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Things Startups Should Keep In Mind While Planning For A Pre-Seed Fund

Things Startups Should Keep In Mind While Planning For A Pre-Seed Fund

If you are an aspiring entrepreneur or a founder and looking to raise pre-seed capital, then you are definitely stepping into the most attractive period of your entrepreneurial journey. Commonly known as the first stage of venture funding, pre-seed funding builds a strong foundation to kick-start a startup business. While some startups may not require this funding at all, however, others may end up going through several rounds.

So, what are the key things entrepreneurs should keep in mind before going ahead with a pre-seed fund? Answers to the below pointers can help solve the funding puzzle:

Does your business model solve a customer problem?

In order to succeed in a stiff competitive environment – it’s imperative for startup leaders to not lose sight of the “bigger picture”. Yes, a business solution or idea that can solve problems of the customer and makes a positive impact on the lives of people – definitely receives more reception. Therefore, it’s imperative to underline the social, economic or market benefit your new venture shall bring to the table.

Is the unit economic exercise defined?

During the pitch phase to investors, it’s important to prove your business model to be viable; and this can be achieved by defining the unit economic metrics. Should your pitch succeed in underlining the strategies that will work in parallel to achieve unit economic profitability – be assured that you have won the initial battle of earning the trust and confidence of the investor.

Ability to build your dream team:

To attract the right kind of investors, startup leaders should ensure that the team hired is not a homogenous team but brings in diverse set of skills to the table. If truth be told, it’s not about just building a team that works for you – instead, it’s about bringing together likeminded people that can share your dream and are passionate about striving for the vision. In fact, you may have a strong business idea with financial backing too, but if your team is not rightly balanced, then you might be heading towards some tough times.

Aligning the business model to the market opportunity:

An investment pitch must clearly outline the market opportunity that is realistic to your business. Often, during pitch presentations – entrepreneurs share market size figures published by research groups – that usually address a comprehensive market. While this may be correct from an industry perspective – it might not talk about the immediate addressable market opportunity (demonstrating potential scale) within the timeframe in which you intend to raise capital.

Know your competition:

It’s quintessential for startup leaders to own a deep understanding of the competitive landscape in the national and international market. Questions as simple as ‘why can’t a competitor replicate your plan tomorrow?’ cannot be ignored. Hence, it’s best to outline a clear idea differentiation and positioning strategy for your business while pitching to the investors. For instance – mentioning whether your business solution disrupts an already existing market or introduces a new solution (conclusively claiming you as the market leader) – always proves beneficial.

Idea is the key

Undoubtedly, originality is the key to successfully catching attention of seed investors. That said, any proven business model that solves consumer problems in an untapped market – will never go waste. However, if you happen to position your business plan as the next “Amazon or Facebook” (as aspirations have no limits) – then there is a fair possibility of sowing apprehensions in the mind of the investor (in terms of the businesses viability). Hence, what’s recommended is a plan that provides answers for basic questions like ‘What is your businesses unique selling proposition’ and ‘how will the proposed proposition help you scale in the future’ among others. Precisely, a good idea with a strong footing coupled with a well-though-out execution strategy will always receive a thumbs-up.

Allying with the right investors

While preparing an investor outreach program, it’s important for entrepreneurs to identify and target investors with similar interests or portfolio investments in the past. While it’s always advised to hunt for a new investor – a partnership with an accredited investors undoubtedly offers the right ignition for your new venture. Additionally, it offers an opportunity to learn the ropes of the business too and reduce the length of your learning curve. Therefore, collaborating with the right people spurs positive sentiment (simultaneously creates buzz) within the investor community, end user, stakeholders and press among others.

Putting in your own cash:

More often than not, putting in a little cash from your coffer demonstrates additional commitment to investors from whom you might raise money later. Most of the recent successful startups have witnessed funds infusion from founders as well

Move away from false claims & promises:

As a first step to evaluating a new business model, seed investors are always keen on understanding and accessing an entrepreneur’s customer acquisition plan and also, the approach to get traction with the initial set of customers. Trick is to be realistic rather than being idealistic!

Create buzz around your startup:

During the formative days, the visibility of a new startup might seem insignificant, but is a key to eventual success. As a frontrunner, you must build relevant connections within the industry. And, as you grow your people-network, word-of-mouth from influential leaders can provide the full throttle needed for your business. In simple words, being in the right (network) circles will help you to timely spot a valuable funding opportunity.

Participating in incubator programme:

Establishing a new business and executing the model effectively requires massive scale and efforts, however, with the right mentorship, efficient use of technology and access to innovative and concurring communities – you can kick-start the business on the right hook! For instance, an entrepreneur or member/s from the founding team can enrol and reap benefits of an incubation camp/program – that are regularly hosted by investor communities or internet business builders to provide the knowledge and assistance around startup methodologies, risk and resource management practices among others.

Exploring new avenues for funding

Keeping in mind the enthusiasm of emerging markets towards building a cohesive start up economyIndustry stalwarts, government bodies, angel investors and advisors are leaving no stone unturned in paving way for bustling growth in the startup sector. As emerging trends indicate, funding can be sought via crow-sourcing and peer-to-peer platforms, grant size programmes and eased business loans among others.

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.