Pre-Seed Funding
"My Time In The Jungle"

We’ve already created 3 pages dedicated to pre-seed funding :

And that’s a great start for any founder looking to raise funds.

However, throughout these pages, you’ll also discover that we’ve gone through the pre-seed funding process a few times ourselves. I thought it could be interesting to also share these war stories in one place.

There have been exhilarating ups and excruciating downs. You have no idea how many times I woke up in the middle of the night to get my spreadsheet out again and do the numbers.

Hunting for pre-seed funding has put stress on my relationships and sometimes made me quite miserable. But it has also given me some fantastic new friends and opened my eyes on how large and diverse the business world actually is.

For sure not everything will be relevant to your business. But these pre-seed situations did all happen. Maybe a few of them can help you out, or at least prepare you for what may happen. ⬇

pre-seed funding

Founder money - are you bootstrapping or not?

I’ve sold 2 businesses that have been 100% bootstrapped. In order to do that, you need to have a bit of cash aside or at least some time available for you to build a product you can sell. And then you need to figure out how to make money as fast as possible.

And that “figuring out how to make money” will put you in a completely different frame of mind from raising funds from outside investors (especially VCs).

You need to decide what’s happening here.

1- Are you putting your hard earned founder money in to get you to profitability (i.e. are you bootstrapping)?

2 - Or, are you putting money in to get you to a stage where you can present to angel investors or pre-seed VCs?

You may feel like it’s both, but it can’t be. Here’s why :

pre-seed founder money
  • Raising pre-seed funds can be more difficult if you are profitable as you have real numbers to make projections on. And as you’re self funded, and your marketing budget will be limited, you won’t show the growth that generates that beautiful hockey stick chart that VCs are looking for.
  • To make your business profitable you will need to focus all of your time and energy on getting your business off the ground. This means grinding hard. And that will not include time building your network of potential investors. And when you start working on that network, you will feel guilty not working on your own business.
  • Limited resources means you will probably be hacking together a team of “junior” talent. A team that has lots of energy but that will not always impress VCs. VCs are looking for killer teams that will have a competitive advantage.

To sum up, by the time you get in front of VCs with your pitch deck proudly showing your profitable MMR, you will not be talking the same language as them. You won’t even be in the same world as them.

And before you say anything, I know there are stories of bootstrapped businesses that get to 1M ARR, and then raise funds at crazy valuations, but these are the exceptions.

So, back to the initial question. Are you bootstrapping?

If you are putting founder money in to get your business to profitability and grow from there, you basically know what to do. Every single pound (£) is important. Stop reading this article and get to work.

If, on the other hand, you are building a business that requires funds from business angels and VCs, these next 2 parts are key :

  • Your money does not have the same value as investor money.

    Most pre-seed term sheets will request that in the case of a sale, investors get their money back first. So if you’ve put £50,000 into your business and you’ve raised a further £150,000 at a £750,000 valuation. And if things go wrong and you only manage to sell your business for £150,000 later. Investors will get their £150,000 back first and you will get nothing.

    Plan carefully when you inject your funds into the business.

  • Start building your investor network today!

    Yes, obviously you need to spend time building your product. But convincing an investor to give you their money takes time. They need to trust you. So you absolutely need to start early.

In all these pre-seed funding stories, you’ll see that there is no silver bullet here. My best intro was from a friend, who had an mortgage broker friend, who was a close friend to one of the most powerful VCs in Paris. However my biggest round offer simply started from a cold message on Linkedin. And the simple rumor of that offer, got me to partner meetings with 2 other VCs.

Finding your perfect investors is a mix of hard work, random connections and luck. But for your network to pay off when you want it too, you need to build rapport as soon as possible.

Schedule 1 hour / day and start contacting people. People means friends, family, angel networks, pre-seed and seed venture capital firms, startup accelerators and other founders.

Simply tell them what you’re trying to build, and keep them updated with a monthly email. Whatever you do, do not ask for money! That’s it. Start growing your investor network today.

