Pre-seed funding is the first money a company raises from outside investors, usually before it has meaningful revenue and often before the product is finished. It pays for the work that turns an idea into a business with something to show: a working product, first customers, or the evidence a seed investor will want to see next.
I’ve raised £250m+ for my own companies and funded more than 750 businesses with over £1bn, so I’ve seen early rounds as a founder, as an investor and as a lender.
What Pre-Seed Funding Is
Pre-seed is the stage before seed. Seed rounds are usually raised once a business has a product and early sales, so the money to get that far comes from investors prepared to back a founder earlier. That’s usually individuals and small specialist funds rather than larger venture funds, and the amounts are usually smaller than at seed because there’s less in the business for an investor to value.
Pre-Seed vs Seed
Seed is the next round, raised once the business has early evidence that its product sells. A pre-seed round pays to find that evidence, and a seed round pays to grow from it. There’s no legal line between the two. The difference is the progress the business has made, the size of the round and who leads it, which at seed is more often a fund.
Who Invests at Pre-Seed
Pre-seed investors are backing a founder and a plan, with little else to check. That shapes who invests at this stage: people and funds willing to take that risk early, in return for a lower price per share than later investors are likely to pay.
Friends and family are often the first money in. They’re backing someone they know, usually with no special terms, and on a small round they can be all of it.
Angel investors are individuals investing their own money, usually in a sector they understand. Many bring contacts and experience along with the cheque, and the size of the cheque depends on their own wealth and how much they put into any one deal. Finding your first angel starts with ones who already back businesses at the same stage and in the same sector.
Angel syndicates are groups of angels following a lead investor who does the checking and negotiating. A founder deals with one person and gets several cheques.
Pre-seed funds are small venture funds that specialise in writing a company’s first cheque. They invest other people’s money, so they need businesses that could grow very large, and they tend to look for a founder they rate in a market big enough to matter.
Accelerators invest a fixed amount on standard terms and run a programme of mentoring, introductions and a demo day for investors. Y Combinator invests $500,000: $125,000 for 7% of the company and $375,000 on an uncapped SAFE that takes the best terms given to later SAFE investors. Techstars invests $220,000, with $20,000 for 5% and $200,000 on the same kind of uncapped SAFE.
Typical Pre-Seed Round Sizes
There’s no standard size. A pre-seed round can be a small amount from a couple of angels or several million pounds from funds, and the right amount for a business comes from its plan rather than from what other companies raise.
The amount starts with what the money has to achieve. A pre-seed round is usually raised to reach a milestone, a specific point such as a finished product, a first paying customer or a set level of monthly revenue.
The founder costs everything needed to get there: people, product development, sales and marketing, and the legal and other costs of raising. On top of that goes runway, enough cash to keep going after the milestone while the next round is raised, and a margin in case things take longer or cost more than planned.
Market data gives a sense of scale. Carta, which runs share registers for many US startups, groups US pre-seed rounds into bands of $250,000 to $1 million and $1 million to $2.5 million, and reports that few pre-seed rounds go above $2.5 million. Its figures show the average single pre-seed SAFE or convertible note in the second quarter of 2026 was $276,000, and one round can be made up of several of them.
In the UK, a company can raise up to £250,000 under the Seed Enterprise Investment Scheme, covered below.
How Much of the Business to Give Away
The share an investor gets follows from two numbers: the amount raised and what the business is worth before the money goes in, called the pre-money valuation. The founder sets the valuation and has to justify it, and the investor brings their own view. Agreeing it is a negotiation.
Say a founder raises £300,000 at a pre-money valuation of £1.2m. The business is worth £1.5m once the money is in, and the investor owns 20% of it. Raising the same amount at a pre-money valuation of £2.7m would give the investor 10%.
Valuing a business with no revenue is hard, because there’s little to measure. A valuation is a number from today multiplied by a story from tomorrow, and at pre-seed the number from today is small or zero. Comparable companies at the same stage and in the same market are usually the reference point.
The founder’s percentage falls as the business raises, and that isn’t a problem in itself. A smaller piece of a business with the money to grow can be worth far more than a bigger piece of one without it. What does take value from the founder is raising more than the plan needed, because every extra pound raised is paid for in shares.
What You Need Before You Ask
Before investing, an investor wants to see a clear plan and a founder who can deliver it, and then checks that what they’ve been told is true. At pre-seed there’s less to check, so evidence that people want the product carries a lot of weight.
Evidence of demand. The progress so far is known as traction, and it ranks by how much the customer has committed. From strongest to weakest: recurring paying customers, paying customers, signed contracts, paid pilots, pre-orders and deposits, letters of intent, free pilots that people use, a waitlist, and interest. A waitlist is weak evidence, but it still counts for something.
The founding team. Who’s building it, what they’ve done before and why they’re the people to build this business. An investor at this stage is backing them more than anything that exists yet.
A plan for the money. The milestone the round pays for, what it costs to get there and how long it takes. An amount built up from its parts shows the founder has worked out what the business needs.
A tidy company. The company incorporated, the founders’ shares issued and recorded on the share register, and any intellectual property owned by the company rather than by a founder personally. If there’s more than one founder, a shareholders’ agreement sets out what happens to a founder’s shares if they leave.
