(Pre-)Seed Funding Guide: How to Find Investors after You’ve Developed an MVP

Yet, when reaching this stage, startups often don’t have enough resources to implement their vision, and, specifically, boost their product development. And that’s exactly the point when finding the right funding partner may be game-changing.

If you’re currently at this stage, then this article might be extremely valuable for you since we’ll share our expertise on how to choose the right type of investor for the post-MVP stage, what things about your startup interest them the most, and also give you some fundraising tips!

🤝 Funding Partners for Post-MVP stages

Let’s start by taking a look at the main types of funding sources that are reasonable to approach during the Pre-Seed and Seed rounds.

Startup accelerators

Startup accelerators are often a subgroup of venture capital firms. It may not be the best option if you’re looking for direct funding, or a bigger round as they usually offer limited resources — up to $50k. Instead, they often give «indirect funding» in the form of smart additions: providing coworking spaces, coaching, access to their network of VC firms and enterprises, covering the costs of paid hosting, servers and third-party tools, etc.

Many accelerators also organize pitch days to help you find investors. Sometimes, participating in some accelerator programs (e.g. from Y Combinator or 500 Startups can give you an advantage in the eyes of venture capitalist on your future rounds — if a well-known accelerator chose your startup there must be something worthy in it, right? Yet, it often works only during the very early stages.

Singing the deal with a VC usually takes more time. Apart from the negotiation/screening process itself, when you agree on the company validation, number of stocks and their price, it’ll also take some time to prepare all the legal documentation, sign the documents at the notary, and handle the transaction.

Thus, you may need some extra resources to enable you a runway to live through the process, and that’s when Angels can help. Yet, if your runway allows you not to look for additional funding partners, then it’s better to go straight to VCs.

Crowdfunding

This is a fairly popular funding option, but it’s mostly suitable for hardware Startups. Crowdfunding has a couple of types:

• Donation-based –– people transfer money and don’t expect any reward. One of such crowdfunding sites is GoFundMe.
• Reward-based –– entrepreneurs mainly use this type to fund their startups. In return for the contribution, donors receive rewards, such as early access to your product, a great discount or a free item when it’s released, etc. Kickstarter or Indiegogo are used to raise this type of funding.

With crowdfunding, you can check how potential users will react to your project and what disadvantages they will notice. Backers want to get regular updates on how the project is progressing or what problems you have encountered. But this type of investment has the disadvantage –– anyone can see your app idea and implement it before you do.

💰 What Do Investors Pay the Most Attention to?

Despite fundraising being based on communication, it’s not so spontaneous and unpredictable as it may seem. Even if there’s some room for personal connection, most investors will evaluate your startup based on a few key points.

To help you secure your funding round, we have made a list of top things that investors usually pay attention to.

Traction

Any investor you offer to fund your startup will pay attention to your traction. This is a key point for them to understand that your target audience really needs your product (and your pain-killer solves the pains of your audience).

Traction can be shown in different ways –– there is no universal metric. For example, you can perform week-over-week or month-over-month growth as indicators of usage.

For traction measuring, you can also use:

• Active users number. This statistic will show how often your target audience uses your product and how much progress you’ve made compared to last week or month.
• Revenues and profits. Investors are always interested in these indicators because it’s a sign of a financially well-run business.

Good user growth is more than 10% per month. Projects with such a growth rate have more chances to raise funding. If your product has been growing steadily for 6–8 months, investors will be able to calculate the trend and believe in your development in the future.

Your potential backers probably will pay attention not only to the quantity but also to the quality of your revenue/growth, that can be defined by the following metrics:

Introduction to investor before (Pre-)Seed round

Being introduced to the investor before you communicate with him is always a good thing. Investors don’t always want to deal with startups right away (because they get hundreds of them per day). They may not even read your emails sent to their work emails. Accelerator members are a little luckier: they are introduced to a whole group of investors right away. But even they have to expand this list.

Not all intros will be equally effective. The best way is to ask an Angel or VC who has already invested in your project to introduce you to other potential backers. Being introduced by a startup that has already received funding from the same people is the second most effective way.

Another option is exploring various communities, such as AngelList or Hyde Park Angels. They can be both general and specialized. For example, Seed Invest works only with robotic startups, аnd Life Science Angels are interested in healthcare development.

It is better to think of these sites as an additional funding source. We recommend focusing on investors that you know personally. Moreover, it will be easier for you to raise money on these sites if you mention that you have already received some funding from investors.

❓ Most Frequently Asked Investor Question

Before approaching negotiations, brainstorm what questions you might be asked. After that, think of good and complete answers. It’s better to know precisely how you will respond to a similar question.

Make sure you think through all these points before contacting investors:

Talk to investors in parallel

As your fundraising activity shouldn’t take much time, you don’t have the chance to talk to investors sequentially. If you talk to several investors in parallel, they tend to make decisions faster, not to miss a good opportunity. When you pitch to multiple investors, information about your company will spread quickly in their communities. So if you present your startup well or poorly, a whole segment of investors will find out about it.

But it would be best if you gave more time to more prospective investors. And you can figure out if it’s worth giving your attention to an investor by calculating an expected value.

Expected Value = Investor Consent Probability × Amount of Resources He's Going to Provide

For example, if you are choosing between:

• a well-known investor who is willing to fund a large sum of money, but after long and arduous negotiations,
• and an angel with a small amount of money, who is easy to persuade,

then their expected value will be the same. If you want to meet investors with a low expected value, it is better to do it after all.

This method will help you protect yourself from investors who delay their verdict. If they start to distance themselves from you, shift your attention to others. Be clear about how interesting you are to the investor, no matter how much you would like to work with them.

💡 Takeaways

Fundraising is not easy, especially for early-stage startups that don’t have so many success stories and supporting donors behind them. It takes a lot of time, and time is a valuable resource. Here is a roadmap that will help you persuade investors to fund your project:

• Gather your data, create a good and simple pitch deck.
• Prepare answers to questions that might be asked by potential funding partners.
• Research investors, define who you’re most interested in, and find ways to reach out.
• Pitch, negotiate, and close the round.

Finding product-market fit is hard. But we’ve supported a lot of our clients before, during and after raising their (Pre)-Seed rounds.

So if you’re looking for a reliable tech-partner, who knows the process inside-out and can boost your Web & Mobile product development after raising your round –– our team will be happy to support you on your journey!