Learn what’s included in a SaaS chart of accounts and how it impacts your financial processes.
December 11, 2020
Most startups raise money to accelerate and support their growth through a series of funding rounds. If you’re a first-time founder and your business is still in the proof-of-concept stage or not yet generating enough revenue to support your growth or expansion, you may be able to raise pre-seed funding from interested investors to get your business off the ground.
Pre-seed funding is an early funding round in which investors provide a startup business with capital (sometimes up to $2 million) to develop its product in return for equity in the company. A pre-seed startup investment 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.
Because so many early-stage startups are looking for financial backing, the number of companies that actually receive pre-seed funding is relatively low: Investors may consider thousands of startups and only invest in a few. Read on to learn how to increase your chances of an investor selecting your startup for pre-seed funding.
There is no single rule for when a business is ready to raise a pre-seed round, however, there are a few indicators that may indicate this is the right decision:
In any case, your business should only raise money if you require capital to continue product development and accelerate the growth of your idea or business.
At the pre-seed funding stage, most startups don’t have much (if any) sales data to prove their business concept, so investors are taking a leap of faith on the founding team when they put money into businesses at this stage. You’ll need to target investors and funds that are primarily interested in pre-seed funding for startups: They will be prepared to take this risk and base their decisions on conviction and future potential rather than sales figures and revenue.
There are three key types of pre-seed funding investors:
Instead of contacting hundreds of investors, consider this tactic: Research the funding background of possible investors and contact 20 that have a history of working with similar startups. If you’re pitching to a venture capital firm, reach out directly to the partner with the most direct experience in your startup’s vertical. By targeting your fundraising efforts rather than ‘spraying and praying,’ you’ll earn a much higher rate of response from investors.
If your startup is already generating sales and gaining traction, you’ll greatly increase your chances of securing pre-seed funding. However, four key attributes can help convince investors even if you don’t yet have a working product or service:
If you catch the interest of investors and they invite you to pitch, this is an opportunity to tell the story of your business and give a high-level vision of your company’s goals and opportunities to scale. You should be presenting the following information:
You don’t need to bring detailed financial statements like your P&L or balance sheet to a pitch, but you will need to prepare financial projections and scenario modelling. These models will allow you to make predictions about your revenue, costs, and customer base with some degree of accuracy that you can confidently share with potential investors.
Don’t be afraid to use a pitch deck template to get you started; there are a number of free and well-regarded startup investor decks available for free online, including decks from Y Combinator, First Round Capital (via Beautiful.AI), and Next View Ventures.
Having accurate financials ready when you pitch to investors shows them that your startup’s financial processes are in order. Zeni is a full-service finance firm that handles all your bookkeeping, accounting, and CFO needs, freeing you up to focus on approaching and pitching to investors. Zeni ensures your accounts are up-to-date, GAAP-compliant, and ready to present, so when investors start the due diligence process, your business is in the best position possible to gain the investment you need.
Our team of experienced finance professionals will help you manage and track your goals as you move through the funding process, and make sure you have a solid financial foundation to continue scaling your company.