We’ve put together a list of UK venture capital with 206 venture capital firms, 41 angel networks and 34 startup accelerators. It’s a great database to start building your network.

Now, if you’ve decided that you are not bootstrapping your business, let’s dig into 10 years of pre-seed funding stories.

Love money: friends, family and fools

pre-seed love money

I’ve always had a problem with asking and accepting love money as startup funding. Launching a business feels like enough pressure as it is, and the idea of losing a friend or family member's money was just one step too far. So I’ve always either said straight up no, or been overly negative about the risks involved.

But one friend convinced me otherwise.

He said that he obviously understood the risks and liked the project. But he also explained that he wasn’t doing this as a complete favor. He had chosen a corporate life and was doing really well, however a part of him wanted to be involved in fast growing businesses. Just as he would allocate a small % of his portfolio to crypto, he would love to do the same with startups. Especially a startup where he knows the founder.

That conversation, as well as a business that I felt had had a solid start, gave me enough peace of mind to take on my first ever love money.

And what happened next started great. It was fantastic to have a friend that was also positively linked to my financial gain. If I did good, he did good.

For this pre-seed round to close, we needed extra cash investment. He became a champion for my business and made introductions to other wealthy individuals.

Some chats went great, others were slightly forced and polite. But things did start to move forward.

And this is where the line between love money and angel investors became blurred…

So first, I had this good friend that wanted to invest, and then he recommended other investor friends that I didn’t know. These new contacts are not considered love money anymore. They are angel investors.

I discovered that not all angel investors are equal. An angel investor who has made money as a founder will not have the same reactions to angel investors who come from the corporate world.

And, an angel with a few deals behind him, is not the same as a novice angel, even if this angel has a lot of money.

The emotional ties and confusions with these investors had a big impact on me and how I ran my business. Here are a few issues:

Negotiating the term sheet

When it came to negotiating the term sheet. My friend obviously wanted to protect himself but also his friends. He surprisingly became the toughest negotiator out of everybody. I completely understood what was happening, but that was a brutal change to the original talks we had at the beginning.

The business plan

We’d discussed the numbers in the business plan before the deal. However, as soon as the activity started, the slightest difference, whether it was positive or negative, had to be discussed in length. These investors had a very strong financial markets background, so they were surprised when some basic numbers were under the projections. And when the numbers were actually better than expected, they were completely ignored.

Asking for advice

When I was unsure about a particular topic and asked for advice, they felt they had to give an answer, even if they didn’t really know. And I naively made decisions based on these answers because well “they were the investors, they knew ''.

Introverted founders, be aware!

Because of the social context, our monthly reviews were a mix of social talks and pure business. It was all very difficult to navigate as an introverted founder.

Pivoting

After 6 months, the initial direction of the business showed complications, I worked on 2 pivot options. Pivots are quite common in startups, however, this felt like the initial raising funds all over again.

This whole experience was draining. And although it was a tough time on the business side with surprises and pivots. The hardest part was dealing with the investor setup.

To clarify, these guys were great. They were super nice. They were doing everything they could to help. It’s the setup that became very stressful for me as a founder and was making my job uncomfortable.

After all this, I would still say that accepting love money is okay in certain situations.

The usual advice for love money is true: “make sure all parties understand the risks involved”.

However, I would also add 2 things:

  • Make sure all parties also understand how very early startups start and evolve. Including business plan changes and pivots.
  • Make sure you also understand who you are as a founder. And how much accepting love money will affect you.

If love money is not for you, you can head over to our UK VC list. You’ll find thousands of contacts at venture capital firms.

Angel Investors

pre-seed angel investors

If the previous story was a mix of love money and angel investing. I also have invested in 2 businesses as an angel investor myself. I think these stories illustrate how each pre-funding deal can be very different. And it also gives the investor a viewpoint that is not that obvious when you’re on the other side.

Angel investor in SAAS software for sport clubs.

One of my junior developers was coming to the end of his internship. I would have recruited him but he mentioned he had his own business idea. He wanted to create a SAAS software product for sport clubs.

