-seed funding can vary depending on several factors unique to each startup.

Some of the factors that affect pre-seed funding longevity include:

• Industry and business model. Startups in industries with longer product development cycles, regulatory requirements, or complex supply chains may require their pre-seed funding to last longer. Similarly, businesses with high operating costs or capital-intensive models will likely burn through their pre-seed funding faster.
• Startup’s growth strategy and milestones. The pace at which a startup achieves key milestones directly impacts how long its pre-seed funding will last. Startups that can hit milestones quickly and efficiently may extend their runway compared to those with more complex and time-consuming development phases.
• Operating location. The geographical region where a startup operates can influence how long pre-seed funding lasts. Locations with higher operational costs, regulatory hurdles, or limited access to resources may necessitate startups to stretch their pre-seed funding further.
• Team experience and efficiency. A seasoned and efficient team with a proven track record and specialized skills may be able to navigate challenges more effectively, optimize resource utilization, and potentially extend the lifespan of their pre-seed funding.
• Market dynamics. Startups operating in rapidly evolving or highly competitive markets may need to allocate more resources to stay ahead, potentially shortening the duration their pre-seed funding can cover.
• Unforeseen circumstances. Unexpected challenges or setbacks can significantly impact a startup’s burn rate and shorten the lifespan of pre-seed funding. Having a contingency plan is crucial.

So, how can you manage your business’s pre-seed till you raise again?

How to manage pre-seed funding effectively

Managing pre-seed funding effectively is vital for startups to make the most of the available resources and set a strong foundation for future growth. 

Here are some tips for managing pre-seed funding effectively:

1. Create a detailed budget. Develop a comprehensive budget that outlines anticipated expenses across various categories, including marketing, product development, and overhead costs. Regularly review and update the budget based on actual spending to ensure financial discipline.
2. Negotiate favourable terms. During pre-seed funding negotiations, founders should aim to secure investment terms that strike a balance between providing the necessary support and aligning with the startup’s long-term vision. This includes considering factors such as valuation, ownership dilution, and investor expectations.
3. Focus on key milestones. Prioritize reaching significant milestones that enhance the startup’s market credibility and increase its valuation. For example, launching a successful MVP, acquiring initial customers, or securing strategic partnerships can all significantly impact the startup’s funding prospects.
4. Build a strong team. Assemble a capable team that complements the skills and expertise required to execute the startup’s vision. Hiring individuals with experience in the target industry, fundraising, and product development can contribute to effective pre-seed funding management.
5. Showcase progress to investors. Regularly communicate with investors, demonstrating progress made, market traction, and the successful utilization of pre-seed funds. This transparency not only nurtures investor confidence but also lays the groundwork for potential follow-on funding.
6. Track key performance indicators (KPIs). Monitor metrics relevant to your business to measure progress and identify areas for improvement. This data-driven approach allows for informed decision-making and resource allocation.
7. Have a contingency plan. Prepare for unexpected challenges or setbacks by having a plan B in place. This could involve adjusting your budget, revisiting your business model, or seeking additional funding sources if necessary.

While these strategies are essential for managing pre-seed funding effectively, it is also crucial to consider the broader landscape in which your startup operates.

After all, the startup ecosystem is a dynamic and ever-evolving environment influenced by various factors that can impact funding opportunities — from the prevailing economic climate to local competition.

How much pre-seed does Ingressive Capital offer startups?

We offer up to $500,000 for 10% equity in pre-seed startups — as long as you’re a tech or tech-enabled business based in Sub-Saharan Africa, Egypt, or Morocco. Of course, you’ll also need to have initial traction, a scalable business model, and be focused on solving problems for Africans.

Want to join our portfolio? Head over to our founder application page to get started. 

Conclusion

Determining the right duration for pre-seed funding is crucial for the success of any startup — especially an African one. While there is no one-size-fits-all answer, startups must carefully evaluate their funding needs, industry-specific requirements, and growth trajectory to make informed decisions.

By understanding how pre-seed funding works, the challenges and opportunities in securing it, and effective management strategies, you can maximise your chances of success as an early-stage founder.

We’d love to hear from you if you’re an African startup seeking pre-seed funding. Visit our website to learn more and apply.