Pre-Seed Funding

Every entrepreneurial venture will need some cash to get off the

ground. But where are you supposed to find that money? Hustle Crew, in this blog post, we’re going to give you some advice for the pre-seed funding phase of a startup. We’ll talk about what some different investment options are as well as how to utilize a variety of resources to send your venture into takeoff mode.

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All business ideas need some sort of capital to get off the ground. And usually, that money isn’t just lying on the floor, waiting to be picked up. You’re gonna need some pre-seed funding. Now, you’re probably thinking about adventure capitalists who have the money to put millions into one of their many startups without a second thought. But not all funding is this grand. In fact, it often starts with individuals close to the startup founder(s). These individuals are known as the Three Fs, consisting of friends, family, and “fools.”

The first two are quite self explanatory - after all, individuals close to you are probably more willing to help you out. But what exactly is a fool? No, it’s not someone you trick into giving you a ton of money for your company (thankfully!). A fool is just a term used to describe any other connection that doesn’t fall under either of the two previous categories, for instance a coworker or advertising partner. There are many benefits to getting funds from people within your network. Not only will you keep full ownership of your company, but they will share any success you find! This does go both ways though - if things don’t work out, it may feel like you let those close to you down. Don’t feel discouraged though - remember, it’s all part of a process. Success is created from the failures before.

Another commonly used method is crowdfunding. You might have heard of websites like GoFundMe, Kickstarter, or Indiegogo. All three of these sites are crowdfunding platforms that have a funding goal and time frame set. It’s also not uncommon for organizations using these platforms to offer perks to those donating a certain amount. However, a major drawback of using certain crowdfunding platforms is that they only provide payouts if the funding goal is reached within the given time frame. Otherwise, any donations made will be returned to donors, and the entrepreneur will walk away empty-handed. Additionally, all crowdfunding platforms take a small cut of each donation, which can be a significant chunk of money depending on the fundraiser’s goal.

GoFundMe is a very popular crowdfunding platform, being used for a variety of fundraisers and causes. This ongoing campaign is being conducted by the Leukemia and Lymphoma society, where the funds will go directly towards blood cancer research and support services.

However, it tends to be difficult to obtain high amounts of money through crowdfunding, and the more you raise, the more money the platform will take. If you're looking for a larger sum of money to get your venture started, a loan might be for you. While we are no legal experts, we can provide a basic rundown on the different types of loans:

• Bank loans typically are for high amounts of money and offer a variety of repayment terms. However, getting a bank loan for a newly-started business has many legal boundaries, especially without a good credit score.

• Government loans are available via the U.S. Small Business Administration's 7a loan program. While they also have strict requirements, they come with numerous benefits, including repayment terms that tend to be very flexible. 

• Other lenders, such as online platforms such as Upstart, offer a variety of loans for small business owners. These loans come with easier access and very high flexibility, but also frequently have higher interest rates when compared to bank or government loans.

  
  

This website provides a much deeper analysis of the various types of loans and how small business owners can find the loan they need.

Credit score is based on a multitude of factors, including your payment history, any money you currently owe, and the types of credit accounts you have. A score of 670 or above is considered "good" according to NerdWallet. Chart can be found here.

Other resources that startup founders use include both startup incubators and startup accelerators. Startup incubators are locally based organizations that provide a plethora of resources for entrepreneurs who are just getting started with a business idea. Experts within incubators are able to give guidance on developing the product or service in mind as well as provide legal consults, workspaces, and networking opportunities. Because most people turn to incubators without much development of their product or service, it typically takes entrepreneurs years to be able to fully reap the benefits of an incubator.

On the other hand, startup accelerators are for entrepreneurs who are already in the early or middle stages of their entrepreneurial journey. This might look like already having a fully built MVP (minimum viable product), or a robust plan to get one off the ground quite soon. According to the Harvard Business Blog, accelerators “compress years’ worth of learning and growth into the span of a few months.” Accelerators also provide funding in exchange for a certain stake in your company. AngelPad, an accelerator helping startups in regions such as the Bay Area and the Silicon Valley, makes offers such as $120,000 in funding for a 7% stake in your company (yep, just like Shark Tank!) Similar to incubators, accelerators also provide workspaces, connections to investors, and expert consulting for your startup. Sounds like a program that could really accelerate a business to the next level (get it?)

That’s all for this blog post, Hustle Crew - stay tuned for the next entry, featuring tips on how to come up with that killer business idea!

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About the Author

Brandon Yeh is an entrepreneur and student who currently resides in the Bay Area. In addition to working on his latest business ventures, he enjoys playing golf competitively and is an avid Bay Area sports fan.