Pre-Seed or Seed?

Pre-Seed or Seed?
Read time 1.9 minutes

Recently, a few of you have been asking me the difference between pre-seed and seed rounds. Today, I’m going to try to explain it without using figures and instead focus on the theory and ideas behind the two rounds. Hopefully, this will make it easier for you to understand where your raise fits, no matter the size of your round.

Pre-Seed: Testing Your Idea

Misconception: 3+ years ago, the Pre-Seed stage was about investing in ideas. You raised the money to build the product, which was your pre-seed round. That isn’t the case anymore.

Today, a pre-seed round is about raising the funds you’ll need to establish product/market fit.

To raise you need:

• Strong storytelling

• Big problem/potential

If you don’t have a product or traction, then you are raising a pre-seed round. Your pitch needs to tell investors how you will get to a point where your product is not just built but in the market and being used by customers.

Seed Round: Capturing Immediate Market

To raise a seed round in 2024, you NEED traction.

A seed round is raised by a company that already has product/market fit and is now looking to capture its immediately available market. You should show investors that you have a real problem, solution customers love and a clear idea of your ideal customer.

The seed stage is 12-24 months, where you now go and make sure that you get every ideal customer before you get them to buy.

Series A: Growth

When are you no longer a seed company?

During that process of getting every ideal customer to buy, you should be testing multiple marketing/sales channels. Once you find one that is bringing in large numbers of users, including many that aren’t your ideal customers, you are ready to raise a Series A.

Series A is where you exploit a marketing channel. It’s the stage where you first test on mass whether your product is niche (will only be used by your ideal customers) or if it can become mass market and connect with other customers.

Summary

Broadly speaking, here are the guidelines I’d recommend you follow.

Pre-Seed: Idea stage to Product/Market fit
Seed: Capturing Immediate Market to Finding Exploitable Growth Channel
Series A: Exploiting First Growth Channel

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Liam Gill

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