The earliest stages of funding are pre-seed funding and seed funding. These stages assist you in growing your start-up.
When you are in the middle of developing a start-up, one of the key elements of building a business is to obtain funding. To gain a better understanding of what type of funding to seek, there are various funding stages available for start-ups.
These include series A, series B, and series C funding.
Series A funding is generally to be used for optimisation of an early start-up, series B funding is designed to assist start-ups to grow their market reach, which means your company will normally be over the initial development stage. Finally, series C funding is used for rapid growth through scaling the business.
In particular, this funding could help your start-up to acquire or merge with another company to gain market share.
Although, it is easy to gain funding from friends and family, alongside your own bank account. The two favoured types of funding tend to come from Angel Investors and Venture Capital (VC) organisations.
Generally, this funding is allocated in return for a share in your business. If your start-up is in the early stages of funding, you may consider using pre-seed and seed funding to help it to expand.
Pre-seed funding is designed to help start-ups to get under way and is usually obtained from the founder of the start-up and any close family, friends, or supporters.
Seed funding is supposed to assist the start-up with its initial growth through product development and market research.
These funds come from family, incubators, Angel Investors and VC.
If you are not able to persuade investors to contribute the funds needed to develop and expand your start-up, then it is advised that you create a minimum viable product to exhibit to potential investors.
Below we provide you with a more in-depth understanding into the importance of pre-seed and seed funding rounds.
The difference between pre-seed & seed funding?
When you are considering obtaining funding for your start-up it is important that you understand the dissimilarities between pre-seed funding and seed funding.
What is pre-seed funding?
Pre-seed funding is a form of funding that is created to assist a start-up with its initial development and the initial operations.
As this funding is supposed to be used to get a start-up under way, it is not deemed to be a round of funding.
The investors who generally contribute to start-ups with pre-seed funding are the founders, family, friends and supporters of the actual start-up.
The total amount of funding that can be acquired with pre-seed funding increases from £10,000 to £250,000 providing you have a start-up idea that you consider to be a lucrative product or service. Then the funds you gain from pre-seed funding will assist in paying for the business’s setup costs.
Dependant on the type of business you are creating, this funding round can last all the way through setup and the start of operations.
It is predicted that this round of funding should sustain your business for between 1 to 12 months. Although, you do not necessarily need a minimum viable product at this stage of funding, it is advised that you have one prior to entering the seed funding stage.
What is seed funding?
Seed funding is essentially the first official funding round that start-ups go through. The instant that you have founded the base of your start-up with pre-seed funding, any seed funding raised after that should be used to help expand your company.
If you are considering developing a product that can be positioned on the market, then you will need to carry out market research.
Seed funding can assist as it is designed to help you to achieve your goals. At this stage of funding, you should be able to recognise your target audience and understand what your final products and offering are going to be.
Additionally, this is the stage where you should be recruiting an executive team to assist in completing all the fundamental business functions and day-to-day tasks.
The funding raise is often between £400,000 to £2m pounds. Although, a certain amount can be obtained from family and friends, you may want to join an incubator to help you with the development of your product and market research.
In this round Angel Investors and VC businesses may start to express interest in your start-up. When considering obtaining funds from Angel Investors be mindful that they will generally require a stake in your business.
Although, you do not need to repay Angel Investors if your company fails, they will however, sell their stake in your company in around 3 to 5 years.
In regard to Venture Capital companies, they are normally repaid when you are acquired by another business or when you float your company to the public via an IPO.
To establish if your business is currently in this round of funding, the business valuation during seed funding should be between £5-£15 million. This round of funding typically lasts for around 12 to 18 months prior to moving onto series A and B of the funding rounds.
If you would like some advice on developing or funding your app idea, get in contact with us today.
Call us on 0203 150 0565 or email info@thealtitudeagency.com
