How to prepare your startup for a seed or pre-seed funding round

A funding round is a structured process through which a startup or early-stage company raises financial resources from investors, generally in exchange for equity in the company or other financial rights depending on the type of investment. 

The capital raised serves different purposes depending on the stage of development of the project. 

• Pre-Seed. The business opportunity has been identified, and funding is sought to develop the concept, conduct market research, or build the initial team.
• Seed. The company typically already has a Minimum Viable Product (MVP) and a team actively working on the project. The focus is on acquiring early customers, generating initial metrics, and establishing the foundations for growth.

Funds may be allocated to different objectives depending on the startup's stage of development: 

• Developing a product or service. 
• Recruiting talent.
• Supporting growth or international expansion. 
• Consolidating the business model. 
• Achieving operational profitability.

It is important to emphasize that funding is a two-way relationship. Founders seek resources to reach specific business goals, while investors expect a return on their capital. 

Funding sources can vary considerably and may include family, friends and fools (FFF), particularly during Pre-Seed stages, as well as business angels accelerators, incubators, crowdfunding platforms, and venture capital funds.

Although these terms are often used interchangeably in the startup ecosystem, they do not mean exactly the same thing. 

• A funding round is the broader concept describing any operation through which a company raises capital, whether through investment, loans, grants, or other financing mechanisms.
• An investment round refers specifically to a transaction in which investors provide capital in exchange for ownership in the company.

The distinction becomes blurred because startup funding is often obtained through investment rounds that involve selling equity.&nbsp). 

However, the term funding is usually used as a general translation of the concept of funding, which includes both investment rounds and alternative financing options.

To put it in practical terms, all investment rounds are funding rounds, but not all funding rounds are investment rounds.

To help you quickly identify the correct term, keep the following in mind: 

• When a startup sells a portion of its equity: it’s an investment round.
• When it obtains a bank loan: it’s a financing round. The company takes on debt to raise capital.

In short, if you’re unsure, the key question to ask yourself is: What does the company give up in exchange for the money?

Funding rounds are generally classified according to the startup's stage of development: 

• Pre-Seed Round. Founders seek funding to validate an idea or develop a Minimum Viable Product (MVP). Investors are often family members, friends, or early supporters. &nbsp

• Seed Round. This is typically the first formal investment round aimed at developing the startup. Investors often include business angels and seed-stage funds. 

• Serie A. The company requires funding to scale and expand operations. 

• Serie B. At this stage, the business has typically stabilized and seeks funding to expand through new products, markets, or strategic initiatives.

• Series C and beyond. These involve more mature businesses with established brands seeking significant capital for international expansion, IPO preparation, acquisitions, or other ambitious growth objectives.

These rounds generally occur sequentially as the company evolves and usually involve negotiations between founders and investors regarding terms, rights, obligations, exit provisions, and governance structures.

Proper preparation can significantly influence the success of a fundraising process. Funding rounds not only provide capital but can also enhance credibility and give founders access to investor expertise, mentoring, and networks. 

The following ten steps will help you prepare effectively.

The first step is identifying why you need capital. Are you developing an initial product? Expanding internationally? Building a team?

At this stage, you should also consider which ESG (Environmental, Social, and Governance) policies you intend to implement, as these are increasingly important for impact-focused investors. &nbsp &nbsp

If you want investors to take your proposal seriously, you must clearly define how much capital you need. 

The credibility of your fundraising effort depends on demonstrating exactly what resources are required, how they will be used, and what investors will receive in return.

You must be transparent about what you are offering investors in exchange for their capital. The structure will vary depending on your venture. 

Possible options include: 

• Equity participation in the company. 
• Involvement in corporate governance. 
• Preferential access to products or services. 

An elevator pitch is a concise and compelling presentation explaining why your startup deserves investment. It should clearly communicate: The problem you solve, your value proposition, your competitive advantage, your target market. 

A useful exercise is to put yourself in the position of an investor and anticipate possible objections. Practising with friends, family members, mentors, or advisors can help build confidence and improve delivery.

The business model you present must be professional and robust. Investors need confidence that the plan is achievable.

It should clearly explain: 

• The project itself. 
• The solution being offered. 
• Differentiating factors. 
• The team and its capabilities. 
• The viability of the proposed roadmap. 

Just as you define a target customer, you should define a target investor profile. Look for investors with experience in your industry and a strong reputation.

You can start by exploring: existing personal networks, local investor groups, online investor directories, professional platforms such as LinkedIn. 

Do not overlook specialized networking events. They allow you to meet investors in person, increase your project's visibility, stay up to date with developments in your sector, and learn from successful entrepreneurs.

In addition to the elevator pitch we discussed earlier, establish a communication strategy built on clear and transparent language to keep investors and potential investors informed about your project's progress, milestones, and latest developments. 

Today, there are numerous tools available that allow you to automate investor newsletters with ease. Another option is to create a private podcast to communicate updates and company news.

Always be prepared to negotiate. This way, as soon as an investor expresses interest, you can respond quickly and efficiently. Keep key information readily available, including the total amount of investment sought, proposed terms and conditions, capital structure, and any other relevant provisions.

Although some aspects may need to be tailored later, being prepared will help you save time and project greater confidence.

The funding round is completed once the due diligence process has been successfully completed, the investment agreements have been signed, and the funds have been received. 

The process may take several months, which is another important factor to consider before launching an early-stage investment round.

Although we have not discussed it earlier in detail, avoid presenting your project publicly before ensuring that its intellectual property has been properly protected.

Finally, do not overlook the legal and regulatory requirements involved in raising investment, including the necessary contractual documentation, securities and financial market regulations, compliance obligations, investor protection requirements, and other relevant legal considerations. 

Navigating a funding round can be complex for many founders, which is why working with specialized venture capital firms such as Bolboreta Innova Group can provide a significant advantage. 

Through our Bolboreta Impulsa Venture Capital program, we place our experience and deep understanding of the investment ecosystem at the service of your project, supporting you throughout the entire fundraising process. 

Tell us about your needs and we will explore how we can help strengthen your project and accelerate its growth in the market.