Getting pre-seed investments has, over the years, been a real struggle for potential businesses. But today, some investors are making a shift toward the notion that it is actually not only not a bad idea, but more beneficial than later-stage investing.
According to a recent article in Tech Crunch, one reason for this could be put down to the escalating chasm between “what founders are seeking at the seed stage and what the market is offering.”
Writing in SmallBiz Trends, Scott Shane gives readers his opinion on the “best way for angels interested in making pre-seed stage investments to put money into start-up companies.” His research led him to the belief that “investing in accelerator funds is better than joining an angel group.” Nonetheless it should be noted that when in 2005, business accelerators (groups which offer capital and counsel to pre-seed stage companies) were established, this led to angels moving their money from angel groups to accelerator funds. There were, Shane believes, three main reasons for this:
- lower valuations (the price that angels pay for their investments is much lower),
- diversification (diversification for angels is increased with this investment) and
- time (angels need to spend way less time when making this investment).
So what happens to companies that need to secure funding at this stage but run into so many roadblocks? According to Dima Kfouri, founder of the Outfitable, “It’s a bit of a catch-22 when early-stage start-ups need pre-seed investment to gain traction, but need to prove traction to gain pre-seed investment. It was a big challenge in the early days, which is why I’m thankful for NDRC’s Launchpad accelerator that gave us the needed support to get Outfitable up and running. The Irish start-up scene is small enough that you get to know it very well – all the players, all the support services, all the peers, etc. There are plenty of people to reach out to, and most are super accessible. In our line of work, it’s expected that you put in long hours and weekends. But our time is our most precious resource, and I feel it’s more important to be efficient, to work smarter rather than just harder. Learn and fail quickly, find efficiencies by measuring everything, find the low-hanging fruit and easy wins, and, most importantly, learn to prioritise. When a team is looking to you for leadership, that’s the most useful skill to have that allows you to delegate and manage everyone’s time wisely.”
Advice? Keep networking and look for companies and high net-worth individuals more likely to invest at the pre-seed stage.