what investors look for at pre-seed stage

Hey there,

Welcome to the new people on the list - as a reminder, I am Dragos from Project Arrow, where we guide founders with what to do and who to talk to in order to get funded and accelerate their startups.

Today we’re talking about pre-seed rounds.

A good part of the startup founders I work with are still at super early stages. That means they can have either MVPs or products just launched in the market, testing all sorts of channels for acquiring customers and getting to product market fit. Some of them are more advanced, and already have a community of users and/or a meaningful number of paying customers around their product, with recurring business on top of that shaping up nicely. Others are still heads down solely working on the product, building early community via waitlists for the time when they have something to show for their work.

All of them are considering or actively looking to raise capital from professional investors. They are at what investors call a pre-seed stage - and the usual question I get from them is about the investors expectations.

What are investors looking for at pre-seed startups?

There is no general consensus, and you will find many investors using different criteria for suitable startups at this stage. Some founders will ask for money with only an idea and a PPT but nowadays that’s a very rare situation to get attention, given the general bad economic context. Even serial founders with good exits under their belt need to show something more than a general nicely crafted presentation in order to be taken seriously for raising money. And that something is business proof connecting the product to the market willing to validate it. Here’s a general context to what investors look for as first backers in a company:

• product usage history and/or customer traction demand. You need evidence that what you work on is what people want.

• early paying customers - can be 10 or can be 1000. That shows people validate with their wallet the startup’s value proposition.

• $500-$5k monthly recurring revenue - this is a great indicator of growth, repeat customers and/or business potential validation beyond product development, subject also to the pricing point.

• raising <$3-500k on a valuation lower than $3-5 million post money.

• bootstrapped or previously raised $1-200k from friends or family.

• a team of maximum 3-5 people, including the founders.

It’s not black and white and, as I said, the criteria can vary with each investor. Obviously it depends on the type of product your business is based on - for example, in the case of a software startup it is common to bootstrap until you build a business loop as it is fairly cheap to put an MVP in the market and get customer feedback/$ on it.

Regardless, the closer you are to this framework, the stronger your case may become and more appealing you will be for a pre-seed investor evaluating your startup project.

Getting there requires a lot of work, and every day planning iteration for making progress. The market signals as described above will tell you if you’re on the right track, efforts will usually pay off in 6-12 months and then you need to align with talking to at least a few hundred potential investors - angels, VCs, advisors and industry experts.

Not least, getting help from the right people as you navigate along the way will help you as well - understand and adapt the feedback (diverse and contradictory), and a support system for when things get tough (they will). That’s what we do at Project Arrow. :-).

Community

Learn from other founders
Is it difficult to raise money? How long did it take? What milestones does my startup have to meet? What do investors have to understand about my company?

We interviewed founders and investors involved in successful VC rounds at very early stages of their startups. Here’s what they had to say.

Startups recently seeded
If you want a full list of interesting startup raises from all over Europe, you can go check Monday CET. Below a selection of the more interesting ones:

🇩🇪 Debtist - B2B SAAS end-to-end platform used for receivables management and debt collection (Mannheim)
🇳🇴 Fairsight, an intelligent assessment platform for job interviews and recruiting (Oslo)
🇷🇴 Instant, mobile marketplace for second hand cars and using AI to provide instant price estimation (Bucharest)
🇬🇧 Momentum, SAAS helping high-growth companies grow ARR (London)
🇸🇪 QA tech - AI-based QA tester enabling engineers to become more productive by automating testing of applications (Stockholm)

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