The Journey of Pre-Seed Funding and the Psychology of Collecting

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Jul 27, 2023
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The Journey of Pre-Seed Funding and the Psychology of Collecting
Introduction:
Pre-seed funding is a critical stage for startups, where they secure funds to develop their early-stage products and acquire customers. This article explores the intricacies of pre-seed funding, including its purpose, average funding amounts, investor expectations, and the time it takes to close a round. Additionally, we delve into the fascinating world of collecting, exploring the motivations behind this popular hobby and the various benefits it brings to collectors. Although seemingly unrelated, both subjects share common threads that shed light on entrepreneurial pursuits and human psychology.
Pre-Seed Funding: A Snapshot of the Journey:
Pre-seed rounds are typically characterized by funding amounts below $1M and focus on transforming an idea into a tangible product or service. Startups utilize these funds to hire talented engineers, develop prototypes, and initiate marketing campaigns. However, it's crucial to note that building a product without customer feedback is a recipe for failure. The sophistication of the product at this stage is often closer to an idea or alpha product than a fully polished and marketable solution.
Timing and Strategies for Raising Pre-Seed Funding:
Timing plays a crucial role in raising pre-seed funding. It's advisable to avoid seeking investments during end-of-year holidays and early summer when investors are usually on vacation. Investors tend to pause their search for new deals during these periods. Additionally, incorporating a cash buffer of at least 25% to cover unexpected expenses is recommended. Research indicates that the average amount raised in a pre-seed round is $626,360 for US startups and $538,108 for startups elsewhere in the world. For effective planning, a cash runway of 12-18 months, coupled with a 4-month buffer, is often recommended.
The Pre-Seed Funding Process:
Closing a pre-seed round is a process that requires persistence and patience. On average, founders attend 26 investor meetings before securing funding. Docsend reports that approximately 15% of founders close a pre-seed round within 1-6 weeks, while 42% take between 7-18 weeks. The remaining founders require 19 weeks or more to secure funding. Investors primarily seek a proof of concept for the product or service, a clear monetization plan, and references from potential customers who express willingness to pay for the offering. If founders lack technical skills, adding a technical co-founder to the team becomes crucial.
Sources of Pre-Seed Funding:
- 1. Angel Investors: Angel investors typically invest between $1,000 to $1,000,000, with an average check size ranging from $25,000 to $100,000. Verifying whether angel investors are accredited is essential for future funding rounds.
- 2. Pre-Seed VC Firms: These firms can write larger checks, usually ranging from $100,000 to $1M. Rolling Funds, a type of pre-seed VC fund, have an average check size of $100,000, with occasional investments as high as $1M.
- 3. Accelerators: With thousands of accelerators worldwide, these programs offer funding ranging from $25,000 to $500,000 in exchange for 5%-10% equity. Many accelerators are founded and funded by investors.
The Psychology of Collecting:
Switching gears, we explore the psychology behind collecting, a hobby that captivates individuals across the globe. Collecting serves various purposes and brings numerous benefits to enthusiasts. Some key motivations include:
- Recognition: Collectors often seek recognition from fellow collectors and even non-collectors, fueling their passion for their chosen field.
- Knowledge and Learning: Collecting fosters continuous learning and deep dives into specific areas of interest, expanding one's knowledge base.
- Personal Pleasure: Appreciation of beauty and pride of ownership are common sources of personal pleasure for collectors.
- Social Interaction: Collecting facilitates social interaction with fellow collectors, creating opportunities to share knowledge and experiences.
- Altruism: Many collectors eventually donate their collections to museums and learning institutions, contributing to the advancement of society.
- Desire for Control: Collecting allows individuals to exert control, possess, and bring order to a specific part of the world.
Conclusion:
Pre-seed funding and collecting may seem unrelated at first glance, but they share underlying themes. Both involve pursuing personal ambitions, whether it's building a business or curating a collection. Understanding the intricacies of pre-seed funding can empower entrepreneurs to navigate the funding landscape more effectively. Similarly, comprehending the motivations behind collecting sheds light on the multifaceted benefits it brings to individuals and the wider community.
Actionable Advice:
- 1. Prioritize Customer Validation: Building a product without customer feedback is risky. Engage with potential customers early on to ensure product-market fit.
- 2. Build a Strong Network: Networking is crucial for securing pre-seed funding. Attend industry events, join startup communities, and leverage platforms like LinkedIn to expand your network.
- 3. Invest in Personal Well-being: Founders often face burnout due to the intense nature of startup work. Prioritize self-care, ensuring you have enough personal funds for a healthy work-life balance.
In conclusion, pre-seed funding propels startups towards success, while collecting satisfies the innate human desire for knowledge, connection, and control. By understanding these aspects, entrepreneurs can navigate the funding landscape more confidently, while collectors can embrace their passion with a deeper appreciation for the underlying motivations.
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