A pitch deck. A short presentation that gets an investor interested enough to take a meeting. At pre-seed it covers the problem, the product, the market, the team, the traction so far, the plan and the raise.
The terms. The amount, the valuation and the instrument the money goes in on. A founder who knows the terms tells investors what they are, rather than asking investors to propose them.
Pre-Seed Funding Instruments
At pre-seed, agreeing a valuation is hard because there’s so little to base it on. Several instruments exist to let the money go in now and settle the price later, at the next round, when there’s more to go on. The early investor is rewarded for going first, usually with a valuation cap, the highest valuation their money can convert at, or a discount on the price the next investors pay.
Ordinary shares. The investor pays for new shares at an agreed valuation and becomes a shareholder straight away. It’s the simplest structure and it settles the valuation on the day the money goes in.
SAFE. A simple agreement for future equity, which Y Combinator created in 2013. The investor pays now and receives shares at the next priced round. On a post-money SAFE, the investor’s share is the amount invested divided by the cap: £200,000 on a £2m cap converts into 10% of the company, measured before the next round’s new shares are issued.
The post-money SAFE is the standard pre-seed instrument in the US. A standard SAFE has no longstop date, so it doesn’t meet HMRC’s conditions for SEIS or EIS relief, and UK raises that want those reliefs use the advance subscription agreement instead.
Advance subscription agreement. The UK’s equivalent of a SAFE, known as an ASA. The investor pays now for shares issued later, at the next round’s price less any agreed discount, or at a set valuation if no round happens by a fixed date, called the longstop date.
To qualify for SEIS or EIS relief, HMRC expects the ASA to have no refund of the money, no interest, no option to change or cancel it, and a longstop date, which it generally expects to be no more than 6 months away.
Convertible loan note. A loan that converts into shares at the next round, usually with a discount or cap, and with interest and a repayment date if it doesn’t convert. In the UK, shares issued by converting a loan don’t qualify for SEIS or EIS, because the conversion doesn’t raise new money for the company.
When Not to Raise a Pre-Seed Round
A pre-seed round is worth raising when the money gets the business to a milestone it couldn’t reach without it. Some businesses can reach that point another way.
A business that can sell before it builds, through pre-orders, deposits or a paid pilot, can sometimes fund the first version from its customers. The founder gives up no shares for that money, and the sales count as evidence of demand if the business raises later.
A business that already has revenue may be able to borrow what it needs instead of selling shares, and for UK businesses Funding Guru arranges that kind of borrowing.
A business that can’t yet say what milestone the money pays for isn’t ready to raise, because the amount and the valuation are both built on that milestone.
And some businesses never need outside investors at all. A company that reaches profit and funds its own growth has no next round to raise.
Pre-Seed Rules by Country
The mechanics of a pre-seed round are much the same everywhere. What changes is the tax relief available to investors and who a company is allowed to offer shares to.
In the UK, the Seed Enterprise Investment Scheme lets a company raise up to £250,000 if it has gross assets of no more than £350,000, fewer than 25 full-time employees and a trade no more than 3 years old. Investors get income tax relief on 50% of what they invest, on up to £200,000 a year. Companies can apply to HMRC for advance assurance that the shares are likely to qualify before they raise.
In the US, private raises are usually made to accredited investors, individuals with a net worth over $1 million excluding their home, or income over $200,000 in each of the previous 2 years. A company can also raise up to $5 million in 12 months through Regulation Crowdfunding, using an SEC-registered platform.
In Australia, investors in a qualifying early stage innovation company get a 20% non-refundable tax offset, capped at A$200,000 a year, and gains on shares held for at least 12 months and less than 10 years can be disregarded for capital gains tax.
In Singapore, first-time founders can apply through Startup SG Founder for a grant of S$20,000 to S$50,000, matched 1:1 by the founders’ own capital or by investment from a third party, such as a SAFE.
In the UAE, the Dubai Financial Services Authority launched a crowdfunding framework in 2017 for platforms in the Dubai International Financial Centre through which investors can buy into businesses.
FAQs
What is a pre-seed round?
A pre-seed round is a company’s first raise from outside investors, made before the seed round. It’s usually smaller than a seed round and pays for the product, the first customers or the evidence the business needs to raise again.
Who are pre-seed investors?
Pre-seed investors are usually friends and family, angel investors, angel syndicates, small funds that specialise in first cheques, and accelerators. Larger venture funds tend to come in at seed or later.
Is pre-seed funding debt or equity?
Pre-seed funding is usually equity, or an agreement that turns into equity at the next round, such as a SAFE or an advance subscription agreement. A convertible loan note starts as a loan and converts into shares, so it’s debt until it converts.
Can you raise pre-seed funding with just an idea?
Yes. Investors back an idea alone when they rate the founder highly, and any early evidence of demand, such as pre-orders, letters of intent or a waitlist, makes the raise easier.
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If you’re getting ready to raise, the F.U.N.D.S. Method sets out the framework I use when advising founders on raising capital, from the foundation of the business to the deal terms. If you’re earlier than that, join Capital Catalyst for free and learn how every type of funding works before you take any of it.
