Pre-seed and seed-stage as a qualification for funding

  • June 1, 2022

Anyone who has perused through solicitations (either federal such as SBIR or for pitch competitions and accelerators) will notice that one of the many qualifications for applicants is that they are “seed-stage” or “pre-seed stage”, but what does that mean and why is important to be in this position for certain funding opportunities?

What is pre-seed?

Pre-seed is the earliest possible stage for a business excluding the ideation stage. A pre-seed company has had no formal investments. All company operations will have been self-funded at this stage. Some informal fundraising may have occurred among friends and family. At this stage, the company will not be gaining revenue and may not even have many or any full-time w-2 employees. A pre-seed company often has some idea of their business plan (such as a lean-canvas or one-pager) but more formal research must still be carried out and a more formal plan put together.

What is Seed?

In the seed stage of a company’s life cycle, the company will meet all the qualifications outlined in the pre-seed stage and be actively seeking formal investments. At this stage, companies will have a formal business plan and pitch deck and have done market research, customer discovery, and revenue projections. These companies are actively seeking investments and may have obtained small amounts but not yet obtained more than $1M in funding. Companies in the Seed Funding stage are typically looking for enough capital to pay for operations until such a time as profit is generated organically. This can vary from company to company but investors would like to see companies plan to be generating revenue 12-18 months after the seed stage.

Why are these stages a requirement for applicants?

Programs that exist to fund innovative new ideas are seeking founders who have not already successfully generated revenue. Those companies should seek Series A, B, and C funding from other avenues. When a funder seeks pre-seed and seed-stage companies only, they are looking to get in on the ground floor of an impactful new idea and be early investors in the product. This especially makes sense with programs like SBIR/STTR which are focused on R&D from early-stage companies or pitch competitions for businesses that are just starting out.

If you need help figuring out what stage of growth your small business is in or screening potential opportunities that are a fit for you, E.B. Howard Consulting can help steer you in the right direction to resources to complete more customer discovery, market research, or finalize your business plan to be funding-ready.

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