Pre-Seed Funding: How It Works and How to Raise It

By Chris Kernaghan 11 min read
Pre-Seed Funding: How It Works and How to Raise It

Pre-seed funding is the first outside money a startup raises, usually before it has a polished product, steady revenue or proven product-market fit. It pays for the work that turns an idea into evidence: talking to customers, building a prototype and showing that people want what you are making. This guide covers what investors expect, how much you might raise, which instruments and investors are common, how UK tax relief fits in, and how to run the process without losing a year to it.

WearefoundersFind Practical Guidance for Your RaiseWe Are Founders brings together practical insights and resources for early-stage founders exploring funding strategies and the startup landscape.Explore founder resources

TL;DR

  • Pre-seed is the earliest external capital: money to test an idea, build a prototype or MVP and gather proof before a seed round.
  • Recent figures put most rounds between $150,000 and $1 million, and most are raised with SAFEs or convertible notes rather than a priced round.
  • Pre-seed investors mostly back the team and the problem, so evidence of customer demand matters more than a finished product.
  • In the UK, SEIS lets investors claim 50% income tax relief, which makes angels much more willing to write a first cheque.
  • Plan for months, not weeks: build the investor list and the story before you ask for money.

Table of Contents

What pre-seed funding actually is

Pre-seed is the earliest stage of external capital a venture raises, typically before it has reached product-market fit, generated meaningful revenue or built anything scalable, according to an Open University learning module on the topic. The same module describes what the money buys: time, focus and resources to test assumptions systematically through customer discovery, market research, early technical experiments and prototypes.

That last point is the useful way to think about it. You are not buying growth. You are buying answers. Who has this problem badly enough to pay? Does your solution work well enough to try? Can you reach those people without burning cash?

Other guides describe it in similar terms: initial capital to develop an idea, build a prototype or MVP and test the concept before a seed round. One commentator calls it a bet on a big idea that may not yet have a product on the market. That is fair, and it explains why investors lean so heavily on the people behind the idea.

Pre-seed vs seed: where the line sits

The two terms blur, and founders often argue about which round they are in. A workable rule: pre-seed is for an idea, a prototype or an early MVP. Seed is for a working product with early traction. According to Carta’s guide, seed rounds are generally larger, and while pre-seed rounds typically use SAFEs or convertible notes, seed rounds may also use preferred stock.

What investors look at differs too. CRV’s comparison says pre-seed investors mainly assess their belief in the founding team and the importance of the problem, while seed investors want evidence of product-market fit and customer retention.

Pre-seed Seed
What you have Idea, prototype or early MVP Working product, early traction
What investors weigh Team and problem Product-market fit, retention
Typical instruments SAFEs, convertible notes SAFEs, notes or preferred stock
Typical sources Founders, friends and family, angels, accelerators Angels, seed funds, early venture investors
Round size Smaller Generally larger

If you are unsure which side you are on, ask what you can show. A clickable prototype and ten customer interviews is pre-seed. Paying users who come back every week is heading towards seed.

How much can you raise?

Figures vary by source and by year, and almost all public data comes from the US, so treat them as a guide to scale rather than a promise. As of Q2 2026, Carta reports that most pre-seed rounds land between $150,000 and $1 million, with an average instrument of $276,000. Stripe’s guide puts rounds at a few hundred thousand dollars up to $1 million, with a median SAFE raise of about $700,000 in 2025.

The two numbers differ because they measure different things (an average instrument is not a median round), and because datasets cover different companies. The sensible takeaway: a few hundred thousand dollars is ordinary, and $1 million is the top of the usual range.

A better question than “how much can I get?” is “how much do I need to reach the next milestone?” Work backwards:

  1. Name the milestone that would make a seed investor take notice (for example, a set number of paying customers or a working product with real usage).
  2. List what it costs to get there: your own modest salary, contractors, tools, legal fees and a buffer.
  3. Multiply the monthly burn by 12 to 18 months and add 20% or so for slippage.

If you want to see how other founders handle their own pay at this stage, our piece on how much startup founders actually pay themselves in 2026 is a useful benchmark when you build that budget.

Are you ready to raise?

You are ready when you have tangible progress, have validated the problem through customer discovery and have a plan for the funds, as Carta’s guide puts it. CRV’s 2026 report adds a picture of the typical company: one to three founders, with early signals of demand such as waitlists or letters of intent.

