Watch Part 0 of this series here: https://youtu.be/WY3WIE5NU1M
Watch Part 1 of this series here: https://youtu.be/BOi2CU77FrA
In this video, we talk about different stages that a Pre-seed Startup goes through, right from Ideation stage to commitment stage and how the startup funds itself during this time.
0:34 Ideation Stage
1:35 Planning Stage
2:41 Commitment Stage
3:45 Pre-seed funding
4:51 Personal-debt funding
6:14 Triple F funding
7:13 Convertible debt and equity
8:01 Angel Investors
11:45 Crowd Investing
A startup always begins with an idea, and this stage for a startup is called the ideation stage.
When founders actually start working seriously on the this idea and start planning, it’s called the planning stage. In the planning stage, a founder or founders will decide what their mission is gonna be, they’ll settle on an initial strategy, a potential revenue model, they’ll start thinking about company names and values that they’ll want to instill in their startup’s culture, and they’ll map out of a few milestones they wanna hit in the next couple of years.
Next is what we know as commitment stage, it’s where some of the plans created during the planning stage begin to be executed. It’s the point in the startup’s journey where the venture is actually registered as a company, where the founders will sign a legally binding shareholder agreement, and the most important thing here, the building of an MVP (Minimum Viable Product) begins.
For startup which is planning to raise money, all these stages come under pre-seed stage.
At this stage, founder have very limited ways on how they can raise money. Initially, the venture will probably be self-funded – the founder or founders are gonna be building this startup during their spare time along with their job.
Another form of self-funding can be called personal debt funding, basically taking debt from bank to fund your startup.
Raising funds from external investor at this stage is hard since you don’t have an MVP and that’s why most founders raise money from family and friends. This could be in exchange of equity or could be a debt.
Two alternatives to selling equity directly to a family member or friend at an agreed upon valuation, and those are convertible debt notes or convertible equity. These allow family and friends to purchase shares in the company, but how much of the company they own isn’t decided until later on when other investors like angels and VCs invest too.
Another type of investor who may choose to participate in a pre-seed round is called Angel Investor. But angels see few things before investing in a startup. Firstly, many angels won’t invest in a single-founder startup. Secondly, professional and life experience matters here. If the founder or founders have attended a prestigious university or they’ve worked as executives or consultants, if they have leadership experience or product experience and especially if they have entrepreneurial experience then angels are definitely gonna be more likely to invest.
Thirdly, an angel investor will oftentimes invest based on the feeling they get from the founder or founders themselves. And then, angels see if the idea is even viable in the market.
The final type of investor for a pre-seed round is actually not an individual, but rather a crowd. It’s called Crowdinvesting. It has a tangible ROI for these investors in the form of a fixed return if we’re talking about debt crowdinvesting, and platforms like Grip offer this.
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This content was originally published here.