Pre-Seed: 5 Practical Things To Do When It's Just You And A Startup Idea

The nomenclature has got very muddled -- why is a company raising a $10M called seed but another raising a $5M is series A? The framework below is grounded on the thinking that what you call a round is not about the amount but what you use the cash for:

• Pre Seed : Powerpoint
• Seed : Prototype (and you can call it late / mature seed if there is a pipeline / pilots)
• Series A : Product-Market Fit
• Series B : Business Model Traction
• Series C and beyond: Growth, mostly organic and sometimes through acquisition

If you are at the pre-seed stage then you are taking the first step, below are five key things to do.

1) Team: Go Full Time. Build A Pipeline

Pre-seed is overwhelmingly about the team. You can do it solo but the data shows that there is an optimal number, typically two, since at least one cofounder increases the odds of success whereas too many cofounders decreases it. Absolutely go full-time if you can. And build a pipeline of hires. Some of them could be consultants or contractors. Most of them at this early stage will want cash, since equity is very risky, plus you want to be extra judicious in giving it to non-fulltime employees. Another way of building the team is through advisors, these will typically want equity, and this previous post Advisors In Your Startup? 4 Ways To Best Work With Them explores the topic length.

2) Fundraising: A Little Money, From The Right People

A common dilemma is you can’t quit your job and go full-time until having funding and you can’t get funding until you quit your job. If that’s your case then go for investors that know you very well and/or have significant flexibility in how they invest. That typically means angels, who definitionally invest their own money, as opposed to VCs who invest other people’s. There is such a thing as pre-seed funds but it’s really an emerging category and the vast majority of capital at this stage is non-institutional. In Silicon Valley at least the norm is to raise a SAFE with a reasonable cap, too much money is too many problems here and you probably want just enough to get to key milestones to allow for a seed. This previous post SAFE: Great (Esp For Entrepreneurs), As Long As Done Safely explores the topic at length.

3) Marketing: Website And Newsletter

Advertise what you are doing at least at a high level on a website, since it establishes public credibility, attracting potential hires, partners and investors. Then throw all of them into a newsletter that you probably send out quarterly, which will help keep many more people informed without you having to do repeated 1/1s. When you are further along, probably at the seed stage, consider inviting people to join live or in-person, say post an all-hands meeting once a quarter. More on all of this in the previous post VCs Suck? Here Are 5 Practical Ways For Entrepreneurs To Minimize The Pain . There are reasons not to follow this strategy. You might be focused on first-mover advantage and want to keep a low profile. Being public would get undue attention, especially if you are a well-known founder, which could generate unnecessary expectations. You might be deliberately contrarian and creating an aura around your startup, which is a high risk high reward tactic.

4) Tech / Product: Have A Demo

Most startups are mostly about execution. A picture does speak a thousand words. As a founder you have limited time. Indeed, what everyone around you will expect, from hires to investors, is a plan on how you achieve the vision. The format to do so is commonly a deck (see previous post Perfecting Your Pitch Deck? 10 Practices For Entrepreneurs ), at Tau we furthermore believe in videos. If you have the tech already working, consider creating a video demonstrating it. If you don’t then consider creating mockups or a video of how it would work.

5) Traction: Getting To The Seed

The milestone for a seed is typically full-time cofounders with an early prototype. The other dimension of that equation is how fast you get to that stage. Typically you want to raise every subsequent round, including from pre-seed to seed, within 9 to 18 months. Slower than that will make it harder to convince VCs who look for exponential growth. And at the seed stage investors are looking at 10x returns in 10 years, as compared to a series C investor who might be looking at 2-3x in 2-3 years. If you don’t fit that mold then you could still have a great business, but it means that you should probably seek other sources of capital (see previous post Beyond VC: Leveraging Other Forms Of Capital Or Being An Investor Yourself ).

Originally published on “Data Driven Investor ”. Amit is Managing Partner and Cofounder of Tau with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (we call it gl;dr — good length; did read). See here for other such articles. If this article had useful insights for you, comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page , with due thanks for supporting our work. All opinions expressed here are from the author(s).