In this deal as an investor, I provided office space, a small salary for him and some extra cash to hire a salesperson. I would also look after accounting and marketing. It was probably closer to a startup studio setup than a pure angel investment.

For me, the idea here is that I was nurturing them a lot. But by doing so, I felt like the risks were limited. I’d worked with him before and I knew I could trust him. It was more about the person than the idea. This became a no-brainer angel investment for me.

And I think that’s exactly what you should strive to do. What would make you and your startup a no brainer for a potential investor? This could mean tapping into previous work relationships. Finding angels that have a link or experiences close to your activity. Or hunting down angels who could bring a missing piece to your business such as marketing or sales.

Angel investor in a niche photo sharing app

Here, in the same month, I had 2 distinct conversations:

  • 1 - I had a zoom call with a developer friend telling me about the nuts and bolts of this photo sharing app idea.
  • 2 - I had lunch with an investor friend who was basically explaining the same concept, but this time as a potential customer.

Before these 2 friendly chats, I had absolutely no interest in photo sharing tech. But now, I was extremely excited.

My thoughts were: If I join forces with the other investor and give enough runway to my friend to build the product. Then whatever he builds, I’m sure we can find a way to sell it.

At that time, I also started reading about the very interesting SEIS government scheme. That was the kicker. I got both guys together, and in a few weeks the idea was funded.

This kind of pre-seed funding happens a lot. If an investor hears about the same business or same idea for more than one source, it will grab his attention. Even if he had no interest in this type of business before.

It’s your role as a founder to multiply entry points to potential investors. If you set up enough investor dots, the dots will connect.

Angel Networks & Angel Syndicates

pre-seed funding angel networks

Whether you are a natural born salesperson or not, part of your job as a startup founder is to promote and sell your business. Pre-seed, seed, series A, B rounds… You will constantly be in fundraising mode. So you will need to get good at this.

A great way to multiply your pitching reps in front of potential investors is to participate at pitching events at angel networks & syndicates. I would also put startup incubators in this group.

You have to understand that these pitching events are setups where you can really get investment, but they are also social events for previous founders and VCs that are looking to grow their network. It can also be branding for large corporations or used as launch parties for startup incubators.

Whatever they are, you will have several occasions during the event to pitch your business.

The last event I pitched at started as a presentation of an incubator. And then the founders were split into 2 groups facing 2 distinct panels with a mix of angels (previous founders) and pre-seed VCs.

Then the best of each group were selected for a second round. Officially, up for grabs, were several desks at the incubator. However there was a lot of angel money talks during the networking events.

3 things happened for me at networking events:

1- Pitch deck

When you present your deck to a 1 or 2 VCs, they will often jump in with questions. It’s more of a conversation.

At a networking event, it's different. When you have build your deck in a way to ace a 10 minute presentation, you have to work on suspense and rythme.

Both are valuable practice reps and will help you get better and better at pitching. This is also a very transferable skill that you use regularly with your team.

2 - Confidence or tweaking

This particular event went really well for me. One of the panelists had knowledge in my industry, so the Q&A became very practical, which is my sweet spot. I got accepted in the incubator and that was fantastic as a confidence booster. I came back to my team on fire!

However it hasn’t always gone so well in previous events. In those cases, each stumbled answer was a reason to tweak something. Failed events have clearly made my presentation skills better. And made me ready to convince VCs to invest at later stages.

3 - Meeting other founders

At every single angel network event I’ve been to, I’ve met and learnt things from other founders. Founders help other founders. And I’m sure you would help another founder too.

Pitching events make you realize that we are all in this together. You will get investor contacts, nuggets of advice and meet friends who will relate to what you’re going through.

Don’t get disheartened if you don’t get investors running at you from the start. It takes time. Go to events, tell your story, and ties with your network will get stronger.

And this will lead to tons of intros to angel investors and pre-seed VCs.

Welcome to the pre-seed VC jungle

pre-seed venture capital

You better be ready for this 😉. Pre-seed funding with VCs is where the fun begins…

Yes, venture capital firms (VCs) are a lot of work. And when you’re at the pre-seed stage, you will also be juggling VCs with angels and love money.

