What is Pre-Seed VC?
Venture Capital (VC) has varying stages, with pre-seed being the earliest phase. Pre-seed VC refers to the investors who contribute funds at this early stage.
At this stage, startups usually only have a fundamental business plan and possibly a prototype, indicating the risky nature of these investments.
Pre-Seed VC Funding vs. Seed Funding
Although these two funding stages are closely linked, they serve distinct purposes and represent different stages of a startup's growth.
Pre-seed funding is the initial capital injected into a startup. At this stage, a company typically has little more than a business idea and possibly a rough prototype.
Seed funding represents the next level of financial support. This type of funding usually comes into play when a startup has developed a minimum viable product (MVP) or gathered user data that suggests potential for growth. The aim of seed funding, which is typically larger in volume than pre-seed funding, is to fuel further product development, initiate a full product launch, and facilitate market expansion.
In short, pre-seed funding helps bring a business idea to life, and seed funding propels that it towards market introduction and growth.
What is Pre-Seed Funding Used For?
This early investment is often the first influx of external funding that a startup receives. It serves to fuel the startup's basic operations, including market research, product development, website design and staffing.
The evolution of the funding landscape has given rise to multiple pre-seed funding platforms, specifically designed to match startups with potential investors.
Venture Capital and Pre-Seed Investments
The pre-seed stage, due to its risky nature, was traditionally funded by founders or their immediate networks.
However, the trend has shifted, with more and more VCs appearing on pre-seed VC lists as they seek to invest in promising startups even at this early stage.
According to Statista, in the period from Q1 to Q3 of 2022, the total VC funding in Europe amounted to 71.3 billion USD.
Of this, 6.3 billion USD, roughly 9% of the total, was allocated to Angel-Seed funding.
Understanding Pre-Seed Valuations
Typical pre-seed startup valuations can fall anywhere between 1 to 3 million USD. However, these numbers are only a rough guideline, with actual figures varying substantially.
To add more perspective, Statista reported that as of 2022, the median seed stage deal size in Europe was 1.2 million USD, while in the United States it stood at 2.1 million USD.
This highlights the importance of considering regional differences when assessing pre-seed valuations.
The Role of Pre-Seed Funding in Netherlands
Geographically, some regions have seen an upswing in pre-seed VC activity, with the Netherlands being a prime example. Dutch startups have garnered attention from local and international VCs, enhancing the region's startup ecosystem.
Among them, Asif Ventures and Innovation Industries have marked their presence in the Dutch startup landscape, focusing specifically on pre-seed funding and playing a crucial role in driving the initial growth of many startups.
In conclusion, pre-seed VC funding accounts for 9% of VC funding and is an important part in the formative startup stages. Hopefully this article help you to better understand the nuances of this important funding stage.