A practical readiness checklist:

  • A clear problem. You can describe who has it and what they do about it today, in two sentences.
  • Evidence, not opinion. Interview notes, a waitlist, signed letters of intent or a few paying pilots.
  • Something to show. A prototype, a demo or a no-code version that works.
  • A team story. Why are you the people to build this? Investors are betting on you.
  • A use-of-funds plan. Not a vague list, but a budget tied to a milestone.
  • Clean basics. A registered company, a sensible split of shares between founders and no messy ownership loose ends. Our guide to your startup’s legal foundation covers the documents to have in order first.

If you tick fewer than four of these, spend another month or two on evidence. It is cheaper than a round of rejections.

Your pre-seed funding options

You have more routes than the venture capital headlines suggest. Funding at this stage usually comes from founders, family and friends, angel investors, crowdfunding and accelerators, or, rarely, venture capital, according to a UK-focused guide. Here is how they compare.

Your own savings and revenue

The cheapest capital in terms of equity is your own. Many indie hackers fund the first version from savings, freelance income or a day job, then raise only if the business needs fuel. If that is you, read our guide to bootstrapping in business before deciding that you need investors at all.

Friends and family

Pre-seed is often called a friends-and-family round, since it is frequently the first money from people close to the founder, while seed is the first funding from outside that circle. It is fast and flexible. It is also personal, so put terms in writing and be honest that the money could be lost.

Founder discussing an investment with her mother

Angel investors

Angels are individuals who invest their own money in early-stage companies, and they may also offer mentorship and industry connections. For most founders raising a first outside round, angels are the main route. The best ones have run or backed businesses like yours and can open doors that cash alone cannot.

Accelerators and incubators

Programmes typically offer a small investment, structured mentoring and a network in exchange for equity. They suit first-time founders who want structure and a built-in investor audience at demo day. Read the terms closely: the equity taken and the programme’s focus should match what you need.

Grants and crowdfunding

Grants and crowdfunding are also recognised pre-seed sources. Grants are non-dilutive, meaning you keep your equity, but they come with application effort and reporting. Crowdfunding doubles as market validation if your product appeals to consumers. Check each scheme’s own page for current eligibility and deadlines, since both change often.

Venture capital

Some funds do write pre-seed cheques, but it remains the exception. Expect them to want a strong team, a large market and a clear route to a big outcome.

SAFEs, convertible notes and priced rounds

Valuing a company with no revenue is guesswork. That is why deals are frequently structured as convertible notes or simple agreements for future equity (SAFEs), and why pre-seed funding is almost always raised with convertible instruments that let you raise without setting a firm valuation.

The terms you will see most often:

  • Valuation cap: the maximum valuation at which the investment converts into shares.
  • Discount: a percentage off the price paid by the next round’s investors, rewarding early backers.
  • Interest and maturity (notes only): a convertible note is debt that accrues interest and has a repayment date, which a SAFE does not.

The trade-off is simple. Convertible instruments avoid an early valuation argument and cut legal costs. But if you raise several of them on different caps, you can end up with a surprise at the next priced round, when they all convert and your ownership drops further than you expected. Model the dilution before you sign anything.

SAFEs are a US-born instrument, and UK investors using SEIS often prefer ordinary shares or the UK equivalent of an advance subscription agreement. Ask a startup solicitor which suits your investors and scheme, rather than copying a US template.

UK specifics: SEIS and why angels care

If your company is UK-based, the Seed Enterprise Investment Scheme is the single most important thing to understand. According to one UK legal explainer, SEIS gives investors 50% income tax relief on up to £200,000 invested per tax year, and a company can raise a lifetime maximum of £250,000 under it. The company tests listed there include gross assets of £350,000 or less immediately before the share issue, fewer than 25 full-time equivalent employees and a qualifying trade less than three years old. The investor must hold new ordinary shares for three years.

Why it matters to you: it lowers the effective risk of an angel’s first cheque, which makes a UK pre-seed round of a few hundred thousand pounds more achievable. Practical points:

  • Check your eligibility early. Raising money in the wrong form, or before you qualify, can ruin it for your investors.
  • Ask HMRC for advance assurance before you approach investors, so they know the company is likely to qualify. Details are on the official government pages, which are the place to confirm current limits, since they can change.
  • Keep the round size aligned with the SEIS ceiling if your investors are relying on it. Larger rounds often combine SEIS with its sibling scheme for slightly later-stage companies, so take advice on the split.

Tax relief rules are exactly the kind of detail to confirm with an accountant or solicitor before you issue shares.