But if you’re looking to fundraise, this jungle is where you will need to rapidly end up.

VCs are professional investors. They are following clear processes and investment strategies.

However my experiences also showed that VCs are people with very basic people problems: bosses to impress, jealousy, pride and tons of fomo.

This first VC got in my head

pre-seed vc got into my head

This first VC story is more of a reminder to take a step back before you change your business direction based on a VC’s point of view.

At the time, I’d manage to create a data arbitrage business that was generating £45K MMR of profitable revenu.

So I made a list of London venture capital firms to contact and started getting in touch with each individual on Linkedin and by email.

It wasn’t easy, but I was quite rigorous and treated each contact like a lead in a sales funnel. A few weeks later, I finally managed to get face to face with a potential investor.

This was my first real interaction with a VC, and I honestly thought he knew what would be best for my business.

In the first interaction, the VC quietly explained that:

  • As I was attacking the European market this wasn’t exciting
  • My type of business is about who puts in the most money in, in terms of marketing. And I didn’t have the most money.
  • If he was in my shoes, he would stop now and walk away.

That was brutal, and the stupid thing is, I listened …

This was all happening when I was confused on how to grow my business from here. I wasn’t that excited and I used all of these inputs to let the business die.

But let’s be clear, getting a business to £45K MMR bootstrapped and profitable was already a big achievement. It would have been a strong base to grow or even pivot if needed.

In retrospect, it’s quite easy to tell myself that I simply should not have listened. But criticisms get in your head, especially when you’re also stressed out about the day to day.

And yes, profitability may not impress all VCs, however it does keep you alive and playing the game.

I listened, I let the business die and it took some time before I was able to get to £45K MMR in another business…

A crazy chain of VC intros!

pre-seed vc intros

When you search around the web about VCs, everybody talks about the importance of intros. That you need to have intros to get VCs to talk to you.

VCs get hassled every day by random founders and an introduction or a recommendation makes a massive difference.

I have raised funds successfully with and without intros, but this is a story about how you can get intros from anywhere…

My brother in law at the time had a small building business in the heart of the countryside and we got on well. Although our areas of expertise couldn’t be further apart, we enjoyed whining together about the ups and downs of launch a business.

He regularly worked with mortgage brokers to drive new business. One of these mortgage brokers became a close friend. And during random drinks, my brother in law explained to him that I was looking for funds from investors.

Little did he know that the mortgage broker was also old friends with the CEO of the largest investment of a very famous Parisian private equity firm. And that PE firm also happened to have a very dynamic tech VC arm.

It was nuts. 3 days later, I met the CEO at the airport (he flew in with his private plane). And 2 weeks later, I was sitting in Paris, in front of the biggest table I’ve even seen, talking to these VCs about my project. And this was talking, not pitching. It’s as if the selling and the due diligence was already done. This discussion was different. This was about how we can get this all rolling as soon as possible.

I actually ended up going down another funding path, but this whole experience was so crazy, random and exciting. Some would say this is luck, but for me it highlighted the fact that your investment can come from anywhere. What’s important is to share what you’re up to with as many people as possible. Not ask for money, or be annoying constantly promoting yourself, but just be genuine and share what you’re trying to do with your network.

From cold contact to termsheet: step by step with a VC.

pre-seed funding partner meeting

Intros are great, but I’ve had quite a lot of success with cold contacts. It’s about being compelling and finding momentum with personalized outreach. VCs talk to each other and can become your 2nd and 3rd touch points for you.

I was raising a pre-seed round, but in this case I reached out to a larger seed VC fund that had strong expertise in our sector.

Now, this could have given crickets. But at the time this VC was just closing a new fund. And they wanted to allocate a small part of this fund to early stage startups.

I reached out by linkedin, sent a deck by email, and we were in their office 3 weeks later. This is how it went :

Meeting 1 - VC office

We met a junior analyst. It was a friendly conversation where we gave our back story and ran through our deck.

