Pre-seed money / Pre-seed investment / Pre-seed capital

Pre- seed capital is a small amount of investment in the earliest phase, which helps the founders create the company based on their idea. Nowadays, there are already several pre- seed forums where ideas compete for investors' money, but crowdfunding platforms are also used by many to collect pre- seed capital.

Pre-seed is the earliest startup investment phase of a newly created company, which is usually not even classified as a real investment round. In practice, it covers the period when the founders reach the operational phase of implementation from the idea phase. 

The money can come from family and friends, from individual investors (business angels), and institutional from incubators too. It happens that pre- seed financing is provided by the founders themselves, but institutional pre- seed investors have also appeared, and it is common for government programs to provide help for the start-up. 

Depending on the industry and business goal, the initial costs are mostly minimal, (although it also happens that more serious sums are needed to get started). It also follows from this that investors do not necessarily acquire a share of ownership in the pre- seed phase. Even if it does, it is only a maximum of 5-10 percent.

The level of pre- seed capital investment is relatively low, rather it is determined by the timing and attitude in this period of the startup success. Since there is no real product available, investors' attention is primarily focused on the abilities of the founders, the team's unity, determination, and diligence. At the same time, regardless of whether it is real validated measurements are not available, since the given company has not yet had the opportunity to test under real conditions whether it can hold on to the market, the business model and the product description and plans must be analyzable and evaluable. 

The pre-seed capital must bridge the period between the start-up and the first real investment, and despite the fact that in terms of its size it lags behind later investments, its importance can be much greater than those. This period is therefore the first watershed.

At the time of pre- seed financing, the startup typically has a market validation, with proof-of-concept or a prototype, possibly MVP (Minimum Viable Product) with its developed version. Based on these, the startup can become attractive to investors. The goal is for the startup to be able to show a long-term vision and that they are able to start on the road to its realization with the given team. Once the necessary resources are secured, they will be able to take the operation to the next level. 

For this, even in this phase, a clean one is needed business and financial plan, as well as clear and can be divided for business purposes. It is important that the administrative background of the company is already in order, it should not be an obstacle or a slowing factor during the investment process. 

One of the risks of the pre- seed phase is that the startup acquires too high an investment amount. The direct consequence of this is an increase in investment conditions and expectations, and it is likely that in this case the investor also wants much greater control and say in matters. 

Funding greater than necessary a company evaluation also pushes it upwards, but if there is no real background for this, then a more realistic valuation may show a decrease in company value in a later round, which is a bad message to the market. Nand last but not least, overfinancing can lead to undisciplined and wasteful spending, as a result of which expansion can be too rapid and unprepared, and the labour cost and the operational costs size, which can eventually result in the rapid ruin of the startup.