How the pre-seed fundraising process works

Carta describes the process as setting up a cap table, developing a pitch and story, and building a targeted investor list, with most rounds taking several months. One stage-by-stage guide suggests allowing 12 to 18 months in total for the pre-seed fundraising timeframe, but treat any single number loosely: it depends on your traction and network.

A realistic sequence:

  1. Clean up the cap table. Know who owns what, including any promised options or advisors.
  2. Write the story. The problem, your solution, the customer, why now and why you.
  3. Build the deck. Short, clear and honest. Avoid the usual mistakes; our guide to pitch deck design and common errors goes through them.
  4. Make a target list. 40 to 60 investors who actually invest at your stage, sector and geography, ranked by fit.
  5. Warm up before you ask. Carta recommends meeting investors before you fundraise, getting to know fellow founders and learning market and valuation data. Founders who have already shared progress updates get faster yeses.
  6. Run a tight window. Take meetings in a concentrated period so that interest builds on itself.
  7. Close and document. Agree terms, use standard documents and have a solicitor review them.

If you want to hear how investors think, our investor stories are a good place to listen in before your first pitch.

Common pre-seed mistakes

  • Raising too early. Without evidence you are selling a story alone, and most investors will tell you to come back later.
  • Raising too much. Over-raising pushes up expectations and dilution. Raise enough for the next milestone plus a buffer.
  • Targeting the wrong investors. A fund that only writes seed cheques for revenue-generating companies will never say yes, however good your deck.
  • Skipping the legal basics. Messy founder agreements and unclear intellectual property are the most common deal-killers in due diligence.
  • Stacking convertible deals without modelling them. Do the maths on dilution before signing a second or third SAFE.
  • Going quiet after a no. Ask what evidence would change their mind, then send an update when you have it.

Our perspective

Most founders we hear from do not need a bigger round. They need a clearer one. The strongest pre-seed raises we see are short on slides and long on evidence: a handful of real customers, a prototype that works and a founder who can say exactly what the money will prove.

We built We Are Founders for indie hackers and early-stage founders who want practical, peer-driven advice without the fluff. Our view is that funding is a tool, not a trophy. Learn from people who have actually raised, bootstrapped or exited, compare notes with your peers and then choose the route that keeps you in control of your company.

That is why we curate tools, tactics and founder stories in one place. Whether you raise £50,000 from two angels or never raise at all, the decisions are easier when you can see how others made them.

the author

Find the tools and stories behind your round

Raising money is only one part of the job. We Are Founders brings together curated articles, tool comparisons and founder stories for people building at the earliest stage, from funding tactics to SEO and AI tools. Browse the We Are Founders glossary for plain-English definitions of the terms you will meet in term sheets, and if you build a product for founders, you can submit your tool for our directory.

Wearefounders

If you are watching costs while you raise, our list of free tools for bootstrapped founders will help you stretch the runway.

FAQ

What is the seed fund scheme?

In the UK people usually mean the Seed Enterprise Investment Scheme, or SEIS. It gives investors in very young companies 50% income tax relief on up to £200,000 a year, and a company can raise up to £250,000 under it in its lifetime, according to a UK legal guide. Check the official government pages for the current limits before you rely on them.

How much pre-seed funding should I raise?

Raise enough to reach the next milestone, plus a buffer. Most rounds fall between $150,000 and $1 million, with an average instrument of $276,000 as of Q2 2026, according to Carta. Work out your monthly burn, multiply it by 12 to 18 months and add a margin for slippage.

Do I need a product to get pre-seed funding?

Not always. Pre-seed investors mainly assess the founding team and the importance of the problem, as CRV explains. You still need evidence, such as customer interviews, a waitlist or letters of intent, and ideally a prototype that shows you can build.

What is the difference between pre-seed and seed funding?

Pre-seed funds an idea, prototype or early MVP. Seed funds a working product with early traction, and rounds are generally larger. Investors at seed also look for evidence of product-market fit and retention, not just a strong team.

Are SAFEs the only way to raise pre-seed funding?

No, but they are the most common. Convertible notes, equity from friends, family and angels, and accelerator deals are all used too. In the UK, ask a solicitor whether a SAFE, an advance subscription agreement or ordinary shares suits your investors and any SEIS plans.

Sources

Made with BabyLoveGrowth to get cited by Perplexity

pre-seed funding

Chris Kernaghan

Owner of We Are Founders, UX designer, husband, and dad. Got something you want to share with us? Reach out at hello@wearefounders.uk.