Meeting 2 - VC office again

This time, the junior analyst was accompanied by 2 heads of verticals. We quickly discovered that we had to go through the whole deck again slide by slide. This was slightly confusing at the beginning as we assumed everybody present knew who we were.

From then on, I definitely asked the agenda of a meeting when we got to round 2s.

Meeting 3 - Startup office

4 members of their team came to our office. It felt like they were on a school trip visiting a startup. It was fun. We got into the technicalities and the specificities of the business.

Meeting 4 - The cofounder split

At this point we were “allocated” to a dedicated partner at the fund. We were 2 founders and the VC firm decided to split us up into 2 separate meetings with the dedicated partner. This was very unusual. It felt a bit like a date.

Meeting 5 - VC Partner meeting

We knew we were approaching the final stages. Here there were 10 people around the table.

This particular partner meeting reminded me of a bit of a pitching event where the panel would jump in with random tangents. We still had the same deck from day one. I think it would have been a good idea to create a new deck with fewer slides. We could have used it as talking points that would have given more structure to the meeting.

It was all very high level. We had to answer the usual questions, but I was also surprised that this time our dedicated partner was jumping in to help out.

A few things happened here :

  • I realized that once you get to the final stages, whoever your dedicated person is at the fund, will put their neck on the line for you. They will want you to look good. And they will want this deal to happen.
  • Another key investor dropped out a few hours before the partner meeting, and the partners found out about it…. A few hours after the meeting, we did receive an offer but the valuation was dropped by 30% and a sprinkle of new clauses were added.
  • As soon as we received the offer, 2 VCs who had gone quiet for months, suddenly got back in touch. We had partner meetings set up with them the next day.
  • We didn’t end up going with this fund, weeks later, they invested in our direct competitor.

VCs want to impress their boss, they have fomo and they talk to each other! Also remember that VCs will always have a plan B.

When a single question from a VC killed the whole meeting (twice)

pre-seed vc questions

VCs generally ask the 10 same questions again and again but with different wording. At Startupmag, we’ve gone further and made a list of 126 investor questions that you can prepare.

Unfortunately, I didn’t have this list and messed up a few times…

1- During a screening zoom call with a VC

On the business model slide, I’d explained how we would make money and our cost per lead.

I have a marketing background and talking about cost per lead and conversion rates is literally my day job.

Then the VC asked : "I know what your cost per lead is but what is your CAC (customer acquisition cost)?"

And I stumbled.

I didn’t have the exact number, so I started to calculate and panicked. I think I even said the words “well it depends”...

Lol, this story still gives me a tummy ache of shame..

They were very polite, but that call ended very quickly.

So yeah, you should know your CAC!!

2 - Face to face with a VC

This was during another VC screening. The VC was explaining how important it was for them to invest in businesses with recurring revenue.

Now, we did not have an immediate recurring revenue model in place, so we tried to “invent” one on the fly. This was awkward. It would have been better to just say we don’t have a recurring model yet.

Recurring revenue can take several shapes and sizes. It’s a very important part of monetisation and it will come up during investor meetings. Remember to prepare this question in advance.

Even if this recurrence only happens in your plans down the line.

Pre-seed investing on speed

pre-seed vc investments

Pre-seed investing is a numbers game for VCs. They will need to write tens or even hundreds of small checks and hope to make their money back on only a few big wins.

For some VCs this means saying yes to 1 or 2 startups each week. It also means they have very little time to decide on the validity of a deal. They will have a few criterias to check and they’re off.

This is my experience with one of these speed pre-seed VCs. The meeting happened because of an intro from a friend.

It was a whirlwind with lots of promises and numbers flying around. And to be quite honest, I think that intro was enough. No deck. No presentation. We had the yes from the get go.

And that is literally it. It does happen.

I met the VC again a few weeks later. He made 2 very important comments about pre-seed funding :

  • Don’t play it too safe: with the pre-seed VC world, swing for the fences.
  • Communicate: share what you’re up to, and do it often.

VCs test the relationship between co-founders.

pre-seed funding for co-founders

I mentioned above how a VC split us apart during one round of meetings. That was a test of our relationship as co-founders.

And it’s understandable. Co-founders are the pillar of any pre-seed investment. If we break up, or even just have tension, the whole investment may fall apart.

One VC was introduced by my co-founder. He’d met them during management training while running a previous business. Our co-founder relationship was fairly new at the time and we made 2 mistakes during the first meeting.

  • 1 - My co-founder came in a suit, and I came in in jeans and tshirt.
  • 2 - There was lots of room around the table, so we sat one chair apart.

Now, these 2 elements may seem like silly “nothings”. But this VC knew we didn’t know each other that well. And we just highlighted that for them even more. They told us later. VCs have to look for signals. Anything that can be negative goes straight to the top!

VCs never say NO. They say “not now” or “nothing..

pre-seed funding vcs never say no

This is a short mention about NOs. VCs very rarely say no. And when they do, they will always leave the door open for the future. This is very different to business angels.

It can be frustrating to not really know where they stand, but you need to take this on board and not try to persuade a VC if you feel too much push back.

Don’t try to convince them if you hear the words : it’s too early, not the right fit yet, not in our sweet spot…

And don’t get angry if you’ve taken a plane for an obvious uncompatibility that could have been highlighted on the phone.

These points of contact with investors all count. Several times, these “No-ish” VCs have come back to me months later to continue talks.

Be very careful with pre-seed funding distractions

pre-seed funding warning

Pre-seed funding is a funny place that will make you bounce around between love money kitchen tables and very fancy VC board rooms.

Along the way you will meet friendly people who seem interesting and will validate your progress. Some are helpful, some are a complete waste of time. Here are a few stories. Just be careful.

The “not so friendly” fund raiser person

I was 25, I had a profitable ads business and I was looking to grow. What I really wanted was advice, as I felt a bit lost.

I met a consultant who was nice and reassuring and started introducing me to interesting people.

Suddenly, he came back saying he would continue to advise me in exchange for 10% equity. I knew absolutely nobody, zero contacts, I hesitated but I didn’t take it. I nearly did though...

There are lots of these around.. 10% in exchange for advice? Are you kidding!!!

The “makes you feel good” exchange of equity deal

At 27, I was running a financial comparison site. A larger, more funded competitor contacted me. The meeting was fun and it felt good to talk to fellow founders who understood the specific business issues we had.

They offered me to exchange my whole “comparison site” for 9% equity in their business, a good salary and I would run their “financial” arm. It was a decent acquihire offer.

This really felt good. It was like a validation of my work. But ultimately, it was a lot of wasted energy and I gave quite a few marketing tips to my direct competition along the way.

Decide what your goal is : is it an acquihire or to build a long term business?

The “friendly” advisor - Twice I wasted time, money and a lot energy

I was generating leads for a financial sector. I thought it could be a good idea to become a broker. I got introduced to a small network of brokers. I listened and spent time working with them on these leads. It was friendly but very opaque and “3 months of leads” later I realized that they didn’t have a clue of what they were doing. What they did want however was to get me ready to come in to manage their ‘digital arm”.

Nothing bad happened, I walked away with a good feeling, but so much time was wasted and nothing learnt.

10 years later, I got back in contact with one of these guys. There was another angle to approach this market. But exactly the same happened again, I spent time, trusted him and wasted energy on fake conversion rates. But this time, I had used these projections as numbers to base my pre-seed fundraising on and that was more damaging.

It’s not that this person was doing anything bad, it’s just that “friendly” does not mean they know what is best for you.

Conclusion

Whether this is with love money, angels, startup accelerators or VCs, I have countless stories of interactions during pre-seed funding.

You will probably not make the same mistakes that I made, and this will probably not be exactly representative of your journey.

However, most founders I have talked to have the same conclusion. You will need to build some kind of network.

A network does not mean spending your life at networking events. It’s means contacting relevant people and genuinely telling your story. And doing this regularly so you can build real connections.

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